How do you plan your withdrawals?

[Scuba]

Thank you all. Sounds like there are several methods that work for people. I think it will take a while to figure out what works best for us. Think we might take a "paycheck" from taxable dividends and CG for normal recurring spending and just withdraw as needed for bigger things like trips, property taxes, etc. I am sure it will be an emotional adjustment spending assets down after so many years of accumulation.


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[Options]

The easiest thing I found was simply building on what I did before retirement. December of each year, I create a spreadsheet to calculate the upcoming year's expenses by month and how much I will need annually and monthly. January of each year during rebalancing, I withdraw the coming year's expenses from investments to a MM account. Dividends and CGs are also swept to this account. Monthly, I simply withdraw the next month's needed income from the interest earning MM account to my checking. You might say this is "like" having a paycheck.

 

[Bir48die]

I think a lot of it has to do with how disciplined you are in your money management. Mine is a hybrid of many of the previous posters. I get a deferred comp check once a year and a taxable payout once a year. I take it to my credit union and deposit for the year. I've forecasted my expenses for the year and twice a month I go get my "paycheck" from the credit union and deposit it in Mega Bank where I have various accounts that are marked either for regular monthly spending or I accrue for taxes and big ticket items. So I'm as prepared as I can be when it's time for home or auto repair. This may seem tedious but it keeps me out of trouble when it comes to the temptation of overspending.

 

[rodi]

My first 1.5 years I withdrew what I needed when I needed it.
This year I transfer money quarterly to a money market account, then monthly to my checking account.

That's for withdrawals from our investments. But we have 2 other sources of income that come in monthly.... Rental income and DH's SS income.

Oh - and my microscopic pension should start next month... so I'll have to adjust how much gets transfered to account for that.

I'm thinking of switching my strategy to similar to Audrey and W2R's method - percentage of portfolio on 12/31, dumped into bank on 1/1 (or at least that week). In other word, percentage of portfolio is updated each year. I'm still thinking about it... and figuring out the best way to work in Roth conversions, etc.

 

[misanman]

We pay ourselves a monthly salary from my IRA based on average monthly dividends. DW's dividends accumulate to meet ad hoc spending requirements. We have withdrawn accumulated cash from our after tax accounts on occasion. Not withdrawing from Roths yet.

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[old woman]

I withdraw as much as I need whenever I need it. My SS covers most normal months but I withdraw some for property taxes, insurance, gifts and dental bills randomly. I keep a few thousand in checking and can stretch my SS with that for mortgage, utilities and food for a few months at a time.

 

[jerryo]

Hmmmm....


I don't really obsess about this much.

Been retired to semi-retired about 5 years now. My wife's (cola'd) pension and my two (partially cola'd) pensions are direct deposited to our checking account, as well as my (somewhat uneven) part-time consulting income. That's not quite enough to live on, but we maintain fairly large cash balances in our checking, savings and money market accounts and transfer additional funds, as needed. Over the past 12 months, for example, our checking account dropped from about $100k to $50k (and we'll be redoing our kitchen and 2 baths this year), so I'll be transferring funds from the MM soon. I'll also be increasing our savings account balances from $100k to $200k to keep access to privileges (mainly free safe deposit, foreign ATM withdrawals, etc.), and to collect a $500 new deposit bonus; but since the savings account pays about as much interest as the MM that's a wash anyway.

I do keep periodic track (every week or so) of our total financial assets and those have steadily increased over the past five years (by about 20-30%). I've opted to keep our cash transfers simple and so long as the total assets aren't heading south, why worry?



, but that's about a 1% withdrawal rate from our assets. We'll be redoing a kitchen and two baths over in the next year, so will probably but that amounts to less than 1% of our net worthand sometime over the next year we'll be redoing so we withdraw additional funds, as needed

 

[treypar]

I have bond dividends sent directly to my checking account monthly and stock dividends sent quarterly. These dividends plus my SS take care of my expenses. It is simple with no effort and works.

 

[jkern]

The easiest thing I found was simply building on what I did before retirement. December of each year, I create a spreadsheet to calculate the upcoming year's expenses by month and how much I will need annually and monthly. January of each year during rebalancing, I withdraw the coming year's expenses from investments to a MM account. Dividends and CGs are also swept to this account. Monthly, I simply withdraw the next month's needed income from the interest earning MM account to my checking. You might say this is "like" having a paycheck.

This is pretty much the procedure I've used for the last 7 years. Works well for me too.

 

[jimnjana]

Our pensions, rental and owner financed mortgage payment cover our living expenses and allow us to put money into future spending accounts for travel and major purchases. We took out an Equity Line of Credit to help manage any major home related expenses/repairs. We supplement our travel funds with what DW earns as a part-time travel agent and withdrawals from her traditional IRA. We will spend down the balance in her traditional IRA over the next 7.5 years or whenever we begin her SS whichever comes first. We will use her ROTH IRA to help with any ELOC payments we may have in the future.

