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Old 11-24-2012, 12:13 PM   #21
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Just curious on how folks access their cash in retirement. Assuming all money is initially allocated across a handful of mutual funds, do you make monthly, quarterly, or annual withdrawals to support yourself? Also, how do you deal with the accounting tax issue of cost basis. Seems it would be a headache if done on a monthly basis with a % from each fund.

Interested on what works out there.
I make annual withdrawals from my taxable accounts, which are all in mutual funds at Vanguard. Afterwards I rebalance my portfolio and then do not withdraw any more for the rest of the year.* Vanguard figures out my cost basis.

I get equal monthly payments from my TSP account, though. TSP is like a 401K. Withdrawals are taxed, and cost basis is not required.


*(Edited to add details to make this clearer: Dividends from my taxable accounts are directed to a Vanguard money market account, and also I never withdraw more than the previous year's dividends. My entire withdrawal is from that Vanguard money market account, to my bricks-n-mortar bank savings account. I still need cost basis information due to my rebalancing transactions, so I get that from Vanguard).
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Old 11-24-2012, 12:30 PM   #22
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My dividends and some gains go into a 'holding' money market. Then I make a big withdrawal twice a year to cover expenses.

The holding fund eliminates the stress of cashing out an actual equity during a down or high market.
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Old 11-24-2012, 12:31 PM   #23
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One reason I like being able to take my dividends as cash is that it becomes possible for me to avoid making any sales/redemptions of my holdings and therefore not have to complete a Schedule D (and more recently, that annoying extra cap gains form). In 2011 that finally happened so all I had to do was to post my cap gains distributions from mutual funds and check that little box on the 1040 form, saving me a decent amount of time and effort at tax time. I made some redemptions in 2012 so I will have those extra forms next time.

Most of the rebalancing I do is in my IRA so that doesn't trigger any taxable cap gains.
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Old 11-24-2012, 01:01 PM   #24
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Also, how do you deal with the accounting tax issue of cost basis. Seems it would be a headache if done on a monthly basis with a % from each fund.
I let Vanguard do the calculations for me so it is easy enough.

A couple of weeks ago we were talking with a couple we've known a long time and they told us about an issue they'd had this year. He is a procrastinator and as usual had left the tax filing until the last day. When he filed using TurboTax it failed with an error that the number of stock trades had exceeded the TurboTax limit. When he called them they admitted that the software couldn't handle the volume of trades that he had done and offered to give him a refund.

He was panicking until he found an Excel macro on-line that could consolidate multiple trades on a given day into a single transaction. By the time he gone through consolidating all the transactions he could, he was below the software limit and his filing went in 90 minutes before the deadline.
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Old 11-24-2012, 05:55 PM   #25
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I let Vanguard do the calculations for me so it is easy enough.

A couple of weeks ago we were talking with a couple we've known a long time and they told us about an issue they'd had this year. He is a procrastinator and as usual had left the tax filing until the last day. When he filed using TurboTax it failed with an error that the number of stock trades had exceeded the TurboTax limit. When he called them they admitted that the software couldn't handle the volume of trades that he had done and offered to give him a refund.

He was panicking until he found an Excel macro on-line that could consolidate multiple trades on a given day into a single transaction. By the time he gone through consolidating all the transactions he could, he was below the software limit and his filing went in 90 minutes before the deadline.
Ouch! I've had about 3 pages each of long and short term gains. Never realized there was a limit. Most of the numbers are a simple download, so it's not too hard to do.
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Old 11-26-2012, 12:52 PM   #26
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I typically drive up to an ATM. That, or DW hands me some.
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Old 11-27-2012, 04:26 PM   #27
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I have $$ from both taxable and IRA's deposited monthly in my checking account. I have taxes (both Federal and State) withdrawn from the IRA transfers.

My goal is to draw down my IRA's first, then taxable and finally Roth. Hopefully, I will never get to the Roth funds and leave them to the kids. But if a nice cruise is in the offing, out come Roth funds
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Old 11-27-2012, 06:27 PM   #28
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So far, we are living on DW's take home pay and my dividends and cap gains, which are directed to a MMF.

As a follow up question - how much do other retiree's keep in cash (to cover living expenses). By cash, I mean bank accounts, MMF, under the mattress - but not short term bonds, not cash postions in mutual funds, etc. I'm not looking for a dollar amount, just the number of months/years of expenses. We have a little over 2 years worth of living expenses easily accessible, but that seems high to me.
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Old 11-27-2012, 06:30 PM   #29
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From someones else's account would be perfect!
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Old 11-27-2012, 08:32 PM   #30
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As a follow up question - how much do other retiree's keep in cash (to cover living expenses). By cash, I mean bank accounts, MMF, under the mattress - but not short term bonds, not cash postions in mutual funds, etc. I'm not looking for a dollar amount, just the number of months/years of expenses. We have a little over 2 years worth of living expenses easily accessible, but that seems high to me.
I use I-Bonds as cash and have about 4 years worth of withdrawals. (my pensions currently cover about 70% of my expenses).
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Old 11-27-2012, 08:47 PM   #31
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Originally Posted by Packman View Post
As a follow up question - how much do other retiree's keep in cash (to cover living expenses). By cash, I mean bank accounts, MMF, under the mattress - but not short term bonds, not cash postions in mutual funds, etc. I'm not looking for a dollar amount, just the number of months/years of expenses. We have a little over 2 years worth of living expenses easily accessible, but that seems high to me.
My target is about 18 months to 2 years.
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Old 11-27-2012, 10:30 PM   #32
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So far, we are living on DW's take home pay and my dividends and cap gains, which are directed to a MMF.

