Best method of withdrawing money?

[NanoSour]

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.


Nano

 

[brewer12345]

I get it all in hundred dollar bills, stuff it in my underwear, and whenever I have an expense I make a withdrawal.

 

[imoldernu]

I like the subject.
Since we have no funds under management, it's pretty easy.

First of all, we use credit card for 80% of bills, and a checking account, local bank.
For withdrawals from IRA CD's, fill out, sign and mail a form to the bank. (no Faxes), and have the money deposited into a CD Money Market at the same bank. From there, it's an online transfer to the checking account in our bank or other bank as needed. Have to do a one time initial set up in advance for this. (usually $3000 to $5000 in these accounts which earn no interest). Also have US Bonds, which can be cashed at any bank.

Am sure there are better ways of handling withdrawals, so I look forward to hearing from others. If there's an easy way to use investments in equities or mutual funds, for short term money managing I might go back.

Desperate situations... dig up the coffee cans of Susan B Anthony Dollars.

Re: taxes: Am reminded of many years ago, when enlisting franchise dealers for business, the office mantra was... "Join Up...Never Pay Taxes Again."

 

[LOL!]

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.

So in case you missed it: I am happy to sell things at a loss in my taxable account and do not wait for them to recover if I need money.

 

[NanoSour]

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.

So in case you missed it: I am happy to sell things at a loss in my taxable account and do not wait for them to recover if I need money.

Haven't thought about all this, but seems like a very logical way to manage the money in a tax advantaged way.

Thanks

 

[martyb]

My pension payment will be deposited electronically into my checking account at the first of each month.

I will establish equal monthly withdrawals from my TSP(401k) account at the beginning of each year, which will also be deposited electronically into my checking account each month.

If I/we happen to need/want any funds from my/our Roth IRA(s), I'll/we'll deal with that on a case by case basis.

Wife will work at least 3 more years, so we won't have to worry about how to withdraw from her 401k for awhile yet.

 

[Major Tom]

I have about 4 years worth of expenses in cash in a savings account. In my taxable accounts, the dividends are paid automatically every quarter into the same savings account. Every month I "pay myself" the same amount from that savings account, by transferring my monthly "salary" into my checking account.

I have only been semi-retired/retired for a couple of years but at some point in the next 5 years, will need to sell some stocks and/or funds from my taxable accounts to build up some more cash reserves. I'll wait for a few more years before thinking about exactly how to do that.

 

[scrabbler1]

I take my monthly dividends from one big bond fund I own in cash. It used to be 2 but I had to tweak things a bit recently. I reinvest everything else left over.

 

[obgyn65]

The payments of interest from CDs and munis from Edward Jones are automatically paid into my bank account.

 

[ejman]

For the last 10 years of early retirement I have had all distributions (Dividends and Capital Gains) from my taxable funds deposited directly to a money market fund from which I transfer to checking account as needed. The last 3 years with the drop in dividends from bond funds I've had to sell a bit of equities which is fine as part of my rebalancing as I get older (currently 62). I also have those funds deposited to MM fund. I typically sell the equities when my balancing band limit is exceeded.

 

[John Galt III]

When the time comes, after age 59 and a half, I plan to make "Systematic Withdrawal Payment (SWPs)" from my 401k on a monthly basis, into my savings/checking account. Apparently there are no fees to do this, and can be set up with a phone call to the 401k rep.

 

[easysurfer]

At the begining of the year, during my rebalancing, I allocate enough in a MMF to withdraw monthly for automatically deposit to my checking. I like monthly for the simple reason that this frequency tricks me into thinking that the amount is a paycheck like the days of w*rk.

 

[martyb]

Forgot to mention that I'll probably begin the montly withdrawals from my TSP/401k at around age 55 or 56.

 

[Animorph]

I leave all distributions as cash. I sell as needed throughout the year, using it to rebalance, including adding to any funds that have dipped too low. If the portfolio exceeds expectations (hits an end of year target early) I'll sell the excess and have a start on a future year's expenses. It's all happened within the last 5 years.

 

[pb4uski]

This is my first year doing this so it is a bit of a work in progress. I have about a year of expenses in an online savings account (paying .8%) that I have an automatic transfer to my "regular" bank account that I pay my bills out of. I also keep about another year of expenses in a short term investment grade bond fund in my taxable investments.

The plan is to take dividends in cash and add to the short term bond fund as needed when rebalancing. Once the online savings account is depleted I'll probably ditch it and just use the short term investment grade bond fund as my liquidity bucket.

 

[Koolau]

When I need cash, I ask for electronic transfer from accounts to my checking account. Process is 2 to 4 days.

 

[donheff]

I have been doing a bit of low level market timing with my withdrawals and have no clear idea whether it has made sense or not. I have a large cash equivalent bucket in the TSP G fund but I don't directly pull from it because I don't want to tap tax advantaged funds yet. If we have a bad year I will convert some of the G fund to equities and pull an equivalent amount from taxable equities. What I have done the last couple of years is liquidate equities in taxable when I think the market is at a temporary peak and move it to a MMF from which I auto transfer to checking the first of each month. So, for example, this year I liquidated some funds in August (at what turned out to be a high around Down 13500 but could easily not have been a high). That provided enough cushion for the rest of 2012 and several months into 2013. If the fiscal cliff gets enough of a fix that markets stay where they are or higher I will pull out enough for the remainder of 2013 when I rebalance in late December. If we take a tumble I will hold off cashing out until later in 2013 when the markets recover. If the markets don't recover I will scratch my head and muddle through, withdrawing when I must and adjusting my numbers.

Edit: I run my calculations on SWR on January 1 each year regardless whether I liquidate near then or not. So far I have been using 3.5% and have returned about 20% of that to savings each year (rainy day fund). That rainy day fund is just a number I account for and subtract from the portfolio when running SWR numbers.

 

[Alan]

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.

So in case you missed it: I am happy to sell things at a loss in my taxable account and do not wait for them to recover if I need money.

This is what I do except, so far, the dividends have been sufficient. I have non-COLA pensions so withdrawals from investments will make up an increasing spending gap, depending on inflation.

 

[Lsbcal]

My rebalance plan is to sell 1% when equities move above my top level AA. Historically this has been just about enough to fund our cash needs (4% or so of portfolio) while keeping the AA in balance. This depends on market dynamics so if the market is not moving up, I'll just sell every few months from a short term bond fund in a retirement account -- a taxable event. This year the market moved up enough to fund only about 2/3 of the cash needs.

The money moves from a short term bond fund through electronic funds transfer to a local bank checking account.

 

[Onward]

Once per year I move a year's supply of $$ from my investment accts to a short-term bond fund (VBISX). Once per month I move a month's worth of $$ from the bond fund to my checking acct. I pay for things with cash as much as possible. I feel it helps me keep my spending in check.

 

[W2R]

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).

 

[marko]

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.

 

[scrabbler1]

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.

 

[Alan]

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.

 

[Animorph]

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.