Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Account Withdrawal Strategies
Old 01-28-2020, 03:14 AM   #1
Thinks s/he gets paid by the post
 
Join Date: Feb 2019
Location: St Pete
Posts: 1,227
Account Withdrawal Strategies

Hi all, planning to FIRE this year at age 46 (I do plan to have earned income but do not want to be dependent on it lest it become w*rk instead of pay to have fun and do what I want) and thinking about withdrawal strategies. Expenses are about 3.5% of my current portfolio. At age 60, I'll get a slight income boost from a small pension and will also be able to end my SEPP and have much more flexibility so my concern is to get to 60 with adequate liquidity. I'm comfortable with my overall withdrawal rate and am just trying to get to my money before 60 in the best (flexible/tax efficient) possible way. I also established a HELOC so I can borrow/defer cash flow needs for a couple years if needed but it is an insurance policy and not something I will plan to use.



The majority of my funds are in my TSP account and Roth IRA and I will have to start my SEPP of my TSP fairly early (probably between age 47-50) in order for taxable accounts to maintain balances to maintain liquidity. -Exact timing will depend on market performance and how my actual expenses and earned income in "retirement" play out. I intend to do RMD method as I expect the market to go up over the next 15 years and the payments should rise (ideally enough to cover all my expenses) as my balance increases and my remaining life decline.


I am planning for the first couple years of FIRE to live off my taxable accounts and earned income and by then I'll have a better idea of both my real post-employment expenses/desires and my income potential at which time I'll decide when to start the SEPP. If my taxable balances drop below some threshold/psychological tolerance, I will start to augment my withdrawals by pulling contributions from my ROTH and if I have to start a SEPP after contributions are depleted.

I have also thought of possibly returning to an "easy" job in my 50s so I can properly retire from federal service at age 57 (boosting my pension a bit and also being eligible for health benefits). I'd prefer my SEPP be from my TSP account vice rolling it over into an IRA (since they support SEPP by RMD); does anyone know if I have a SEPP and re-employ if they'll open another TSP account or if they'll break my SEPP with the automatic contribution to my existing account (I'd hate to be in the position of choosing to go back and breaking my SEPP or not - after 20-plus years working for the gov't do not trust HR to not screw things up.) Anyone here have experience/tried this?


Greatly appreciate your collective wisdom and would like your thoughts on my general plan and, especially, any alternatives you may suggest!


FLSUnFIRE
FLSUnFIRE is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-28-2020, 05:04 AM   #2
Thinks s/he gets paid by the post
DrRoy's Avatar
 
Join Date: Dec 2015
Location: Michigan
Posts: 4,939
At 46 I would not want to pull more than 2%/yr, maybe rising to 3% ten years later. Hang on to that earned income.
__________________
"The mountains are calling, and I must go." John Muir
DrRoy is offline   Reply With Quote
Old 01-28-2020, 05:49 AM   #3
Thinks s/he gets paid by the post
 
Join Date: Feb 2019
Location: St Pete
Posts: 1,227
Quote:
Originally Posted by DrRoy View Post
At 46 I would not want to pull more than 2%/yr, maybe rising to 3% ten years later. Hang on to that earned income.

Appreciate the thought but I'd really like strategies on maximizing flexibility in this thread. Non-discretionary spending (housing/food/medical/transportation) is under 2% of my invested asset... I tend to be conservative and suspect I'll be a skinflint the first few years as I get comfortable without my old income!
FLSUnFIRE is offline   Reply With Quote
Old 01-28-2020, 07:35 AM   #4
Thinks s/he gets paid by the post
zinger1457's Avatar
 
Join Date: Jul 2007
Posts: 3,221
Just remember if you start pulling money out of your TSP early you need to follow the 72t rules, once started you will have to continue taking those withdrawals for 5 years or until you reach 59.5, whichever is longer. If you let the TSP calculate the monthly withdrawal amount using Life Expectancy it will meet the 72t requirements but starting out (age 46) it will likely be well short of the 3.5% you need for expenses. Not sure how they would handle the TSP account if you went back to work. I know when you setup a 72t with an IRA account you're not allowed to add additional funds into that account, you can open a new IRA account and make deposits. I would assume the same would apply with the TSP, they probably would have to open a separate TSP account if you wanted to make contributions.
zinger1457 is offline   Reply With Quote
Old 01-28-2020, 09:24 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
I would start SEPP as soon as you retire to optimize penalty-free liquidity by having that money in taxable.