As a follow up question - how much do other retiree's keep in cash (to cover living expenses). By cash, I mean bank accounts, MMF, under the mattress - but not short term bonds, not cash postions in mutual funds, etc. I'm not looking for a dollar amount, just the number of months/years of expenses. We have a little over 2 years worth of living expenses easily accessible, but that seems high to me.
Because my portfolio generates a monthly dividend which is more than enough to cover my monthly expenses, I keep only enough cushion in my local bank's checking account to meet minimum balance requirements (to avoid fees) with a little bit more in case something small unexpectedly arises in a given month. That cushion is about $500-$750. I don't like keeping any significant amount of cash earning zippo interest, especially when I have new money coming in every month, some of which (the excess) ends up getting reinvested anyway.
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Old 11-27-2012, 11:53 PM   #33
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So far, we are living on DW's take home pay and my dividends and cap gains, which are directed to a MMF.

As a follow up question - how much do other retiree's keep in cash (to cover living expenses). By cash, I mean bank accounts, MMF, under the mattress - but not short term bonds, not cash postions in mutual funds, etc. I'm not looking for a dollar amount, just the number of months/years of expenses. We have a little over 2 years worth of living expenses easily accessible, but that seems high to me.
Thanks for defining what you mean with such care so that we know what to include. According to my plan, 5.5% which is a little over 3.5 years at my present rate of spending.*

* I know, I need to spend more and I am working on that (with the enthusiastic cooperation of my dentist, Hurricane Isaac, and who knows what next)
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Old 11-28-2012, 09:22 AM   #34
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I am not withdrawing from tax-advantaged accounts yet, but I do withdraw from taxable accounts.

First, I do NOT automatically re-invest dividends, but take them in cash. That gives payouts 4 times a year or every 3 months.

Then if I need additional cash, I look to see what I can sell with the least tax impact which usually means the shares with the highest cost basis or even shares with losses.

Then if I need to rebalance to get back to my desired asset allocation, I move some things around in tax-advantaged accounts where buying/selling are not affected by tax considerations.
Exactly what we do. I've only been retired for a year and a half, so I can imagine having to reinvest dividends at times, but there's no difference in tax impact in our taxable accounts - so easy peasy...
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Old 11-28-2012, 10:00 AM   #35
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We keep about 1 year of basic expenses in cash and another 2 years in short-term bond fund. Like many other posters, we take all dividends and capital gains distributions from our taxable accounts in cash rather than reinvesting. This plus DH's pension and SS covers about 60% of our basic expenses (I'm not yet drawing my pension).

We have had a lot of "non-basic" expenses since ER: college tuition (last payment made!), some expensive (and wonderful) travel, and our real splurge just yesterday - our new motorhome. To cover those, we have liquidated several smaller taxable mutual fund accounts, which has the desirable effect of simplifying our portfolio.
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Old 11-28-2012, 10:34 AM   #36
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In our case, being both retired, pre-SS/pension (DW has two small pensions starting in seven months) and withdrawing all our retirement income from tax advantaged funds (e.g. TIRA's), it's quite easy.

We have MM accounts set up in both FIDO and VG to cover 3-4 years of our expected retirement expenses which also includes tax due on our withdrawls.

We have auto-transactions set up to make a withdrawl, pay estimated taxes, and deposit the remaining in our personal bank accounts each month.

In mid-November, I get the updated Turbo Tax software for the current year and plug in the actual withdrawls/taxes paid for the period Jan-Nov. Based upon the result (my target is to have $50+/- FIT), we will adjust our taxes for the December withdrawl to ensure we meet our tax goal.

We've been doing this for more than five years, and it has worked out well, with really no problems.

IMHO, it only needs to be as complicated as you wish it to be ...
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Old 11-28-2012, 01:47 PM   #37
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This is a very interesting thread. I have a pension which covers most of my living expenses. To cover the rest, I have a portion of my portfolio generating income which goes directly into my bank account. So far, this has made up the difference with a cushion. Meanwhile, for the rest of my portfolio, I am still reinvesting distributions into the investment vehicle (mostly mutual funds). At some point in the future, I'll probably have to gradually start taking more of these in cash.
And I have a years of living expenses in a bank account.
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Old 12-01-2012, 03:27 AM   #38
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My money is in 401K, ROTH and Taxable. I plan to take first from the 401K so when I am 70 my RMD is smaller. The RMD is going to be enough to live on so I will let the ROTH and taxable ride unless I need money. I hope to keep my RMD small enough to avoid making SS taxable so if it is I will not withdraw excess at least not every year. The additional money needed for emergencies, a new car or whatever will be the ROTH money. Taxable will be saved for last since if I die with leftover money it gets a stepped up basis, I will spend the dividends since that is a small amount and I have to pay the taxes on it anyhow.
I plan to make two distributions a year from the 401K spring and fall when my property taxes and car insurance are due, other than those and emergencies I can live on SS and rental income.
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Old 12-01-2012, 06:40 AM   #39
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@oldwoman, Roth IRAs are much much better to pass on to heirs than a taxable account, so many folks believe they should be spent last. Roth IRAs have no need for step-up basis and will have no taxes even after your heirs receive them, so much better than inheriting a taxable account. And to get big Roth accounts to pass on, one should convert a bit of 401(k) every year to a Roth IRA. That will reduce RMDs, increase Roth IRA, and a couple of other benefits. If one is converting, one should live off of taxable first.

Living off of taxable reduces your taxes while you are alive, too, since return of capital is tax-free.

So I'm writing that you may wish to reconsider your withdrawal scheme.
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Old 12-01-2012, 07:38 AM   #40
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I have direct deposit to checking of pension and 401k distributions. Dividends go to money market account I use for sinking fund for large planned and unplanned expenses. a significant portion of pension/401k also goes to sinking fund.
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