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Books/Recommendations for withdrawing $..when the time comes.
Old 01-20-2012, 09:18 AM   #1
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Books/Recommendations for withdrawing $..when the time comes.

I'm still in the accumulation phase of my retirement planning but very interested in putting together a plan for when the time comes to start withdrawing money...

Most of the books i read are all about picking stocks, paying off debt, asset allocation, insurance, yada, yada, yada.

Here's where i am:
38 ~ Married ~ Two kiddo's
Mortgage and all debts paid off.
College funded.
3/4+ way to having my planned retirement funded.

So...I could turn all this over to someone else to handle, but i've done it all myself so far and would like to continue.

Does anyone have any recommended reading that can explain how to stage, and begin withdrawing money when the time comes. Accounts to use first, when a professional is required, and any other details that would help me put together a good plan for how to handle this money when the time comes.

Thanks,
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Old 01-20-2012, 09:27 AM   #2
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I don't have and answer but I'm really glad you asked. I just started dealing with "distribution" and still haven't formulated a plan as solid as I had during accumulation. Here's a related thread Looking for The Four Pillars of Retirement Income, but I'm looking forward to the replies here too. I do know there are many approaches all with advantages and disadvantages and none are ironclad, some adjustments or plan B, C, D, etc. are essential.
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Old 01-20-2012, 09:39 AM   #3
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IMHO planning for the distribution phase should start a few years before you retire with you adjusting your AA. There are many opinions about the AA you need for long term investment success, but I firmly believe that most people need more cash, CDs and very short term bonds in post-retirement than pre-retirement so you can draw income easily and to give you a buffer so you can ride out bad markets.

Figuring out how much to have in cash/CDs/short bonds and how you replenish those accounts are a good place to start. How you design your portfolio has to take account for your income needs, investment goals like leaving an inheritance or not, and how you spend. People will throw out various fixed SWR, the most popular being 4%, but you should be prepared to adjust that to take account of your investment returns. If you would be eating into principal to sustain a WR of 4%, then the thing to do is to economize so you can live off say 3%. The income phase of a retirement portfolio has to be considered wrt your spending too. So have a plan of how to invest, how to manage the flow of money from investment to cash accounts and also have places where you know you can economize if you have to reduce your WR.

Of course you could simply buy a SPIA and sit back an get a check every month.....
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Old 01-20-2012, 10:04 AM   #4
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Also take a look at Optimal Retirement Planner site (just Google it). It will give you an idea of which accounts to take money from first to minimize your tax. It's a way to get an answer to the question of how much to take from taxable and tax deferred accounts given anticipated returns and tax rates
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Old 01-20-2012, 10:15 AM   #5
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This is a tough one. I am pretty clear on where to pull funds first from a tax perspective but when to pull from cash/bonds rather than equities is a little less clear. The general "rule" people talk about is pull from equities in up years and from cash and maybe bonds when equities are down. The biggest question mark to me is when to start counting for deciding if equities are up or down. If equities plummet 20% in year one the answer for that year is clear. What about a recovery of +15% the following year? Equities are up but should you wait until they get back to their high point? A case in point could be Dow 14,000 a few years ago. Do you pull cash until we get back there or consider some of the large gains since the nadir to be sufficiently "up" to be a sell signal? In between there is some buying and selling of equities based on re-balancing that may handle some of the question. I have never read a cogent step by step approach to this. The buckets concept said it had an answer but never really seemed clear to me. We debated the how to on that in a thread here years ago but IIRC never reached a consensus.
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Old 01-20-2012, 11:06 AM   #6
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This is a tough one. I am pretty clear on where to pull funds first from a tax perspective but when to pull from cash/bonds rather than equities is a little less clear. The general "rule" people talk about is pull from equities in up years and from cash and maybe bonds when equities are down. The biggest question mark to me is when to start counting for deciding if equities are up or down.
My approach to this is to try to avoid the problem of when to sell my underlying assets (apart from rebalancing) by living off dividends, interest, CG distributions, bond yield and eventually SS.
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Old 01-20-2012, 11:53 AM   #7
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Quote:
Originally Posted by doxeyweb View Post
I'm still in the accumulation phase of my retirement planning but very interested in putting together a plan for when the time comes to start withdrawing money...

Most of the books i read are all about picking stocks, paying off debt, asset allocation, insurance, yada, yada, yada.

Here's where i am:
38 ~ Married ~ Two kiddo's
Mortgage and all debts paid off.
College funded.
3/4+ way to having my planned retirement funded.

So...I could turn all this over to someone else to handle, but i've done it all myself so far and would like to continue.

Does anyone have any recommended reading that can explain how to stage, and begin withdrawing money when the time comes. Accounts to use first, when a professional is required, and any other details that would help me put together a good plan for how to handle this money when the time comes.