Then also do annual Roth conversions as soon as you retire to create a Roth withdrawal ladder after 5 years.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 01-28-2020, 11:27 PM   #6
Full time employment: Posting here.
Focus's Avatar
 
Join Date: Oct 2009
Posts: 640
Quote:
Originally Posted by FLSUnFIRE View Post
I expect the market to go up over the next 15 years
Counting on a best-case scenario? I'd rather hope for the best, but prepare for the worst.
__________________
-
"Wealth consists not in having great possessions, but in having few wants."
--Epictetus
Focus is offline   Reply With Quote
Old 01-29-2020, 04:40 AM   #7
Thinks s/he gets paid by the post
 
Join Date: Feb 2019
Location: St Pete
Posts: 1,227
Quote:
Originally Posted by pb4uski View Post
I would start SEPP as soon as you retire to optimize penalty-free liquidity by having that money in taxable.

Then also do annual Roth conversions as soon as you retire to create a Roth withdrawal ladder after 5 years.
Thanks, soon is my thought but there are two issues/concerns I have. One, I would like to stay in TSP but I'm pretty sure if I decide to get rehired in any federal agency, they will stop my WD and bust my SEPP so I am really burning the bridge on every working for the federal gov't again. Of course, I could roll it over and start the SEPP in an IRA to mitigate. The other, is depending on how much I earn after "retiring" I may want to manage my income so stay under ACA tax credit threshold. I can't go too long though or I will deplete my cushion of after tax investments.

I think waiting till I decompress/see where I am in FIRE after 12-24 months may allow me some time to decide without burning too much AT funds while I feel out myself on the other side.
FLSUnFIRE is offline   Reply With Quote
Old 01-29-2020, 04:42 AM   #8
Thinks s/he gets paid by the post
 
Join Date: Feb 2019
Location: St Pete
Posts: 1,227
Quote:
Originally Posted by Focus View Post
Counting on a best-case scenario? I'd rather hope for the best, but prepare for the worst.
No. Of course, if I really thought the market would (vice could) go down for the next 15 years I wouldn't invest in it... would any of us?!
FLSUnFIRE is offline   Reply With Quote
Old 01-29-2020, 04:44 AM   #9
Thinks s/he gets paid by the post
 
Join Date: Feb 2019
Location: St Pete
Posts: 1,227
Quote:
Originally Posted by zinger1457 View Post
Just remember if you start pulling money out of your TSP early you need to follow the 72t rules, once started you will have to continue taking those withdrawals for 5 years or until you reach 59.5, whichever is longer. If you let the TSP calculate the monthly withdrawal amount using Life Expectancy it will meet the 72t requirements but starting out (age 46) it will likely be well short of the 3.5% you need for expenses. Not sure how they would handle the TSP account if you went back to work. I know when you setup a 72t with an IRA account you're not allowed to add additional funds into that account, you can open a new IRA account and make deposits. I would assume the same would apply with the TSP, they probably would have to open a separate TSP account if you wanted to make contributions.
I'm pretty sure I'm SOL if I want to remain in TSP and have the possibility of going back into federal service. After more digging, it looks as any rehiring would result in discontinuation of the periodic payments so I'd be busted by that regardless of any automatic contributions (that would also bust it).
FLSUnFIRE is offline   Reply With Quote
Old 01-29-2020, 04:58 AM   #10
gone traveling
 
Join Date: Jan 2019
Location: NW Ohio
Posts: 1,156
I didn't see any mention about your plans for health care (until you potentially earn government benefits at 57 from your Federal service). You never know what situation will arise, that all of a sudden, you are incapacitated, and hospitalized...(an uninsured drunk ran a stop sign into the side of my car, I spent 6 months off work learning to walk again).
ckelly78z is offline   Reply With Quote
Old 01-29-2020, 05:14 AM   #11
Thinks s/he gets paid by the post
 
Join Date: Feb 2019
Location: St Pete
Posts: 1,227
Quote:
Originally Posted by ckelly78z View Post
I didn't see any mention about your plans for health care (until you potentially earn government benefits at 57 from your Federal service). You never know what situation will arise, that all of a sudden, you are incapacitated, and hospitalized...(an uninsured drunk ran a stop sign into the side of my car, I spent 6 months off work learning to walk again).
It wasn't really germane to my question of strategies for liquidity. I'll likely do a post on my expenses/projections at some point. I've been tracking every dollar since 1998 so I have a pretty good handle on my spending.

