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Anyone Planning on Reducing Distributions from IRAs If the Market Continues to Drop?
Old 12-07-2018, 07:00 PM   #1
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Anyone Planning on Reducing Distributions from IRAs If the Market Continues to Drop?

Thinking the RMD from my inherited IRA may actually decline next year if the stock market rout continues, despite subtracting a year from the divisor. I have been taking more than the RMD to smooth out the tax hit, trying to reduce it when my own IRAs come on line.

With a big drop in value, I will probably cut the withdrawals back to the RMD. A lot of the withdrawn money went to pay off the rental real estate debt so it won't mean dining on Friskies by candlelight under the overpass here, but I will bet there will be some belts tightened out there if this scenario comes to pass.

Anyone else looking at reducing withdrawals next year if the rout continues? Even if you do not reduce your withdrawals, will you reduce your spending?
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Old 12-07-2018, 07:07 PM   #2
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Iím already expecting the RMD to be lower for my inherited IRA and let Fidelity auto-withdraw proportionally (for me, early in Jan). Itís the ďstretchĒ approach that I think is still OK (?).

I donít have specific places to spend that money, but I try to spend it in a way the original owner would approve.
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Old 12-07-2018, 07:31 PM   #3
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I have my RMD's for next year planned $X for each of our sons, $Y for a religious institution, and $8K for a cruise. If there is anything left, I will move it to a taxable account.
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Old 12-07-2018, 10:35 PM   #4
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I already have the next two years income set aside in Money Market, so it will take more than two years to affect my withdrawals.
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Old 12-07-2018, 10:53 PM   #5
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Here is how I am going to fund 2019:

(1) My TSP (=401K) is all in G fund, which is guaranteed not to drop in share price. So, I'll continue getting the same equal monthly payments from there as I do now. These equal monthly payments are big enough to cover my RMD requirements. Also I have

(2) Social Security, and

(3) my mini-pension.

BUT - - most of my nest egg is in taxable accounts and usually I do withdraw from them each year. If the market worsens, I am already planning to not sell anything at all in those accounts except to rebalance.

I have plenty of cash on hand (because of not buying that SUV), so I plan to use that to supplement (1), (2), and (3), instead of selling anything. If the market gets really bad I will probably need some of that cash to buy low when I rebalance. Should be an interesting tightrope to walk.
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Old 12-07-2018, 11:00 PM   #6
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I am using a % remaining of portfolio concept, so each drop in the market causes a drop in my WR%. Still doing okay overall.
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Old 12-07-2018, 11:15 PM   #7
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Old 12-08-2018, 12:04 AM   #8
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Not exactly an RMD, but I plan to do IRA to ROTH conversions of stock, so the lower the price, the more shares that can be converted for the same tax bill.
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Old 12-08-2018, 02:48 AM   #9
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I'm not at the age where RMD's are a concern yet. Although I have enough cash set aside to get me through about 2.5 years with the regular quarterly dividend payouts, I don't plan on reducing withdrawals from my portfolio. My WR is only about 2%, which leaves a pretty good margin for comfort.
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Old 12-08-2018, 03:09 AM   #10
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I did not increase my spending when the market went up like mad.

Hence, I will not have to cut back when it goes down like mad. Not yet anyway, until it gets a lot worse.

If it gets a lot worse, I may claim SS before 70, and keep the spending the same.
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Old 12-08-2018, 03:32 AM   #11
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I haven't been paying very close attention to the market and there's not much I'd do unless we had a big crash that made me consider rebalancing my AA to be sure and take advantage of a likely recovery.

If I wasn't trying to keep income low to qualify for the ACA subsidy, I might be looking to convert a lot more of my tIRA to a Roth while it is lower. That would let the recovery happen in a tax free account, which is ideal.

If I were between 62 and 70 I'd be considering if this is a good time to start taking SS benefits, to limit selling stocks at a low for living expenses.

My WR is based on VPW, so if my balance is lower, my target withdrawal will be lower. My spending has been under that target anyway so I don't think it will really affect me.

Like I said, I don't know how much the market has dropped so I don't know if I'd be doing any of these things but I'd be considering.

IMO if you're taking more than RMDs and more than you need, you should be converting the extra to a Roth. If you are spending it all now, and looking at belt tightening, maybe that makes sense, but I thought most of the models say you can continue your spending in bad times since it will recover and you'll ride it out. If you started out with 4% (or some number) plus inflation, the gains of the last 10 years probably mean you're way ahead, and can easily weather this downturn. If my plan were starting to show cracks with what I think is a small downturn, I probably wouldn't have retired with so little buffer, but if you think it's really going to get bad, cutting back a little bit now is better than cutting back a lot later.
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Old 12-08-2018, 03:42 AM   #12
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Not exactly an RMD, but I plan to do IRA to ROTH conversions of stock, so the lower the price, the more shares that can be converted for the same tax bill.
Ditto. I just made my Roth conversion for 2018.