Thanks,
Well, here's how I did it, FWIW. The usual caveat applies - - I am just another retiree and not an investment expert.

Before retirement, you need to get a retirement AA plan and put it in place. I got an idea of what sort of AA I wanted to have in retirement after reading a number of books on this list, many of which address this topic. So, this would be my recommended reading list for you. I would urge you to do this yourself. My career was as a scientist/engineer, and I knew nothing about this stuff so I had a lot of self-education to do but I tackled it and did it. After reading at least a half dozen books carefully and thoughtfully, I put together what I thought was the possible retirement portfolio plan for me, and then took it to the Bogleheads' message board to bounce it off the good folks there. I considered their advice in the context of what I had read, and tweaked my plans a little as seemed best to me. Finally I had a real Plan. I got this plan in place by moving my portfolio assets slowly and methodically over a few years

In retirement, I withdraw my SWR from both the TSP and taxable accounts in Vanguard. The money withdrawn from Vanguard is from my portfolio cash in Vanguard money market (where I have the dividends sent), and I don't have to sell anything for my withdrawals. Not so for the TSP, but I want to lower the balance there and take some of the tax hit before I get to age 70.5 and the mandatory withdrawals begin. Overall I spend less than my dividends.

On re-reading, this sounds a lot more complicated than it is. Once your plan is in place, the rest is pretty simple.
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Old 01-20-2012, 12:35 PM   #8
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Quote:
Originally Posted by nun View Post
Also take a look at Optimal Retirement Planner site (just Google it). It will give you an idea of which accounts to take money from first to minimize your tax. It's a way to get an answer to the question of how much to take from taxable and tax deferred accounts given anticipated returns and tax rates
Optimal Retirement Calculator and Retirement Decision Support System

That will give you a good start on which accounts to use.

Be aware of the critical time right before and after retirement where your withdrawals may be the highest % of the portfolio. What will you do if the market takes a big dive right then?

What if one partner passes away early on? Is the other partner still FI?

You might want to use Roth conversions to fill up your lower tax bracket right after retirement, and use the Roth withdrawals to stay in the lower tax bracket later in retirement. ORP should indicate some of that.

Run FIRECalc and other retirement calculators (Fidelity has a detailed one) that check your withdrawal rate sustainability. The problem with most of them is accounting for all the pension, SS, and different spending levels you may have through retirement.

A bunch of other stuff I'm sure others will fill in...

I basically follow this approach to investing:

http://www.merriman.com/PDFs/UltimateBuyAndHold.pdf
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Old 01-20-2012, 04:28 PM   #9
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My approach to this is to try to avoid the problem of when to sell my underlying assets (apart from rebalancing) by living off dividends, interest, CG distributions, bond yield and eventually SS.
+1 this is exactly my approach. If I need additional cash in a given year then I look at whichever of my MF in my taxable accounts has gone up the most since I retired in December 2002 and sell the necessary shares out of that. I plan on starting SS at 62 this year so hopefully after that there shouldn't be much in the way of sales.
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Old 01-20-2012, 04:39 PM   #10
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Quote:
Originally Posted by nun View Post
My approach to this is to try to avoid the problem of when to sell my underlying assets (apart from rebalancing) by living off dividends, interest, CG distributions, bond yield and eventually SS.
Quote:
Originally Posted by ejman View Post
+1 this is exactly my approach. If I need additional cash in a given year then I look at whichever of my MF in my taxable accounts has gone up the most since I retired in December 2002 and sell the necessary shares out of that. I plan on starting SS at 62 this year so hopefully after that there shouldn't be much in the way of sales.
It will be interesting to see how that works after decades of inflation. If you reach the point where SS, dividends, interest, cap gains, yields together equal expenses...
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Old 01-20-2012, 04:45 PM   #11
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Quote:
Originally Posted by nun View Post
My approach to this is to try to avoid the problem of when to sell my underlying assets (apart from rebalancing) by living off dividends, interest, CG distributions, bond yield and eventually SS.
Quote:
Originally Posted by ejman View Post
+1 this is exactly my approach. If I need additional cash in a given year then I look at whichever of my MF in my taxable accounts has gone up the most since I retired in December 2002 and sell the necessary shares out of that. I plan on starting SS at 62 this year so hopefully after that there shouldn't be much in the way of sales.
Still seems there is a question remaining depending on your perspective. About 3/4 of our portfolio is in 401ks and IRAs. We currently reinvest the dividends of those funds. If we were to add up all of the output of all of the funds we would about cover our yearly withdrawal but since we want to pull from taxable initially (rather than incur the tax costs of IRA withdrawals) we still have to sell equities in taxable and then decide whether to reinvest the output from the IRAs in equities or bonds. So we still end up with the are we up or down issue. I think
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Old 01-20-2012, 05:25 PM   #12
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Originally Posted by Midpack