My projected expenses are based off the full cost of an ACA plan plus maximized annual contribution to my HSA which is already funded with 3-4 years of max out of pocket under the plan I would buy ("off-balance sheet" and not counted in my assets for withdrawal calculations). At my spending level, I should be able to manage my income to get the credit as long as it lasts but I am not planning on it.

If something catastrophic happens to me, I'll be darn glad I didn't die as an employee in a job I can barely stand anymore. I take good care of myself and am fortunate to be in very good health and expect my healthy lifestyle to increase when not limited by the time and energy left after working FT. I am currently going through the gamut and making sure everything is good medically prior to resigning.
FLSUnFIRE is offline   Reply With Quote
Old 01-29-2020, 06:00 AM   #12
Recycles dryer sheets
 
Join Date: Jan 2011
Location: Hilton Head Island
Posts: 325
You may want to consider rolling over just a portion of your TSP into an IRA, and begin SEPP on just the portion you roll over. You then have flexibility to do another portion in the future if you need the funds...to handle things like inflation, or chunky expenses that come up.

Rather than doing the SEPP on the entire account, this give you the option of doing things in 5 year chunks without penalty. Once you start the SEPP on the full account, this penalty free option may disappear...until you are 59.5 when the penalty disappears.
levindb is offline   Reply With Quote
Old 01-29-2020, 07:54 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
Quote:
Originally Posted by FLSUnFIRE View Post
I'm pretty sure I'm SOL if I want to remain in TSP and have the possibility of going back into federal service. After more digging, it looks as any rehiring would result in discontinuation of the periodic payments so I'd be busted by that regardless of any automatic contributions (that would also bust it).
What if you were rehired but did not participate in the TSP? Would that bust it?

Or if you were rehired but as a contractor?
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 01-29-2020, 08:41 AM   #14
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Location: Upstate
Posts: 2,944
Another (slightly off topic) comment: You mention setting up a HELOC as an emergency source. While this works on an individual basis, note that it may note (probably will not) work in terms of an overall economic downturn. Many people with HELOCs found them frozen when housing prices collapsed (almost all HELOC agreements give the lender the ability to terminate new withdraws on the line of credit at their determination).
copyright1997reloaded is offline   Reply With Quote
Old 01-29-2020, 09:28 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 7,863
You can certainly do a SEPP on a traditional IRA using the RMD method of calculation. I'm not sure why you might think that isn't possible, but it is.

That should unblock you from your fear about returning to federal service and having your TSP SEPP busted.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is offline   Reply With Quote
Old 01-29-2020, 02:26 PM   #16
Thinks s/he gets paid by the post
 
Join Date: Feb 2019
Location: St Pete
Posts: 1,227
Quote:
Originally Posted by pb4uski View Post
What if you were rehired but did not participate in the TSP? Would that bust it?

Or if you were rehired but as a contractor?

I believe they would stop the withdrawals regardless when my SSN hit as an employee so that would bust it; also, there is no provision I know of to refuse the 1% agency automatic contribution either so that would bust it too. I certainly don't trust anyone in HR to process my requests correctly anyway, especially with the stakes so high.



Not being an employee, working for a contractor, would have no bearing on TSP.


As I mentioned by a few others, I could roll it over but I like that TSP will report the distribution as qualified and I'd really like that piece of mind that I'm good with the 72(t) rules! -Also, their expense ratio is hard to beat.


I doubt there is a great solution but still hoping for a eureka moment of finding a new strategy! (I did get smart and end my contributions over employer matching so I'm not throwing more money into the "can't touch it" pile this year).
FLSUnFIRE is offline   Reply With Quote
Old 03-29-2020, 06:03 PM   #17
Full time employment: Posting here.
 
Join Date: Oct 2007
Posts: 621
I too am trying to set a withdrawal plan for starting June 2021 at age 65.

I plan to follow the Retirement withdrawal Plan calculated on Fidelity Website - Planning & Advice (All Vanguard Funds). I have a 50/50 AA, even after recent Market Downturn by buying on down days.

