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Long run, mathematically...withdrawals.
10-25-2009, 07:55 PM
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#1
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Dryer sheet aficionado
Join Date: Oct 2009
Posts: 43
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Long run, mathematically...withdrawals.
I'm sure someone had posed this question in here, but I'm too (new/lazy?) to find the answer. Could someone help me know and understand when would be:
1. the best time to withdrawal the annual withdrawal amount? Is it monthly, quarterly, mid year, beginning/end of a year...does it matter...
and,
2. if it's monthly, how do mutual fund company's distribute it....i.e. say I'm in 10 different mutual funds, with a witdrawal from all 10 each month, that would be 10withrawals x 12 months = 120 withdrawals a year = a pain in the behind at tax time..?
I've earned the money, now I need some help figuring out how to protect/withdrawal it.
any help would be lots of help!
__________________
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10-25-2009, 08:08 PM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2004
Location: SW Ohio
Posts: 14,404
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I'm sure there are lots of different answers. I plan to keep things as simple as possible.
-- Throughout the year, all dividends and interest goes into money market funds in the various categories of funds (after tax, 401K, TIRA, Roth IRA).
-- Once per year I will rebalance my funds to bring them back to the desired overall asset allocation. At the end of that rebalancing, there should be enough cash in the MM funds (of the various types) for the next year's withdrawals. Every month 1/12 of this amont will go into the "daily use" checking account.
- I supose it would be simpler still to move the entire year's amount into the checking account, but I don't want to give up that much interest.
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10-26-2009, 05:22 AM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,588
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As I recall, Vanguard will distribute from your account annually or monthly. I don't think they will take equal parts out of all of your funds, though. Do it the way Samclem advises.
__________________
I have outlived most of the people I don't like and I am working on the rest.
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10-26-2009, 05:53 AM
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#4
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Thinks s/he gets paid by the post
Join Date: Jul 2007
Posts: 2,487
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I'm not retired but planning the same basic model as Samclem.
R
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Find Joy in the Journey...
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10-26-2009, 06:49 AM
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#5
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Moderator Emeritus
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
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Many of us keep a balance of one to 5 years' worth of expenses in a MM account, and you would simply draw down from that once a year, replenishing it every few years at a favorable time (when equities have grown, ideally). There are numerous schemes.
Just reading between the lines of your post, you might find it helpful to read the books by Otar and the Boglehead book. Both discuss withdrawal strategies in detail.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.
As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
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10-26-2009, 07:18 AM
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#6
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Thinks s/he gets paid by the post
Join Date: Oct 2008
Location: Naples
Posts: 2,179
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Just read an article in the business section of the paper. This may interest some of you. You are all aware that for 2009 the fed has recinded the rule regarding Minimum Required Distributions. Now I read that on Sept 24, 2009 there was a ruling by the IRS which allows for repaying any withdrawals you may have taken this year. In my case, I had to take a $3000 withdrawal from my IRA in Jan '09 just because I needed it at the time. Then the fed ruled that RMD's were going to be recinded for 2009. Dang! Now they are going to allow me to put that $3000 back in to my IRA. You have until Nov 30th to get this done. This ruling eliminates the need for me to pay tax on that $3000. There are some caveats on which withdrawals can be repaid. The article is in the Tampa Tribune Sunday business section by Anne Tergesen of the Wall Street Journal ( encore@wsg.com).
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10-26-2009, 07:51 AM
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#7
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Recycles dryer sheets
Join Date: Nov 2003
Location: Charlotte
Posts: 360
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We have interest and dividends routed to money markets like Samclem. We have an automatic transfer from IRA to taxable money market early in each quarter (this is after quarterly distibutions of most Vanguard funds). We evaluate allocation and next 12 months budget quarterly but don't necessarily re-balance unless an allocation is out of range.
Fyi, Vanguard (and I assume other fund families) allows you to set up automatic tax withholdings with your IRA to taxable transfers. This allows us to avoid quarterly tax payments.
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10-26-2009, 07:58 AM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,145
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Most portfolio survival models assume annual withdrawal just before you rebalance - and at the start of each year. Basically, that just means converting from any non-cash asset to cash - it doesn't mean you have to take it out of the account, just move what you need out of riskier assets. Convert an year's need to cash and then rebalance also means one taxable event which can simplify things for a taxable account.
There are occasional conversations about selling assets/rebalancing for income needs on a quarterly or monthly basis, but then you will probably be much more aware of the volatility of those assets during the year. I have seen no clear benefit established for doing this. Also, I have read nothing that indicates some optimal time of year either. Personally, I use Jan 15 as it gives me enough time to estimate taxes due on my portfolio which I have to cover as part of my withdrawal.
A lot of people let their distributions and dividends build (don't reinvest them) for the next year's cash needs. That is also the most tax efficient if your assets are mostly in taxable accounts.
Audrey
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10-26-2009, 08:22 AM
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#9
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Thinks s/he gets paid by the post
Join Date: Oct 2006
Posts: 4,629
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Regarding annual vs. monthly, it seems to me that if you think you can time the market you would prefer annual - sell at a local peak. But, if you think you can't time it, you'd prefer monthly since that gives you less volatility.
Some people use withdrawals as partial rebalancing - always sell the asset that's over-weighted.
In practice, I've got enough "basic income" from SS and pension that my asset withdrawals are for "extras", which don't necessarily come in equal monthly increments. So I withdraw when I want to spend the money.