If the market stays down until January then I will make my 2019 conversion.
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Old 12-08-2018, 03:48 AM   #13
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....if the stock market rout continues...
What rout? VTSAX. Vanguard Total Stock Admiral, is up 1.22% for the last twelve months, down a whopping 0.25% YTD and up 10.28% for the last 3 years.
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Old 12-08-2018, 04:14 AM   #14
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What rout? VTSAX. Vanguard Total Stock Admiral, is up 1.22% for the last twelve months, down a whopping 0.25% YTD and up 10.28% for the last 3 years.
That was my impression. THought maybe I missed something. 10% off the high, which was probably just a spike.
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Old 12-08-2018, 04:36 AM   #15
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Not at the RMD stage yet, but anyway no plans to change anything.
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Old 12-08-2018, 05:48 AM   #16
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I haven't been paying very close attention to the market and there's not much I'd do unless we had a big crash that made me consider rebalancing my AA to be sure and take advantage of a likely recovery.

If I wasn't trying to keep income low to qualify for the ACA subsidy, I might be looking to convert a lot more of my tIRA to a Roth while it is lower. That would let the recovery happen in a tax free account, which is ideal.

If I were between 62 and 70 I'd be considering if this is a good time to start taking SS benefits, to limit selling stocks at a low for living expenses.

My WR is based on VPW, so if my balance is lower, my target withdrawal will be lower. My spending has been under that target anyway so I don't think it will really affect me.

Like I said, I don't know how much the market has dropped so I don't know if I'd be doing any of these things but I'd be considering.

IMO if you're taking more than RMDs and more than you need, you should be converting the extra to a Roth. If you are spending it all now, and looking at belt tightening, maybe that makes sense, but I thought most of the models say you can continue your spending in bad times since it will recover and you'll ride it out. If you started out with 4% (or some number) plus inflation, the gains of the last 10 years probably mean you're way ahead, and can easily weather this downturn. If my plan were starting to show cracks with what I think is a small downturn, I probably wouldn't have retired with so little buffer, but if you think it's really going to get bad, cutting back a little bit now is better than cutting back a lot later.
I have had to take RMD's from the inherited IRA for 11 years, including throughout the Great Recession. In the early years, I stuck with the minimum RMD or close, because the accounts dropped so much in 2007-2008. However, the RMD's have grown as the portfolio recovered and the remaining portfolio divisor dropped.

I was looking at the balance in the inherited IRA accounts after the market close and the impulse was to trim withdrawals next year back to the RMD. I don't need the money and the gut says preserve the capital, even though I know that I will be facing a higher tax bill in the future if I don't continue to smooth.

For someone that is largely dependent on their IRA for income, their gut may tell them to cut spending to the bone and withdraw only the minimum. In particular, people that have to take percentages in excess of 4 percent thanks to the IRS life expectancy table and are looking at smaller portfolios, thanks to the market decline and the loss of whatever they took out in 2018 from the nest egg, are probably looking at reducing their withdrawals to the minimum or close.

I think your advice is good for people that have multiple sources or possible sources of income and a substantial nest egg. For the folks that don't have that diversity of income and assets, the urge to cut will be very strong. No more Blow that Dough for some fraction of retirees by necessity and probably by choice for others.
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Old 12-08-2018, 07:58 AM   #17
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Not yet RMD age yet, but I would still have to take the minimal amount required. I won't be taking any of that money till I have too. The payments would be less if the markets haven't recovered by then which might be a good thing for me tax wise.

If I was in that spot this year, I wouldn't spend less or spend more. I have enough cash to ride it out through the bad times, for my life time, if I take SS. So the bad times are just a waiting game for me.
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Old 12-08-2018, 08:04 AM   #18
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I am using a % remaining of portfolio concept, so each drop in the market causes a drop in my WR%. Still doing okay overall.
Just curious, does this mean if your nest egg dropped by 50% you would take less than 50% of last years withdraw?

I'm not at RMD time year so like others I will be doing roth conversions. However, I hold most of my equities in a taxable account for tax efficiency. So I don't get the effect of the TIRA shrinking with the market (but my taxable accounts do). It does allow me to reduce embedded gains (not really great), but in some cases I get to harvest losses.
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Old 12-08-2018, 08:16 AM   #19
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Not at the RMD stage yet, but anyway no plans to change anything.

+1, same here.
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Old 12-08-2018, 08:22 AM   #20
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Just curious, does this mean if your nest egg dropped by 50% you would take less than 50% of last years withdraw?

I'm not at RMD time year so like others I will be doing roth conversions. However, I hold most of my equities in a taxable account for tax efficiency. So I don't get the effect of the TIRA shrinking with the market (but my taxable accounts do). It does allow me to reduce embedded gains (not really great), but in some cases I get to harvest losses.
I am using the % of remaining portfolio methodology along with the Clyatt rule.
Thus for example if I withdraw 45k (1.5mm*3%) in year 1 and the market drops 200k then year 2 I would withdraw 42.75k (45k*95%) instead of 39k (1.3mm *3%).

The Clyatt rule is actually 4/95 but I am using 3/95. This methodology is included as a choice in Firecalc.

Since I using it for the first time in 2019 and upping my WR% of 2.43% from 2018, even though my portfolio is down this year, I effectively get a one time overall bump next year at the current balances.

Hope I explained it okay.
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