It will be interesting to see how that works after decades of inflation. If you reach the point where SS, dividends, interest, cap gains, yields together equal expenses...
That is a fortunate thing about a COLA pension, that I didnt really ponder until yesterday when I got my first COLA in retirement. It was a hundred dollar a month after tax raise from preceding month. Never really thought of a COLA as more than just maintaining, but no way did my expenses go up $100 a month this year. Maybe $40-50 tops.
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Old 01-20-2012, 05:36 PM   #13
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It will be interesting to see how that works after decades of inflation. If you reach the point where SS, dividends, interest, cap gains, yields together equal expenses...
I'm only going to follow this approach for the next 8 years until age 70 not decades. Afterwards RMD's kick in and then basically I intend to put my big bucks glasses on About half of my nest egg is in traditional IRA/401k. According to the Fidelity calculator the RMD's should be substantial (assuming the world goes on more or less as it has)
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Old 01-20-2012, 05:45 PM   #14
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Still seems there is a question remaining depending on your perspective. About 3/4 of our portfolio is in 401ks and IRAs. We currently reinvest the dividends of those funds. If we were to add up all of the output of all of the funds we would about cover our yearly withdrawal but since we want to pull from taxable initially (rather than incur the tax costs of IRA withdrawals) we still have to sell equities in taxable and then decide whether to reinvest the output from the IRAs in equities or bonds. So we still end up with the are we up or down issue. I think
I'm assuming that you are reinvesting your IRA dividends/CG within the IRA. Wouldn't you just apply that reinvestment toward whatever whatever AA you've settled on?

As far as selling in the taxable side, do you always sell equities? It might make sense to sell bonds if equity prices have really plummeted.
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Old 01-20-2012, 06:11 PM   #15
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It will be interesting to see how that works after decades of inflation. If you reach the point where SS, dividends, interest, cap gains, yields together equal expenses...
Assuming 4% return, 3% inflation and estimating SS at 66 my net worth should increase slowly up to 66 and then take off once my SS checks start. I'm planning on taking $40k annual income (in today's dollars), $15k coming from rent and $25k from investments.
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Old 01-20-2012, 06:39 PM   #16
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Unveiling the Retirement Myth by Jim C. Otar
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Old 01-21-2012, 08:00 AM   #17
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As far as selling in the taxable side, do you always sell equities? It might make sense to sell bonds if equity prices have really plummeted.
All the bonds are on the IRA side so I always sell equities. Generally, when I do that I exchange bonds for equities on the IRA side to keep things in balance. If equities have fallen I will always re-balance (on at least an annual basis) to get the equities back up. As the equities start coming back toward their starting point my AA will lean toward equities. I am inclined to let it get out of balance on the equity side until things have moved back into a positive state before re-balancing back toward bonds. But I am not sure how long to wait on that side.

I guess my question is to those many people here who keep a large cash cushion, if you buy low by re-balancing when stocks fall, how long do you wait to start selling equities to re balance on the way up. For example, if you fall 50% in year one and and re-balance. Then, after a 20% rise in equities the next year you will be "heavy" on equities according to your AA - but you still haven't recovered all your equity losses. Do you nevertheless re-balance then by exchanging for some bonds or do you wait until you have climbed back to where you started?
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Old 01-21-2012, 08:18 AM   #18
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I was just thinking the same thing.
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Old 01-21-2012, 08:56 AM   #19
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I guess my question is to those many people here who keep a large cash cushion, if you buy low by re-balancing when stocks fall, how long do you wait to start selling equities to re balance on the way up. If you fall 50% and re-balance after a 20% one year rise in equities you will be "heavy" on bonds. Do you re-balance then or wait until you have climbed back to where you started?
I plan to start ER with 5% cash, 55% bonds and 40% equities. I will rebalance whenever the bonds and equities diverge from that AA by +/-5%. I will be spending the cash throughout the year, but topping it up from a sweep account for my dividends, bond yields etc. If I'm in down years I'll spend the cash down to avoid selling (other than rebalancing between equities and bonds), I'll economize to avoid having to eat into principal, but if I have to I'll probably sell the stuff that's fallen the least.
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Old 01-21-2012, 09:48 AM   #20
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I think some of this depends on what age you retire, the size of savings, access to pensions etc.

DH retired this past spring at 55. I too am 55 but working from home part time which provides about 22% of our spend. DH has a non-cola pension which provides 19% of budget

Our allocation is 10 cash, 45 stock and 45 bonds. About 10% of stocks and bonds is in taxable accounts, the rest in 401-IRA's, but no Roth. The cash and the taxables will get used to carry us until age 60, so we are more conservative now. We do not plan to take SS until 70, but will nearly fund our needs with that then. Also have a second home we can sell in our old age if needed.

Will most likely revist allocation in a year or two again, but want to get 2 years under our belt first.
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