Join Early Retirement Today
Reply
 
Thread Tools Display Modes
SWR Methodology
Old 06-25-2007, 10:00 PM   #1
Confused about dryer sheets
 
Join Date: Jun 2007
Posts: 2
SWR Methodology

When is considered the best time to make the withdrawals? The first of the year with the amount being placed in a MM or ST Bond Fund and drawn out monthly, or end of year or only as needed, or some other method?
csf13 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 06-26-2007, 07:31 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,008
I don't know if there is an absolute "best" time, but I believe most models assume an annual withdrawal takes place at the beginning of the year.

A once a year type thing is probably the easiest to deal with, and you also probably should rebalance the account at the same time - thus you'll take the withdrawals from the highest appreciating assets for the past year.

Some people use the following method for taxable accounts since it minimizes taxes due - during a year, let all distributions, dividends, etc. go to cash/MM. At the end of the year (beginning of next), use these proceeds to pay taxes on the account and the remainder for annual income. If this falls short of the withdrawal needs (probably does), then withdraw the remaining funds from the highest growth assets for the year - also rebalancing the account.

With a tax-deferred account such as an IRA/401K, you pay taxes only on the withdrawal, so collecting distributions for income needs doesn't make sense. In this case when and how often you withdraw isn't as critical.

Audrey
audreyh1 is online now   Reply With Quote
Old 06-26-2007, 12:43 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
kcowan's Avatar
 
Join Date: Jul 2006
Location: Pacific latitude 20/49
Posts: 7,677
Send a message via Skype™ to kcowan
I do it quarterly when I reassess my portfolio. I also do a little income tax planning at that time. Put it in MM until I draw it down.
__________________
For the fun of it...Keith
kcowan is offline   Reply With Quote
Old 06-26-2007, 06:36 PM   #4
Administrator
Alan's Avatar
 
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,056
Quote:
Originally Posted by audreyh1 View Post
Some people use the following method for taxable accounts since it minimizes taxes due - during a year, let all distributions, dividends, etc. go to cash/MM. At the end of the year (beginning of next), use these proceeds to pay taxes on the account and the remainder for annual income. If this falls short of the withdrawal needs (probably does), then withdraw the remaining funds from the highest growth assets for the year - also rebalancing the account.
Audrey
This is what I am planning to do, which means only 18 months before directing dividends to a MM account instead of re-investing

I'll then withdraw the balance I need to achieve the SWR target quarterly in a manner to help towards re-balancing to target mix
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
Alan is offline   Reply With Quote
Old 06-26-2007, 06:56 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,588
As I recall, Vanguard will set it up to withdraw from your IRA by the rule of 72T this way: Taking the value on Dec 31 of the previous year, they calculate what you can take out that year (1/your life expectancy in years--see IRS table), divide it by 12, and pay you that 1/12th every month of this year. Reset on Dec31 of this year and do again.
__________________
I have outlived most of the people I don't like and I am working on the rest.
Ed_The_Gypsy is offline   Reply With Quote
Old 06-27-2007, 01:28 AM   #6
Full time employment: Posting here.
DRiP Guy's Avatar
 
Join Date: Nov 2006
Posts: 548
Quote:
Originally Posted by Ed_The_Gypsy View Post
As I recall, Vanguard will set it up to withdraw from your IRA by the rule of 72T this way: Taking the value on Dec 31 of the previous year, they calculate what you can take out that year (1/your life expectancy in years--see IRS table), divide it by 12, and pay you that 1/12th every month of this year. Reset on Dec31 of this year and do again.
I will be doing the 72(t) thing myself, but have not really worked through the detailed mechanics yet, so it is good to see how Vanguard does it.

When I had previously asked my local benefits administrator at work if I could do a 72(t) within my existing 401(k) plan, they had no clue, but then when I explained the general concept of substantially equal periodic payments, taken before age 54 1/2, the benefits supervisor stated orally that I could do it. However, the whole discussion did not inspire confidence, and the plan summary docs I have access to say nothing about it. So I asked if I could just get a copy of the actual plan document (not just the summary available locally) and they told me that there is only ONE copy, and it's on the west coast (my assignment with Megacorp is on the East coast, of course)... sheesh.

So I decided that on termination, I will do a roll over to either Fido or TRowe, since I already have other accounts with both of them, anyway.

