How can I get a regular 3% monthly check from Nest Egg?

[Cheesehead]

Hello All,

I’d like advice as to how I can get a monthly automatic check for 3% from my nest egg, I realize that during a downturn perhaps it will be less. It seems my alternatives are either an annuity or a managed fund service at Fidelity. I have done an extensive Google search on them plus on this forum. Like many of you I have been a DIY index investor and have been very happy over the years avoiding fees. I follow the Bogglehead’s Couch Potato AAs, usually 40% total stock index, 10% international, 50% Total Bond Index, CDs, etc.

However…in June of 2017 both of us will be 59.5 years old (I'm 63) and we want to start withdrawing 3% monthly from the nest egg, which is mainly at Fidelity. My eyes glaze over at doing this because we are scattered over many accounts: 401K, IRAs, 403Bs, etc. and I don’t understand the tax implications nor am I smart enough to learn.

I don’t like fees but if they can do a better job than I, then I am interested. We all know that studies show an index will do as well or better than a manager but…I want this steady 3% monthly check and I don’t get how to set that up. We do have an hourly independent CFP we talk with annually who does not try to sell us anything, we use him to compare his Monte Carlo simulation with Fidelity’s, and we do have a CPA. We will be in “good shape” with DW’s pension, my SS and if we can get 3% off the nest egg. So how?

Naturally our Fidelity rep suggested their Portfolio Advisory Service and before I pull the trigger I wanted to ask the non-DIY here that are in their '60's, ALREADY IN RETIREMENT, meaning too old to recover from another crash, how do you get your monthly income in a steady manner without all the mathematical gymnastics? This forum is very heavy with math geeks and the financially savvy, former engineers I assume. I am practically dyslexic with numbers and investing bores the hell out of us, so how do we get a regular check? I am winding down a 38 career as a small business owner and freelancer, having to sweat when checks would arrive and always having cash flow problems, so getting a regular check is my idea of retirement!

In sum, does anyone know, if I put my nest egg into one bucket at Fidelity, where I can get a 3% check written monthly with the lowest amount of fees? Preferably not through the Professional Advisory Services? Something like a Wellington or Wellsley of Fidelity where all accounts can be consolidated and this monthly check be sent to us?

Thanks

[GrayHare]

I think Fidelity will do this for you at no charge, provided the money is coming from cash (i.e. money market). BTW, I assume you mean 3% annually, so 0.25% monthly. If you want someone to selectively sell equities for you to fund the amount, well, that's advisor time.

[Cheesehead]

Yes, sorry. I meant 3% annually. I have done a lot of reading about the "old" 4% Rule, so we're OK with 2.5-3% as to our lifestyle. It depends on the cost of the house we will "downsize" to, the taxes on it. If I had ALL our funds in one account it would be so much easier, but DW is with her school district's 403B, has other positions, and I have 11 accounts at Fidelity, so the organization and math is daunting!

I want to be able to know for certainty on which day $X amount will be coming into our checking account, just like the pension and SS $. So, this is an entirely different stage of investment management than before retirement, where all I cared about was the AA. I figured some folks here would know. But the perspective of someone in their early 60's is different than younger people because the period of recovery is less, so now my risk level is dropping precipitously, which is the only reason I am considering an annuity. Also, when I die my wife will get zero of my SS and I can't get life insurance anymore, so the evil annuities are starting to look better.

But...like most of you, I have avoided managed funds to save on fees but now feel I am being forced into having someone smarter do it, especially if we experience a downturn. I have no idea as to how to get the 3% monthly. I subscribe to Bob Brinker and he has a system he espouses of tax vs no-protected money, which to take out first, etc. but it is too complex for us. At least with someone at Fidelity they know the ropes as compared to an outside CFP.

[braumeister]

Quote:

Originally Posted by Cheesehead DW is with her school district's 403B, has other positions, and I have 11 accounts at Fidelity, so the organization and math is daunting!

Wouldn't you be able to consolidate many of those accounts by rolling them into just a few?

[Senator]

Buy DVY. It is currently yielding 3.28%. It is commission free at Fidelity. It is diversified across many stocks.

That should do it for you, and give you some growth potential. You can set up a monthly automated withdrawal to be sent to your bank account.

