Retirement withdrawls- Monthly or Annually

[bizlady]

For those retired, are you taking your retirement withdrawls monthly or annually??

I am assuming monthly is best to dollar cost average out, but what else should I consider?

 

[CuppaJoe]

I take it monthly from a savings/CD account where I leave the rest at 1.5% interest rate whereas my checking account gets zero interest. I have about 1-1/2 years expenses in the savings account. When I move money from a bond account to the savings account it will be in bigger chunks for simplified tax purposes; haven't decided exactly how yet but it will probably be one year's expenses at a time. So far I like getting the monthly transfers this way as it continues the idea of getting a regular paycheck.

 

[charlie]

My approach is similar to Joe's.

I accumulate IRA distributions to my IRA money market and then
transfer my RMD to a taxable MM each December.

My DW then writes a monthly check on the IRA to deposit in her
checking account.

Like cuppaJoe said, it is like getting a monthly salary check. It
helps provide dicipline in maintaining a monthly budjet.

Cheers,

charlie

 

[WilliamG]

We withdraw from IRA quarterly after quarterly distributions. Do an extra small withdrawal in December to "true up" tax withholding as necessary (can withhold on withdrawals which much prefer to filing estimated taxes).

IRA withdrawal goes to taxable money market which we use to get monthly transfers to bank checking where our debit card, automatic pay, etc stuff is done. This monthly transfer is our "paycheck" for monthly expenses.

 

[Rich_by_the_Bay]

Bizlady, many believe that your immediate-use money should probably be in very stable (i.e. nonvolatile) accounts such as CDs, money market, bank, or -- at the most -- short term safe bonds. In that case you don't earn much interest, and you don't have to worry much about dollar-cost averaging out.

Beyond that, montly or quarterly hardly matters. My impression is that most do it monthly.

 

[REWahoo]

Since we got paid every other week while working, once we retired I set up an automatic bi-weekly transfer from a Vanguard MMkt account (IRA) to our bank checking account. All quarterly distributions from our IRAs also go to the MMkt account to help reduce the rate of depletion.

I take a close look at where we are in the 4th quarter and adjust withdrawals to manage our taxes.

EIDT to add: The bi-weekly Vanguard transfers also include income tax withholding. Much easier for me to manage this way rather than having to fool with (and remember) quarterly payments.

 

[W2R]

Not retired yet, but here's the plan.

During the year, my dividends will go to my Vanguard MM account.

Each January I will transfer the coming year's spending money from my Vanguard MM to my bank account during the rebalancing process. It will go into my savings account, and then each month I will transfer my monthly spending money from savings into checking.

If I do not spend all of it, and taxes do not completely obliterate the excess, then I will just transfer less the next year and reinvest the excess.

The reason I am doing it this way is that it is very simple. As I become a more seasoned, experienced retiree, I will probably transfer monthly instead of once a year so that I get a few dollars more interest. But as a new retiree-to-be just starting to live on a new budget, I think this will be easier for me personally.

 

[REWahoo]

Each January I will transfer the coming year's spending money from my Vanguard MM to my bank account during the rebalancing process.

If this annual transfer is an IRA withdrawal, how will you handle taxes?

 

[W2R]

If this annual transfer is an IRA withdrawal, how will you handle taxes?

It's not. The above description is for my taxable account. I forgot to discuss the tax sheltered part. My Roth IRA is my only IRA and is pitifully small, (less than $10K), so I plan to leave it alone until I am at least 90.

As for my TSP, I will be getting equal monthly payments sent to me. It seems to me that they withhold taxes, but if they don't then I will just withhold it myself - - I'll have to manually put the projected taxes on the TSP money into my savings account and the spending portion in checking. Basically, anything in checking is fair game for spending.

As I understand it, my federal pension and social security don't withhold state taxes so I'll have to manually withhold them in a similar way. What a headache. It sounds like we really have to work at being retired! I will be paying estimated taxes quarterly.

 

[Rich_by_the_Bay]

EIDT to add: The bi-weekly Vanguard transfers also include income tax withholding. Much easier for me to manage this way rather than having to fool with (and remember) quarterly payments.

REW is that withhold an IRA requirement or is it optional? Fixed percent?

 

[REWahoo]

REW is that withhold an IRA requirement or is it optional? Fixed percent?

It's optional. From the Vanguard website:

"You can elect either not to have any federal income taxes withheld from your IRA distributions, or to have a minimum of 10% withheld."

You can select any withholding percentage of 10% or more.

 

[TromboneAl]

Via VanguardAdvantage, we just use the money in our taxable money market, and replenish it if it gets too low. We always know how much we're spending (from Quicken), so there are no worries that we'll go over our annual spending allowance.

IOW, there's no explicit withdrawal of money.

 

[W2R]

It's optional. From the Vanguard website:

"You can elect either not to have any federal income taxes withheld from your IRA distributions, or to have a minimum of 10% withheld."

Then don't you still have to make estimated quarterly payments for your state taxes? OH - - that's right. You live in TEXAS. Guess that partly makes up for the rest of it.

 

[REWahoo]

Then don't you still have to make estimated quarterly payments for your state taxes? OH - - that's right. You live in TEXAS. Guess that partly makes up for the rest of it.

Yep. But I do have to keep my air conditioner repairman and pest control service on retainer...