On the TR website, I saw nothing, so I called them and asked the same question: "Can I set up a 72(t) with a roll over 401(k) with you?" Same thing as at work - the initial contact knew nothing, but a call-back guy said "Yes, sure, just talk to us when it gets to be time." But when I asked to be directed to written info on their site, or to get a written description sent to me, I got the same thing as work -- hemming and hawing.

Maybe I am expecting too much, but for the most important single financial transaction of my life (even more critical than when I bought a house and signed/paid off my mortgage, loan, insurance, title and other docs), I thought there would be a lot more regimentation and guidance.

This is not a burning issue today, but I guess my next stop is to see if Fido has a more 'regularized' plan than TRowe - to me that means: clear, written, available instructions and explanations (including the 72(t) withdrawal option). If Fido has this, then they become the place I will direct my roll over to when I leave Megacorp.
DRiP Guy is offline   Reply With Quote
Old 06-27-2007, 01:52 AM   #7
Full time employment: Posting here.
DRiP Guy's Avatar
 
Join Date: Nov 2006
Posts: 548
Sorry to post a new reply, but the forum no longer allows me to edit my posts (what's up with that behaviour?)

Anyway, here is a link to an older Fidelity calculator, so at least that shows some past awareness of the method!

https://web.fidelity.com/seqp/application/SEQPIntro

And also this rather dated article:
Article

but nothing current, and nothing on TRowe Price website, either.

I know that this is techncially not an 'investment product', but merely an IRS-approved way of accessing your money, but I anticipate it becoming much more popular, and while the rules are relatively simple (but not perfectly simple), there are severe penalties for making any sort of error!

It seems to me that there would be HUGE advantage to having the provider administer an "Auto-72(t)" where you can play with 'what if scenarios', based on your balances, selected withdrawal method (annuity or min distr), time frame, etc.

Once set up and accepted, then they just move the stuff into a sweep or MM type account, and 'lock-box" it so that you can't inadvertently change parameters of an existing 72(t) and trigger penalties and interest, at least not without a lot of 'do you really understand?' and "this will trigger penalties" type language and messaging.

I don't know, maybe I am all wet, but this seems missing to me.
DRiP Guy is offline   Reply With Quote
Old 06-27-2007, 05:39 AM   #8
Thinks s/he gets paid by the post
teejayevans's Avatar
 
Join Date: Sep 2006
Posts: 1,691
Quote:
Originally Posted by DRiP Guy View Post
So I decided that on termination, I will do a roll over to either Fido or TRowe, since I already have other accounts with both of them, anyway.
Understand you will lose the some ERISA protections when you do this,
that may or may not be important to you.
TJ
teejayevans is offline   Reply With Quote
Old 06-27-2007, 10:23 PM   #9
Recycles dryer sheets
 
Join Date: Nov 2005
Posts: 355
Retirement on sheltered savings, prior to age 59.5, is not the norm except on this forum. Those IRS rules are more your problem than the mutual fund family's problem. I see little advantage and some liability exposure to the fund families handling the calculations. I'm not trying to defend them, just looking at it from their view.
heyyou is offline   Reply With Quote
Re: ERISA Protections lost when converting 401k to IRA?
Old 06-28-2007, 08:02 AM   #10
Recycles dryer sheets
 
Join Date: Sep 2006
Posts: 142
Re: ERISA Protections lost when converting 401k to IRA?

Quote:
Originally Posted by teejayevans View Post
Understand you will lose the some ERISA protections when you do this,
that may or may not be important to you.
TJ
TJ,

I thought there was a court decision last year that basically put IRAs on par with 401ks as far as protection from debtors, etc.

Can you elaborate a bit on the protections that are lost when you make the conversion?

Thanks,

Jim
magellan_nh is offline   Reply With Quote
Old 06-28-2007, 08:10 AM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,483
Quote:
Originally Posted by DRiP Guy View Post
On the TR website, I saw nothing, so I called them and asked the same question: "Can I set up a 72(t) with a roll over 401(k) with you?" Same thing as at work - the initial contact knew nothing, but a call-back guy said "Yes, sure, just talk to us when it gets to be time." But when I asked to be directed to written info on their site, or to get a written description sent to me, I got the same thing as work -- hemming and hawing.

Maybe I am expecting too much, but for the most important single financial transaction of my life (even more critical than when I bought a house and signed/paid off my mortgage, loan, insurance, title and other docs), I thought there would be a lot more regimentation and guidance.