Quote:

DVY is a dividend-weighted, non-leveraged, enhanced strategy equity ETF with the benchmark index of Dow Jones US Select Dividend Index. The ETF's geographic objective is the United States with a focus on Broad/Multi Cap companies

Quote:

The investment seeks to track the investment results of the Dow Jones U.S. Select Dividend Index composed of relatively high dividend paying U.S. equities. The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index. The underlying index measures the performance of a selected group of equity securities issued by companies that have provided relatively high dividend yields on a consistent basis over time.

[Cheesehead]

Quote:

Originally Posted by braumeister Wouldn't you be able to consolidate many of those accounts by rolling them into just a few?

But even if I do, let's say it's in one pot, how do I get a 3% withdrawal divided by 12 months? Would it be in a fund that is 50/50 AA with the lowest 12-b1 fee I can find, almost like an index? That's what I don't get and when discussing it with the Fidelity rep he suggested the advisory services and if I want the "guaranteed" aspect, the annuity.

The reps aren't on a commission per se, rather, their bonuses are based on how much they bring under the management umbrella and I don't have a problem with that. But I wish there was an index model that took risk level into consideration and had an elf that would write the check and stick it in the mail or transfer it to my checking account on the first of the month. This is more difficult than I had assumed.

[Lisa99]

I think what many here do is put in an annual sell order to Vanguard using whichever account or accounts are best based on current market. The money goes into a Vanguard money market account. They then have a regular monthly check sent to their bank from their money market account. It is part of the end of year planning for many and takes into account tax implications, ACA subsidy, etc.

We're retired but haven't started this process yet since we stockpiled cash before we retired. We'll probably start the process that others do next December.

[Cheesehead]

Thanks Lisa. I'll see if Fidelity does the same, I imagine so.

But...if you do it annually, with one major withdrawal, doesn't that ignore the ups and down of the market? If you do it monthly it would average out, correct? Similar to dollar cost averaging but in the reverse.

[Cheesehead]

Gotta run, will check this thread later. Thanks

[braumeister]

Is it really that important to get a check every month? If you have enough to retire on, then surely you have enough financial savvy to manage your cash on a longer term basis. You could do as Lisa99 said, or even quarterly if you like. Spending five minutes a quarter on the computer shouldn't be too onerous, right?

I'm not trying to make it difficult; I just don't see how monthly payments to your bank account are better than less frequent transfers you set up by yourself.

[MRG]

How much do you get in dividends and interest? Can't Fidelity deposit those to a separate MM account and draw from that?

[Lisa99]

Quote:

Originally Posted by Cheesehead Thanks Lisa. I'll see if Fidelity does the same, I imagine so. But...if you do it annually, with one major withdrawal, doesn't that ignore the ups and down of the market? If you do it monthly it would average out, correct? Similar to dollar cost averaging but in the reverse.

If you do it once per year it lets you take into account your tax situation, health care subsidy (if any) and other financial considerations.

I guess if you wanted to do it monthly you'd put in a standing sell order for $XX but then you'd lose the ability to plan with doing it that way.

[Cheesehead]

Braumeister- Yes I can do that, but I don't know from which accounts, when taking into consideration the tax consequences, from which ones to withdraw.

I'd prefer to have the money monthly rather than quarterly, and definitely not annually. I know us, we need a flow. I also was hoping for there to be some kind of mechanism to change AA when a downturn occurs now that we will be in a phase where recovery hurts us. I am getting tired of seeing the charts from 1929, I only care about the next 30 years.

In sum, I know how to ask Fidelity to send me money, I just don't know from which accounts and how to calculate the 3%. There's too many and it seems I can't legally consolidate them into one. I started with SEPS, then IRAs, then a 401K for my business and DW has the 403B which is broken down into more accounts, so looking online it is a lot of scrolling in the statement.

I do know that I can request dividends, etc. to be sent to a money market from which I can write a check monthly but I don't know how to determine from which accounts and consider the taxes. In other words, I don't want to draw down from the principal, I want the nest egg to stay whole, I just want to skim the 3% cream.

The top of the line for their advisory service is outsourced to Black Rock, but putting a lot of money in that is not a diversified approach, it's mainly large cap.

Will check this thread later, gotta make the donuts. Thanks!

[Meadbh]

My suggestion would be to have one account to which a yearly withdrawal is directed. That could be a savings account. If it's important to you to have a monthly "check", you could set up a monthly transfer from that account to your checking account. The yearly withdrawal can be taken from the combination of sources that will be most tax-efficient.