After playing around with Firecalc & some other Retirement Planning softwares, I found Fidelity's Plan roughly about the same as any out there, so I have hung my hat on Fidelity withdrawal Plan, at least for the Bridge Plan from 2021 to 2026 when I start Social Security.

Please help me as I have few questions in my mind -

1) I think I am right at picking today's dollars vs future dollars in the input ?
as I can see the withdrawal sum increase every year in the analysis, i.e inflation is being factored in.

2) I have 50/50 AA in the input, I presume it is taking the same AA in its calculations going forward thru the years.

3) No idea the accounts from which withdrawals need to be drawn - Either VTSAX in taxable or VBTLX in Tax Deferred.
I presume they mean approximately equal sums from each, so that 50/50 is being maintained ?
Although, I am planning Roth conversions into VTSAX till age 72 which will tend my Portfolio towards equities

What do you think of my withdrawal plan ?
Do you see any holes or aspects which I missed ?

Please advise
rkser is offline   Reply With Quote
Old 03-29-2020, 06:16 PM   #18
Moderator
sengsational's Avatar
 
Join Date: Oct 2010
Posts: 10,622
Concerning #3, you might be thinking inside the box a bit; I'd have equities and bonds in both buckets. You might consider pulling from after tax or tax advantaged accounts strictly on the tax consequences. Typically that would have you pulling (or Roth converting) up to some level that made your tax rate now about the same as later in your retirement. But for spending money, maybe you'd be forced to "sell low" since you have equities in after tax. But the solution is to set and maintain your asset allocation targets across all tax buckets. So you might have to sell equities in your after tax account, but the same day you buy equities in your tax advantaged account. Since you essentially sell to yourself, you didn't have to '"sell low" (presuming the bonds you sold to fund the equity purchase weren't down too much)
sengsational is offline   Reply With Quote
Old 03-29-2020, 08:13 PM   #19
Full time employment: Posting here.
 
Join Date: Oct 2007
Posts: 621
Yes that is definitely one way to do, thanks.

Essentially this means the Stocks in Taxable & Bonds in tax deferred is out the window now. I guess this was preached to defer the Taxes on the dividends, during asset building.

Anyone else chose bonds in Taxable ? ( except in Target Date Funds )
Maybe thinking changes during asset depletion phase. I am trying to wrap my mind around this, although it will make things easier in some ways but as a preferred tax approach, I am not sure.

I will consider it as among the alternatives available.
rkser is offline   Reply With Quote
Old 03-29-2020, 08:46 PM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
Quote:
Originally Posted by rkser View Post
....Essentially this means the Stocks in Taxable & Bonds in tax deferred is out the window now. I guess this was preached to defer the Taxes on the dividends, during asset building. ....
Not necessarily.

Say you have $2,000k.... 20% in taxable and 80% in tax-deferred and a 60/36/4 AA... so at the start you have 80k/4% cash and $320k/16% stock in taxable and $800/40% stocks and $800k/40% bonds in tax deferred.

The year ends and returns have been nil, so you have $1,920k.... having spent the $80k in cash on living expenses during the year.

You need another $80k of cash for spending for the next year so you sell $80k of stock... leaving you with $80k/4% of cash and $240k/12% stocks in taxable and $800/42% stocks and $800k/42% bonds in tax deferred... but with an overall AA of 54/42/4 and you want it to be 60/36/4.

So you then sell $115k of bonds and buy $115k of stocks in your tax deferred account.... leaving you with $80k/4% of cash and $240k/12% stocks in taxable and $915/48% stocks and $685k/36% bonds in tax deferred... but with an overall AA of 60/36/4.

Rinse and repeat each year. I've been doing something along those lines for teh last 7-8 years.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
VG: dynamic withdrawal strategies Onward FIRE and Money 7 01-21-2011 03:31 PM
Portfolio withdrawal strategies compared DblDoc FIRE and Money 3 11-19-2008 12:28 PM
Are Asset Allocating Withdrawal Strategies a Reliable Retirement Funding Method? haha FIRE and Money 51 10-15-2008 08:01 AM
Variable Withdrawal Strategies chinaco FIRE and Money 2 03-11-2007 01:17 PM
Marketwatch Article on Withdrawal Strategies JLP FIRE and Money 11 04-26-2006 07:55 AM

» Quick Links

 
All times are GMT -6. The time now is 01:34 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.