This is not a burning issue today, but I guess my next stop is to see if Fido has a more 'regularized' plan than TRowe - to me that means: clear, written, available instructions and explanations (including the 72(t) withdrawal option). If Fido has this, then they become the place I will direct my roll over to when I leave Megacorp.
Hey, noone said DIY is easy. Fido reps not knowing the rules? Pretty common when you're talking to a customer servic rep who makes $25,000 a year at most.........
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Old 06-28-2007, 05:39 PM   #12
Thinks s/he gets paid by the post
teejayevans's Avatar
 
Join Date: Sep 2006
Posts: 1,691
Quote:
Originally Posted by magellan_nh View Post
TJ,

I thought there was a court decision last year that basically put IRAs on par with 401ks as far as protection from debtors, etc.

Can you elaborate a bit on the protections that are lost when you make the conversion?

Thanks,

Jim
My understanding is the IRAs are only protected to a limit (IIRC 92K),
where defined retirement plans (401Ks, pensions, etc) are completely
protected from bankruptcy. Martha probably can be more specific.
TJ
teejayevans is offline   Reply With Quote
Old 06-28-2007, 08:40 PM   #13
Full time employment: Posting here.
DRiP Guy's Avatar
 
Join Date: Nov 2006
Posts: 548
Quote:
Originally Posted by heyyou View Post
Retirement on sheltered savings, prior to age 59.5, is not the norm except on this forum. Those IRS rules are more your problem than the mutual fund family's problem. I see little advantage and some liability exposure to the fund families handling the calculations. I'm not trying to defend them, just looking at it from their view.
Thanks for the reply, and I take your meaning as to the ER situation being unusual, and that the decision to take advantage of the IRS allowed method is my choice, not any one else's.

But I see Fido and TRP as for-profit financial service orgs who have been and will continue to profit from me deciding and ALLOWING them to have huge gobs of my own money entrusted to them, and for a very long while, too. So again, maybe I am still not seeing it, but that tiny value added service I would expect: administering an IRS-allowed but admittedly slightly peculiar distribution schedule, still does not seem to much to ask in return.
DRiP Guy is offline   Reply With Quote
Old 06-29-2007, 11:19 AM   #14
Thinks s/he gets paid by the post
jIMOh's Avatar
 
Join Date: Apr 2007
Location: west bloomfield MI
Posts: 2,223
Quote:
Originally Posted by DRiP Guy View Post
I will be doing the 72(t) thing myself, but have not really worked through the detailed mechanics yet, so it is good to see how Vanguard does it.

When I had previously asked my local benefits administrator at work if I could do a 72(t) within my existing 401(k) plan, they had no clue, but then when I explained the general concept of substantially equal periodic payments, taken before age 54 1/2, the benefits supervisor stated orally that I could do it. However, the whole discussion did not inspire confidence, and the plan summary docs I have access to say nothing about it. So I asked if I could just get a copy of the actual plan document (not just the summary available locally) and they told me that there is only ONE copy, and it's on the west coast (my assignment with Megacorp is on the East coast, of course)... sheesh.

So I decided that on termination, I will do a roll over to either Fido or TRowe, since I already have other accounts with both of them, anyway.

On the TR website, I saw nothing, so I called them and asked the same question: "Can I set up a 72(t) with a roll over 401(k) with you?" Same thing as at work - the initial contact knew nothing, but a call-back guy said "Yes, sure, just talk to us when it gets to be time." But when I asked to be directed to written info on their site, or to get a written description sent to me, I got the same thing as work -- hemming and hawing.

Maybe I am expecting too much, but for the most important single financial transaction of my life (even more critical than when I bought a house and signed/paid off my mortgage, loan, insurance, title and other docs), I thought there would be a lot more regimentation and guidance.

This is not a burning issue today, but I guess my next stop is to see if Fido has a more 'regularized' plan than TRowe - to me that means: clear, written, available instructions and explanations (including the 72(t) withdrawal option). If Fido has this, then they become the place I will direct my roll over to when I leave Megacorp.
check the IRS web site... I invest with T Rowe, but would not consider it there responsibility to do properly- it would be my responsibility.
__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
jIMOh is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Is the S&P 500 the best data set to base our 4% SWR on? Dorus FIRECalc support 9 08-12-2006 01:12 AM
New SWR estimation methodology: little help? brewer12345 FIRE and Money 30 01-10-2006 09:39 AM
Implications of SWR GDH FIRE and Money 13 10-26-2004 06:53 AM
SWR, terminal values, TIPS, I-bnds & comm paper sgeeeee FIRE and Money 144 02-25-2004 03:35 PM

» Quick Links

 
All times are GMT -6. The time now is 07:10 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.