[LOL!]

First, I would change the requirement. I don't think you should really care if you get 0.25% a month or 0.250514% a month or 0.249931% a month or an amount different every month, but close to 0.25% a month.

Second, you can invest in a Fidelity Freedom Index fund. So a one-fund solution. You can rollover 401(k), 403(b), IRA to a rollover IRA, but you cannot combine with your spouse's IRAs, etc. So you may have to do two accounts.

Third, you can have Fidelity automatically sell some of the fund shares every month and transfer the cash to your bank account. At Fidelity:
"Accounts & Trade" --> "Account Features" --> "Payments and Transfers" --> "Automatic Withdrawals".

I have ALL my dividends from funds held at Fidelity sent directly to my checking account automatically.

Fourth, you may have to change the dollar amount once a year. So what.

Fifth, was Fidelity not forthcoming on this solution? If not, ditch them and go to place that can help you.

[pb4uski]

What I did was I carved 5% off my bond allocation into an online savings account and have an automatic monthly "paycheck" from that online savings account to the local bank account that I use to pay my bills. The online account pays 0.95% annually so in this low interest rate environment I'm not losing out much by having 5% tied up in cash. You could probably transfer 3% from your portfolio to an online savings account once a year and the set up the automatic transfer.

We set my BIL's mom up with Wellesley and set up a fixed dollar automatic withdrawal to her savings account and that has worked well for her. In your case you could take a fixed amount annually from each fund and then just rebalance annually if you don't want to carry cash.

[Corporateburnout]

Quote:

Originally Posted by LOL! Second, you can invest in a Fidelity Freedom Index fund. So a one-fund solution. You can rollover 401(k), 403(b), IRA to a rollover IRA, but you cannot combine with your spouse's IRAs, etc. So you may have to do two accounts. Third, you can have Fidelity automatically sell some of the fund shares every month and transfer the cash to your bank account. At Fidelity: "Accounts & Trade" --> "Account Features" --> "Payments and Transfers" --> "Automatic Withdrawals".

+1

Fidelity Freedom 2015 index fund is a one fund solution with low fees and current composition of 54% stocks and 46% bonds/fixed income.

Then follow LOL's instructions to set up a monthly sell and transfer orders of 3% from each account to your MM or brokerage account.

I'm sure your Fidelity rep will help you set it up free of charge

[Hermit]

Quote:

Originally Posted by Cheesehead Hello All, ... However…in June of 2017 both of us will be 59.5 years old (I'm 63) and we want to start withdrawing 3% monthly from the nest egg, which is mainly at Fidelity. My eyes glaze over at doing this because we are scattered over many accounts: 401K, IRAs, 403Bs, etc. and I don’t understand the tax implications nor am I smart enough to learn. ...

If you are in the same boat I am in - all my nestegg is in tax deferred accounts. You will pay income tax on your withdrawals. Talk to your CPA on how best to do this. My 401k takes out a minimum of 20% for federal and will also take out state if I tell them to.

[UpAnchor]

Quote:

Originally Posted by Corporateburnout Fidelity Freedom 2015 index fund is a one fund solution with low fees and current composition of 54% stocks and 46% bonds/fixed income. Then follow LOL's instructions to set up a monthly sell and transfer orders of 3% from each account to your MM or brokerage account. I'm sure your Fidelity rep will help you set it up free of charge

If all of your accounts (you + spouse) are at Fidelity - or can be rolled there - you could even have the monthly transfers directed to a joint Fidelity cash management account and write checks/pay bills straight from there.

[Sunset]

OP - The tax issue is something your CPA can help you understand as where the money comes from is a tax issue, how it comes is a Fidelity issue.

Basically whatever you withdraw from a tax deferral type account (like IRA , 401K) will be taxed as income.

So what some folks do is add up their pension, IRA withdrawal, 401K withdrawal, up to near the top of the 15% bracket, then sell some taxable account stocks for capital gain which is taxed at 0% as long as you stay in the 15% bracket.

The other thing to discuss with your CPA, is the tax torpedo when you are 70.5 and have to take out RMD's and have SS and pension, which is why these next few years could be the time to convert IRA to ROTH, or simply withdraw from IRA instead of tapping your taxable money account.