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Old 04-05-2008, 06:56 PM   #21
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Originally Posted by Shabber2 View Post
Simple question, but when I retire with my nest egg and it is in a nice asset allocated slice and dice potpori of index funds, where and when do I get my 4% withdrawl to live on?

Stop reinvesting dividends? Sell some winners on rebalancing and keep 4% out?

- Chris
I am advocate of trying to generate as much income as possible, which reduces the hard choices of when to sell stocks to pay for living expenses and provides greater visibility into income. So as a first step, I'd say yes stop reinvesting dividends. Probably the same thing for capital gains on mutual funds.

For instance take a look income generated on a $1 million portfolio

30% Total Stock Market 2% yield = $6,000
20% International Stocks 2% yield = $4,000
30% Total bond market @4.3% = $12,900
10% Money market @3% = $3,000
10% CD ladder @4% = $4,000
Total Income $29,900

So now the problem is reduced from where do I withdraw $40,000 to where do I get $10,000. The good news is you can be relatively certain of your income regardless of how the stock or bond markets fair since both bond payments and dividend payments don't fluxuate a lot even if the share price of the fund does. The major exceptions are money market rate which do drop (5%+ to 3% in a year) .

Logistically there are lots of approaches, but I personally use a brokerage checking account, and arrange for monthly electronic transfers.
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Old 04-05-2008, 07:03 PM   #22
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Originally Posted by TickTock View Post
my present thought is to sweep all non-tax-advantaged dividends/interest/distributions to a money-market account, check at the end of the year how close to filling the account with next year's estimated expenses it is, then rebalance. Tax-advantaged accounts will have all distributions re-invested in the funds they come from.
This seems to make the most sense to me. And while I am only 40, I still plan on FIRE'ing in 1-3 years with a mostly non-tax advantaged nestegg. Thanks everyone for your input.
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Old 04-06-2008, 12:39 AM   #23
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I am one of the lucky ones with a pension. So big part of my income needs comes from that.
I have preferreds and muni's and oil trusts that generate income. I have the brokerage firm send a check to my bank every month for a set amount.
I have 5 years of mm and cds that I draw on for any gaps I may have.
I replenish my 5 years of mm and cds from equity portion of my portfolio given that the market is good and I actually have gains (something I don't have this year and so far have watch 2007 gains evaporate).

So my answer is
pension + div. & int + mm & cds = swr
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Old 04-06-2008, 10:07 AM   #24
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Tax-advantaged accounts will have all distributions re-invested in the funds they come from.
TickTock,

In my IRA, Vanguard lets me choose where the dividends from each fund will go. (I have wondered how well it would work if I sent the dividends from, say, a total stock market fund to a bond fund and vice versa. I must spreadsheet this one day.) At the moment, I am sending all dividends to a MM account and I take my time rebalancing. I don't know, but I'll bet Fidelity and others allow the same...unless it is inside a company retirement plan. Those tend to be designed for the convenience of the employer, not you.
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Old 04-06-2008, 10:30 AM   #25
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While there's no right or wrong, the main thing is to keep enough cash and conservative stocks on hand to cover expenses for a long time so you don't have to sell stocks low or panic during brief but steep corrections.
Even the seemingly straightforward idea of keeping a large cash allocation can be challenged and, depending on the actual financial conditions you retire into, might be "wrong."

To OP - About two years into RE, I'm finding planning and executing the withdrawal phase to be much more "interesting" than the accumulation phase was. Most interesting is the fact that there seems to be no way to guard against both portfolio value variation and inflation without tradeoffs.
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Old 04-06-2008, 07:06 PM   #26
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TickTock,

In my IRA, Vanguard lets me choose where the dividends from each fund will go. (I have wondered how well it would work if I sent the dividends from, say, a total stock market fund to a bond fund and vice versa. I must spreadsheet this one day.) At the moment, I am sending all dividends to a MM account and I take my time rebalancing. I don't know, but I'll bet Fidelity and others allow the same...unless it is inside a company retirement plan. Those tend to be designed for the convenience of the employer, not you.
Yes, my and DW's 401k's (and IRA's) allow this as well. I choose to reinvest all distributions back in the fund they were generated, then rebalance once a year.

Since the are no tax considerations and I rebalance once a year, I haven't really studied it closely. There may well be a better way. I'm convinced this is, if not *the* best way, a pretty darn good way.
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