How do you plan your withdrawals?

[rayvt]

Quote:

Originally Posted by Scuba To rayvt, I hadn't thought of it that way. If our investment portfolio can't be counted on to generate 7-8% each year, isn't it better to take from that vs start the pension? What am I missing?

First off, you can never "count" on investments generating any particular gain each year. It may be 0%, it may be +25%, it may be -15%.
Fun fact: from 1950 to 2016, the one year (12 month) returns of a 60/40 (S&p500/10 yr Tbill) portfolio has ranged from low of -27% to high of +40%, with a median of +10.4%.

A 100/0 portfolio has ranged from low of -43% to high of +61%, with median of 13.4%

But the key point, which you are missing, is that your portfolio and your pension are completely independent of one another. Whether the portfolio goes up or down, the math for delaying the pension is the same -- it costs you 100% now to get 7%-8% every year in the future. The math is: 100/7 (or 100/8) to compute how long it takes you to get back to even.

FWIW, I went through all this when I decided when to start taking my pension. Every month that I delayed the start bumped my pension check by around $14, and I wanted to wait until it crossed the next $100 boundary. Then I said, "Wait--I have to forgo $2000 next month in order to get an extra $14 thereafter, so I'm really buying $14/mo for $2000. So for the next 142 months, I'm just getting my own money back."

[Perryinva]

Well, yes, that's the definition of an annuity. Guaranteed income for life for an up front cost. A $14/mo increase for $2000 is a 12 year payback and is actually quite good as far as annuities go. That's an 8.4% rate for life. I'd take that in a heartbeat.

[lem1955]

I am 9 months into my first year retired. I was very anxious about retiring in a losing year for the stock market (which hasn't materialized so far, thank goodness). So I took a portion of my income producing portfolio at Vanguard and bought enough CD's within the IRA at Vanguard for two years of withdrawals in quarterly amounts. Each year represented about 3.6% of my portfolio as of December 2015. When those CD's come due I've been rebalancing and buying another quarter (if the portfolio is down) or half year's (if the portfolio is up) worth of CD's. I think I will stop buying quarterly CD's in 2017. Maybe I'll get brave and buy a whole year at a time. When the CD's mature I withdraw the cash, pay estimated taxes, and deposit at Ally Bank Savings. Then I take monthly "paycheck-like" withdrawals from there. I've been looser with spending than I should be. I think I may reduce the "paycheck" and try to build up more after tax cash in the Ally Savings account.