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Couples in FIRE: whose accounts to withdraw from?
Old 06-06-2014, 08:58 AM   #1
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Couples in FIRE: whose accounts to withdraw from?

A question for the couples here in FIRE....

After any paid benefits like pensions, annuities, ss, or interest from fixed income assets, how do you determine whose accounts to draw on to cover any remaining expenses?

If you both have separate accounts for after tax, deferred, or even tax free - how do you decide on whose accounts to dip into to pay the rest of expenses?

Do you do a 50/50 split? Alternate years? A percentage split based on balances?

My wife and I both have separate accounts over our working careers for after tax, deferred, and Roth - and we will probably go with a 50/50 split.
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Old 06-06-2014, 09:04 AM   #2
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Retired since 2006, there is enough joint taxable money that we won't have to decide until RMDs start, and than the IRS makes that decision for us..
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Old 06-06-2014, 09:43 AM   #3
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My acct balance is more than DW's. That combined with the fact that her accts are located at slightly lower cost Vanguard will lead us to tap my funds first. It is not really a big deal either way, but I like to keep separte allocations to allow for multiple rebalances if the need arises. So far it hasn't.
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Old 06-06-2014, 10:25 AM   #4
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, there is enough joint taxable money that we won't have to decide until RMDs start, and than the IRS makes that decision for us..
Same here, all after-tax investments are joint. And IRS will decide the 401ks and Traditional IRAs.

As spouse is 10 years younger, her RMDs will come on line way later,
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Old 06-06-2014, 10:54 AM   #5
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(caveat: I am divorced and never plan to marry again.)

One never knows what life will bring (really! the most amazing changes in circumstances really do happen sometimes). Given that fact, I would treat your accounts as two different portfolios. Each person should decide on his/her own preferred asset allocation, and then the two of you should decide together on a withdrawal rate and withdraw at the same rate from each portfolio. For example, if you decide on a 4% withdrawal rate, then withdraw 4% of her portfolio from her portfolio, and 4% of his portfolio from his portfolio. This is more fair to the person with the smaller portfolio, than a 50:50 split would be.

Arranging your finances this way would make things so much easier should she decide to run off with the pool boy, or should he decide to run off with the housekeeper. Not that either of these would be likely to happen! But it won't do you any harm to just divide things up this way and it could potentially save you from financial ruin at an age when you can't recover from it. Be judicious; anything else seems reckless from my point of view in life.

Anyway, that is my opinion...
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Old 06-06-2014, 11:05 AM   #6
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Up to now it has made no difference since our after-tax accounts were joint and only IBonds and IRA's are in individual names. I have been drawing from my IBond accounts and this year we moved all our after tax accounts into DW's name. Makes no difference from a US tax point of view but when we move back to the UK there is no such thing as filing taxes married, everyone files individually, so to maximize deductions and stay in the 20% tax band we will begin drawing down from accounts based on minimizing taxes. As well as standard deductions each person gets his or her first $17k of capital gains free of taxes.

Interesting times ahead in the draw down phase
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Old 06-06-2014, 01:17 PM   #7
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I'm 5 years older, so my RMD's will hit first. We're Roth converting all of my tIRA first, then DW's. When it comes to Roth withdrawals, the plan is to drain mine first, since it will have more in it and DW is likely to outlive me. Might as well end up with accounts in her name.

We do have individual taxable accounts. I will be drawing from those in equal dollar amounts (though hers is bigger) to fund our last few years of Roth conversions. Those conversions will go into "individual" Roth accounts, which we will continue to use for individual spending. That just takes advantage of the opportunity to move our taxable account balances into Roth accounts. Otherwise we would just be taking standard tIRA withdrawals during that time.
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Old 06-06-2014, 02:21 PM   #8
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I'm 5 years older, so my RMD's will hit first. We're Roth converting all of my tIRA first, then DW's. When it comes to Roth withdrawals, the plan is to drain mine first, since it will have more in it and DW is likely to outlive me. Might as well end up with accounts in her name.
We are also doing ROTH conversions on my rollover IRA, paying for the taxes by cashing in some of my IBonds.
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Old 06-06-2014, 02:33 PM   #9
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I imagine we'll only be drawing due to RMDs, and one of us will start 5 years before the other. Withdrawals will mean less drawn from our taxable accounts.
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Old 06-06-2014, 02:44 PM   #10
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Not an issue for us since most of our taxable funds are joint that that is what we draw from and will for some period of time to come.

We do each have separate taxable accounts. DWs was the result of her inheritance from her Mom. I don't really remember what mine was from - perhaps before we were married. They are roughly similar amounts and are probably enough to tide us over for a while if we were ever to split and our joint assets were frozen pending a settlement but other than that unlikely scenario, I'm not quite sure why we keep them separate.

DW's tax-deferred (which is a lot smaller than mine since she was a SAHM) is now all converted to her Roth (one less account to have to deal with).

In your situation 50/50 seems reasonable or alternatively proportionally (ie; if you have 60% of your combined retirement savings, 60% of the withdrawal comes from your accounts and 40% from her accounts).
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Old 06-06-2014, 09:14 PM   #11
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Quote:
Originally Posted by W2R View Post
I would treat your accounts as two different portfolios. Each person should decide on his/her own preferred asset allocation, and then the two of you should decide together on a withdrawal rate and withdraw at the same rate from each portfolio.
This may be good for many, but it assumes that both have enough info to make a decision on their own funds, and are also willing to do so. In our case, DW isn't interested in learning how to make these kinds of choices, and if I don't do it, it won't get done. (I do still try to keep her informed of the generalities of our finances, but if it takes more than a minutes, her eyes glaze over or she may even wander off.)

To the original question, when we get to the point of drawing from tax-deferred savings, I plan to draw from mine first. This is because my balance is larger, and I am a bit older, so my RMD will be earlier and larger. (I will probably start doing Roth conversions next year, and will work on mine first, for the same reasons.) Once my balance gets within the same neighborhood as hers, I expect to shift to withdrawing similar percentages.
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Old 06-06-2014, 11:10 PM   #12
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Interesting question. Although DH and I have most of our accounts individually (only bank accounts and one investment account are joint), we have always treated the funds in them as though they belonged to both of us equally (and since we've lived in Texas - community property state - for 15 years, a lot of it does regardless of how the accounts are titled). Because we have a lot of capital gains in our taxable accounts, we can't combine them without paying beaucoup taxes.

It gets even more complicated now because my mother died earlier this year leaving me of a sizable IRA, which I now have to start taking RMDs from next year. And our "cash bucket" account is in my name as it was funded originally from the deferred compensation and stock options that I had to cash in upon ER. Never thought about that being a concern.

I want to do some consolidation and simplification in the coming year and this is a good thing to look at in the process.
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Old 06-06-2014, 11:55 PM   #13
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All of our after tax accounts are joint (we both always worked but we preferred it that way. We've been drawing from DH's retirement accounts first because (1) he was over 59 1/2 and I wasn't until recently, and (2) he will need to do RMDs 7 years before I will.
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