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10-26-2009, 09:03 AM
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#10
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Thinks s/he gets paid by the post
Join Date: Mar 2004
Location: Dallas
Posts: 1,211
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If you are in the RMD phase, be sure to keep enough money in a
MM or short term bond fund to cover at least 1 year of RMD. You
don't want to be forced to sell stock in a down market to cover
RMD. I think keeping enough cash to cover emergencies and "extras"
in your taxable account is a good thing also for the same reason.
Cheers,
charlie
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10-26-2009, 11:32 AM
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#11
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 1,012
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otar seems to think that rebalancing annually is too often and that the appropriate term is the presidential cycle. note the following quote from a paper of his:
Quote:
These observations, and others not shown here, demonstrate the following:
• The volatility was about the same whether you rebalanced once every four years
on the U.S. presidential election year or annually in all cases.
• If one retired at the beginning of a bull market and rebalanced his portfolio on the
presidential election year, the portfolio value was marginally higher over time
compared with rebalancing annually.
• If one retired in a sideways market, the portfolio life can be longer, shorter or the
same, whether one rebalanced annually or on the election year. The outcome was
just random.
• The real benefit was during mega-bear markets. Capital was preserved better when
rebalancing was based on the presidential election year cycle as opposed to
rebalancing annually. This made a significant difference in portfolio longevity.
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he also warns against reverse dollar cost averaging in his book:
Quote:
In a distribution portfolio, reverse dollar cost averaging (RDCA) works exactly the opposite of DCA. Investments are sold periodically to provide an income. During a bear market, you must sell more shares at a lower price to maintain the same income stream. Even though markets may recover subsequently, your loss is permanent. That is because the shares that you already sold are no longer in your portfolio and cannot participate in the recovery.
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10-26-2009, 12:07 PM
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#12
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2007
Location: New Orleans
Posts: 47,500
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Quote:
Originally Posted by audreyh1
Most portfolio survival models assume annual withdrawal just before you rebalance - and at the start of each year. Basically, that just means converting from any non-cash asset to cash - it doesn't mean you have to take it out of the account, just move what you need out of riskier assets. Convert an year's need to cash and then rebalance also means one taxable event which can simplify things for a taxable account.
There are occasional conversations about selling assets/rebalancing for income needs on a quarterly or monthly basis, but then you will probably be much more aware of the volatility of those assets during the year. I have seen no clear benefit established for doing this. Also, I have read nothing that indicates some optimal time of year either. Personally, I use Jan 15 as it gives me enough time to estimate taxes due on my portfolio which I have to cover as part of my withdrawal.
A lot of people let their distributions and dividends build (don't reinvest them) for the next year's cash needs. That is also the most tax efficient if your assets are mostly in taxable accounts.
Audrey
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After reading and learning and working on my plan for ER, Audrey's method is pretty close to what I have decided to do as well. The only difference is that I may rebalance during the year if my AA gets considerably off due to drastic market changes (as, for example, occured in October 2008). My withdrawals for the year will be taken during the first week or two in January and moved from Vanguard to my bank. Immediately after the January withdrawal, I plan to rebalance. During the year, my dividends are all directed to Vanguard MM.
I am retiring in two weeks, but do not plan to make a withdrawal until January. I have enough in my bank accounts to tide me over until January, as well as to deal with emergencies and fixing up my house to sell next year some time.
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Happily retired since 2009, at age 61. Best years of my life by far!
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10-26-2009, 12:32 PM
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#13
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Moderator Emeritus
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
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Can't find the quote, but Otak seemed to say that the 4 year rebalance suggestion was between equities and fixed. He allows for more frequent rebalancing within any given asset class (e.g. rebalance TIPs with Intermed bonds or total bond idx) if they drift apart too far. Makes sense in a no-fee environment esp in an IRA.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.
As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
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10-26-2009, 01:04 PM
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#14
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 1,012
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Quote:
Originally Posted by Rich_in_Tampa
Can't find the quote, but Otak seemed to say that the 4 year rebalance suggestion was between equities and fixed. He allows for more frequent rebalancing within any given asset class (e.g. rebalance TIPs with Intermed bonds or total bond idx) if they drift apart too far. Makes sense in a no-fee environment esp in an IRA.
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the quote i posted about rebalancing was from article 53 Nov 2003 on his website otar retirement calculator
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10-26-2009, 01:55 PM
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#15
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Moderator Emeritus
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
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Quote:
Originally Posted by jdw_fire
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Sorry - I meant the quote to support my comments. It was from his "Unveiling" book.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.
As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
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10-26-2009, 03:42 PM
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#16
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,145
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Quote:
Originally Posted by Want2retire
After reading and learning and working on my plan for ER, Audrey's method is pretty close to what I have decided to do as well. The only difference is that I may rebalance during the year if my AA gets considerably off due to drastic market changes (as, for example, occured in October 2008).
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Well, actually, I do that too. I was just addressing the withdrawal part of the equation.
I almost always do something in January because I have distributions paid out from some of the funds late in the prior year, but unless things are fairly out of whack I don't do a full rebalancing - keeping tax issues in mind.
Audrey
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Thanks to you all for the input. I never dreamed I'd get ...
10-26-2009, 07:30 PM
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#17
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Dryer sheet aficionado
Join Date: Oct 2009
Posts: 43
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Thanks to you all for the input. I never dreamed I'd get ...
so much good advice from strangers. You guys are the greatest.
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Everyday is Saturday!
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