 

[WilliamG]

Then don't you still have to make estimated quarterly payments for your state taxes? OH - - that's right. You live in TEXAS. Guess that partly makes up for the rest of it.

Vanguard also allows you to withhold for state. Requirements for withholding vary by state. North Carolina (our state) requires withholding to be at least 4%. You can specify above 4% as a higher percentage or a specific $ amount.

 

[Zathras]

Similar to others here.
Once we are no longer acumilating, we will take our quarterly distribution of dividends and put them into a MM account and live off that.
Pulling directly from your equity or bond portion is probably not the best as you would then need to pull funds out at really bad times to sell (like now).

 

[audreyh1]

You should consider that you might start feeling real nervous if your retirement portfolio is dropping rapidly and you are only getting one month's worth of money out at a time. Also, do you change investments (i.e. rebalance the portfolio) after taking a withdrawal? That's something better done once a year rather than monthly, especially since there are probably tax consequences (either due to selling stuff in the portfolio or due to withdrawal from an IRA), and it's easier to deal with tax consequences on a yearly basis.

Many of us take out a year's worth of needs (plus any taxes due) in Jan, rebalance the remaining portfolio, and put that money in a money market account. You can then have monthly amounts sent to your bank account or whatever.

Audrey

 

[Gotadimple]

Annually.

Dividends and capital gains are moved to money market accounts in brokers and IRA accounts. I'm also still converting from a Traditional IRA to a Roth.

When I rebalance annually, I take a distribution that goes into my credit union money market account. Distributions are from my brokerage account for now. There is one year of expenses in the credit union and one year in a brokerage short term bond fund.

In the future IRA distributions will move to the brokerage account and then to the credit union account.

I account for taxes currently using estimated taxes (and pay them that way - sigh).

-- Rita

 

[WilliamG]

You should consider that you might start feeling real nervous if your retirement portfolio is dropping rapidly and you are only getting one month's worth of money out at a time. Also, do you change investments (i.e. rebalance the portfolio) after taking a withdrawal? That's something better done once a year rather than monthly, especially since there are probably tax consequences (either due to selling stuff in the portfolio or due to withdrawal from an IRA), and it's easier to deal with tax consequences on a yearly basis.

Many of us take out a year's worth of needs (plus any taxes due) in Jan, rebalance the remaining portfolio, and put that money in a money market account. You can then have monthly amounts sent to your bank account or whatever.

Audrey

Good point on re-balancing vs withdrawal. I was speaking only to withdrawal mechanics. Portfolio asset allocation and re-balancing is done separately. We have a bucket of "safe" investments in IRA as mentioned above from which we can easily keep IRA MM above withdrawal amount (the MM is what is automatically transferring to taxable). Since we route all dividends in the IRA to IRA MM, quarterly distributions come close to being what we need for our quarterly transfers.

 

[yakers]

I am receiving monthly withdrawals from my Federal TSP into checking. In Jan 2010 DW will began monthly withdrawals from her VG IRA into our checking account.

 

[Khan]

My pension arrives once a month; my CDs mature in December.

 

[audreyh1]

Good point on re-balancing vs withdrawal. I was speaking only to withdrawal mechanics. Portfolio asset allocation and re-balancing is done separately. We have a bucket of "safe" investments in IRA as mentioned above from which we can easily keep IRA MM above withdrawal amount (the MM is what is automatically transferring to taxable). Since we route all dividends in the IRA to IRA MM, quarterly distributions come close to being what we need for our quarterly transfers.

It ultimately doesn't really matter whether that MM fund holding a year's worth of expenses (including anticipation of taxes due) is inside the IRA or outside of the IRA. The point is to get what you need out of investments that change value during the year (i.e. keep it in cash). The OP spoke of "monthly is best to dollar cost average out" which implies she was considering selling equities/bonds on a monthly basis. I was pointing out why you might not want to do it that way.

Audrey

 

[growing_older]

I am assuming monthly is best to dollar cost average out,

The same math that makes dollar cost averaging work in your favor when accumulating savings, works to your disadvantage if you try to dollar cost average out of equities. If you want a monthly cash flow, you probably want to pull living expenses out of cash or near-cash holdings and rebalance periodically.

 

[youbet]

IOW, there's no explicit withdrawal of money.

That's how it works at our house too. I have a seven year spending history (by month) posted on the bulletin board over my desk. I modify that with pencilled info concerning ad hoc plans such as a special purchase or vacations. Normal (for me) money movements inside our investment portfolio are tapped to get the needed cash into DW's checkbook in adequate amounts to cover expenses. Other than DW's checking account, there are no separate "buckets" or other accounts and no formal withdrawal schedule. Our source of spending money is different every year depending on market conditions, maturities of fixed investments, reinvestment opportunities, etc.

 

[Koolau]

Retired for less than 4 years now and we have been using non-IRA money to supplement pension (and now DW's SS). YEARLY, one-time IRA withdrawals have been for conversion to Roths - until last month. This year's withdrawal (not an RMD, mind you) has gone for part of down payment for new property.

We have been paying quarterly taxes (Fed/State) to cover the IRA conversions and will continue to do so - only this year there will be no conversions IRA custodians have never required withholding. Hope we didn't screw up. We always send extra for quarterly taxes to be sure we don't pi** off Uncle.

Next year, we will have to begin taking funds from IRAs for actual living expenses. Based on that, we need to answer the same question as OP. Monthly or yearly? I'll let you know!