 

[explanade]

I no longer reinvest dividends and CG distributions, so those provide much of the cash flow needed. And when I rebalance my asset allocation I look at my cash situation for the next few months and take that opportunity to grab some cash to live on. Often I just sell from the heavy portion and take the money to rebalance, rather than buying in the light portion.


I don't like the idea of regular withdrawals, especially automatic, because I don't want an automatic sale of an asset without being able to pick which investment and which shares. Even with control I don't want to deal with this every 2 weeks or month. Not sure that anyone actually does that but I couldn't tell from the OP if that was being considered.

I just passed my second year in ER a couple of weeks ago. I've been using cash from savings, while letting dividends and CG distributions get re-invested for the most part. Most of the big holdings in VG are reinvested while some dividends from smaller holdings and individual stocks, I have been transferring to my bank accounts but these are about 5-7k per year.

My annual spending has been under 2% of all savings and dividends and CG distributions would more than cover the expenses.

So I haven't sold any shares, not even to rebalance. Equity allocation has been between 55 and 65%

I could go at least another year without changing anything but I'm thinking about turning off DRIP, especially for equity funds, to let it add to my cash.

However, with more than a year of spending left in cash and the low interest rates on savings, maybe I should wait until around the middle of next year.

One would think that equities will still return better than bank accounts, even though there's talk of stocks being overvalued and due for some pull-back.

 

[calmloki]

Our monthly gozin exceeds our gozout - there are normal high expenditure months - like property tax time - so we just don't transfer money to our ~1% savings account du jour for a month or so before those larger expenditures are expected. Other than that we don't have any system of withdrawal, other than the long habitual thrift in spending.

 

[ShokWaveRider]

We take what we need/want when ever we need/want it.

 

[Helena]

.

Because I have no debt, I am able to comfortably live on a modest income.

In addition to early SS... I take just enough from my traditional IRA every year to keep me below the tax threshold. It also serves to reduce the tax surprise of future RMDs.

.

 

[explanade]

What tax threshold?

For ACA subsidies?

 

[Helena]

What tax threshold?

For ACA subsidies?

I receive no subsidies.

Because I have no debt and no mortgage, I am able to comfortably live on a small income. Beginning when I took early SS, my income has been under the IRS tax threshold. Not only do I pay no income tax, I am not required to file a return. Unfortunately, that will change when I am forced to take RMD.

In the meantime, I am enjoying life !

.

 

[sengsational]

Paying no tax now, and waiting for rmd might not be optimal, but I'm sure paying zero tax is a great feeling.

 

[Sunset]

I receive no subsidies.

Because I have no debt and no mortgage, I am able to comfortably live on a small income. Beginning when I took early SS, my income has been under the IRS tax threshold. Not only do I pay no income tax, I am not required to file a return. Unfortunately, that will change when I am forced to take RMD.
....

You should calculate what you would be paying in tax if you took the RMD. It might be higher than you think as it could cause SS to be partially taxable too.

Here would be a scenario to consider:
Pretend RMD bumps you into the 15% tax rate or higher.
What you could do is in the years before 70 take some money out of the RMD subject accounts so you pay 10% tax on it.
You can invest it in dividend paying etfs/stocks as dividends are not taxable in the 15% and lower tax bracket.

The idea of taking out the RMD money early is that way you won't be paying 15% or more tax on it when 70 and instead only pay 10%.

(now people with lots of money will be willing to pay 15% on early RMD money to avoid 25% RMD tax later. And this may apply to you).

 

[Helena]

Paying no tax now, and waiting for rmd might not be optimal, but I'm sure paying zero tax is a great feeling.

That's why I take out just enough money from my traditional IRA every year to keep me under the IRS threshold.

.

Because I have no debt, I am able to comfortably live on a modest income.

In addition to early SS... I take just enough from my traditional IRA every year to keep me below the tax threshold. It also serves to reduce the tax surprise of future RMDs.

.

 

[Helena]

You should calculate what you would be paying in tax if you took the RMD. It might be higher than you think as it could cause SS to be partially taxable too.

I've done that homework.

.

 

[Perryinva]

I would recommend taking SS at 62. This is what I plan to do. The break even is 78 if you wait until 66 to collect and higher if you wait until 70.

In what useful way does the "break even" at 78 mean anything at all? Are you planning to make sure you are dead by 78, so you will not need any more income? The decision to delay is many fold and while not right for everyone, the "break even" or "leaving money on the table if I die" arguments are not one. It totally depends on whther you are married or not, whther you pay taxes or not, what percentage of your income your SS check is,mand how much you wan to live on in retirement . My biggest gripes with some very early FIREers is they assume that they will be able to manage their investments and income in very old age,mand continue to live on a frugal income. By FIREing with little contributions to SS, and filing at 62, they guarantee a small check for life. By living off of my savings from 62 until 70, I guarantee myself a monthly COLA check of at least $3500/mo for life, and for my wife if I die first. At just 1.5% COLA, that becomes $5k month in early '80s. Not everyone wants to FIRE early to work at living on $40k a year. I'd rather FIRE when I can guarantee an income north of $100k a year, then drop from there as I require less, because no one can predict how much it will cost to survive at the end.

