Originally Posted by Shabber2
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?
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.