 

[Helena]

In what useful way does the "break even" at 78 mean anything at all? Are you planning to make sure you are dead by 78, so you will not need any more income?

The break even age of 78 means one must live beyond that age for delaying SS past age 62 to have any advantage.

My break even age is also 78. Since genetics plays a big role in longevity, the fact that most of my family has died before age 78 did play a role in my decision to take SS at age 62. My father also took early SS at age 62. He died at age 72. My older sister took early SS at age 62. She died at age 66.

.

 

[Perryinva]

Not to sound unsympathetic or cold, but in the context of my question to Freedom56, you are stating the obvious. "I'm taking it at 62, and you should too, because the break even is 78" is still an invalid piece of advice, unless you do indeed plan to die before 78, which appears to be your plan, and exactly what I asked in the second sentence of my post. I am glad you are enjoying and living your life by retiring as early as possible. You have your own personal reasons. Also, as noted in my post, if you REed and because of that have little SS anyway, then absolute amount increased by delaying may make little difference either way.

For most people, though ,the question should be "what will happen if I outlive my income because of inflation, rising health costs, etc, etc, as I become too old to do anything about it, and possibly mentally and or physically unable to handle my investments?" Not to be flippant but, it is a bigger problem for someone that has outlived their income than for someone that is dead.

RE should require not only savings but diversified passive income, COLA designed. There is no better annuity than SS. In your case, which personally is none of my business, you have good reasons to not want or need an annuity, and presumably plan to buget your living based on living less than 78.

 

[mathjak107]

The break even age of 78 means one must live beyond that age for delaying SS past age 62 to have any advantage.

My break even age is also 78. Since genetics plays a big role in longevity, the fact that most of my family has died before age 78 did play a role in my decision to take SS at age 62. My father also took early SS at age 62. He died at age 72. My older sister took early SS at age 62. She died at age 66.

.

it is actually longer if you figure in the fact you are spending down invested assets to delay as well as get no spousal adders until the higher earner files .

but the roi after that point picks up very quickly . with the chance of someone in a couple seeing 85 at 74% and 90 at almost 50% they can see an after inflation return of 5-6% .

that rivals a balanced portfolio in the best of times . the delaying does it with no risk on what amounts to a gov't bond .

the reason we can all think of someone who died younger like right after retiring is because they stand out because they are so rare .

try making a list of your friends who died in their 60's or even early 70's vs all those you have known who lived to go on .

 

[Perryinva]

You should calculate what you would be paying in tax if you took the RMD. It might be higher than you think as it could cause SS to be partially taxable too.........

(now people with lots of money will be willing to pay 15% on early RMD money to avoid 25% RMD tax later. And this may apply to you).

And there is the problem for some. For plenty of people, FIRE is age 55- 62 with an appreciable pension, that automatically puts them in the 25% bracket once SS or withdrawal of any useful amount from tax deferred savings occurs. They deferred to reduce their taxes while earning high wages. There is no efficient way to move money from tax deferred accounts to lower taxed LTCGs or Munis unless you have periods of low taxed rate living. It's a "nice" problem to have, but the question then becomes "How do I prevent my tax deferred savings, which was deferred at 15, 20, or 25%, from becoming taxed at 25 or 28% because of RMDs, SS, pension, and other incomes?" This is especially true for any large withdrawal that might occur and cause a tax torpedo. Living with income just under a tax bracket is fine....until you need more right now and you are thrust in to a much higher rate. The smart thing would have been to invest after tax dividend paying LTCGs all along, while earning, to avoid the taxes later. But that was not conventional wisdom when tax deferred IRAs and 401ks became the norm. "Delay now, because you will be in a lower tax bracket when tou retire!" Well guess what? I will not only not be in a lower bracket than I would have been had I not deferred, I could easiy be in a higher bracket! By the time I realized this, it was too late. And it's been damage control ever since.

The only sort of efficient way I Know of , is to maximize ones Roths via contributions and rollovers to the maximum of your current tax bracket. Maximizing that lower tax time means drawing down from savings, and delaying filing for SS until 70, which will reduce my RMDs and the associated taxes, and then at least when forced to take SS at 70, the max tax is on only 85% of that amount. Since that is available in only limited amounts, (to the top of the current bracket) it is limited. but at least your earnings will from that moment on, always have zero tax consequences. Roth early, Roth often, if you pay taxes.