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Withdrawal rates
Old 08-10-2019, 08:43 AM   #1
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Withdrawal rates

If a person has a stock/bond mix of 70-30 at retirement, what would be the recommended withdrawal rate from each bucket?
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Old 08-10-2019, 08:51 AM   #2
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I think the apportionment of your withdrawals would change each year so that you maintain the same AA.

So in a year when stocks tank, you'll take less from the stock bucket and more from the fixed bucket. If the following year the market soars, you'll glean more from the equity bucket.
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Old 08-10-2019, 08:52 AM   #3
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Assume you want to maintain 70/30?

Take all distributions from dividends, interest, and cap gains in your taxable account as cash. Figure out how much additional you need to withdraw, and withdraw from each account as required to get back to 70/30 based on the returns since you last withdrew. If stocks have grown, you're probably overweight in stocks so sell them. If stocks sank, sell from bonds.
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Maybe an illustration will help.
Old 08-10-2019, 08:57 AM   #4
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Maybe an illustration will help.

Example: You've got a million dollar stash, with a 70/30 AA, and you want to extract 40k. 70% X 40k = 28k, so that's what you take from the equity bucket. 30% X 40k = 12k, so you take 12 thousand from the bond bucket.
28k + 12k = 40k.

If over the next year, as prices of stocks and bonds fluctuate, you'd withdraw your 40 split is such a fashion that you'll return your portfolio to the target AA.
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Old 08-10-2019, 10:31 AM   #5
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Originally Posted by thepalmersinking View Post
If a person has a stock/bond mix of 70-30 at retirement, what would be the recommended withdrawal rate from each bucket?
While I have an different AA, I include a cash bucket... so in your situation you could go to 70/25/5 or something like that. During the year, I draw money from the cash bucket for spending needs... in December I rebalance.... I replenish the cash bucket as part of my December rebalancing back to 70/25/5.

I also have taxable account dividends and capital gain distributions go into cash rather than be automatically reinvested.

IOW, my "retirement" money is ring-fenced with the cash account being the "gatekeeper".
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Old 08-10-2019, 10:52 AM   #6
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Originally Posted by Mdlerth View Post
Example: You've got a million dollar stash, with a 70/30 AA, and you want to extract 40k. 70% X 40k = 28k, so that's what you take from the equity bucket. 30% X 40k = 12k, so you take 12 thousand from the bond bucket.
28k + 12k = 40k.

If over the next year, as prices of stocks and bonds fluctuate, you'd withdraw your 40 split is such a fashion that you'll return your portfolio to the target AA.

This is the simplest and best way to keep the AA going.
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Old 08-10-2019, 06:22 PM   #7
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While I have an different AA, I include a cash bucket... so in your situation you could go to 70/25/5 or something like that. During the year, I draw money from the cash bucket for spending needs... in December I rebalance.... I replenish the cash bucket as part of my December rebalancing back to 70/25/5.

I also have taxable account dividends and capital gain distributions go into cash rather than be automatically reinvested.

IOW, my "retirement" money is ring-fenced with the cash account being the "gatekeeper".
with a cash bucket, do you withdraw from bonds and equities in a down market or just use up the cash first ?
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Old 08-10-2019, 09:15 PM   #8
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with a cash bucket, do you withdraw from bonds and equities in a down market or just use up the cash first ?
In down equity market I would end up replenishing cash from fixed income and also replenishing equities to target from fixed income.

So for example... $1 million at beginning of year $700k equities, $250k fixed income and $50k of cash. During the year $40k of transfers to checking that is spent... and equity market declines 20% but generates $14k of dividends and fixed income interest is $7k. So before rebalancing I have $560k of equities ($700k * (1-20%)), $250k of fixed income and $31k of cash ($50 + $14 div + $7 int - $40 spending).... total of $841.

Rebalancing targets are $589 equities, $210k fixed income and $42k cash (70/25/5). Sell $40k of fixed income and buy $29k of equities and keep remaining $11k in cash to get back to 70/25/5.

Alternatively, if you view the $250k as a bucket... you could just sell $11k of fixed income to replenish cash and stand pat and wait for equities to recover.
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Income taxes and HCOL state.
Old 08-12-2019, 09:33 AM   #9
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Income taxes and HCOL state.

What about my personal rate of income taxes. Won't this make a difference? Thank you. Newbie here.
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Originally Posted by RunningBum View Post
Assume you want to maintain 70/30?

Take all distributions from dividends, interest, and cap gains in your taxable account as cash. Figure out how much additional you need to withdraw, and withdraw from each account as required to get back to 70/30 based on the returns since you last withdrew. If stocks have grown, you're probably overweight in stocks so sell them. If stocks sank, sell from bonds.
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Old 08-12-2019, 09:48 AM   #10
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What about my personal rate of income taxes. Won't this make a difference? Thank you. Newbie here.
Not really, if you've done things right.

First, you should have your assets placed in your account types with this as a guide: https://www.bogleheads.org/wiki/Tax-...fund_placement
Basically, bonds in IRAs, stocks in taxable. The page in the link goes in more detail.

If you need to sell bonds and only hold them in your IRA, you can sell them in your IRA, and then buy back that amount in stocks in the IRA, and sell that amount in stocks in your taxable for the cash you need.

If you need to sell stocks for balance, obviously that's just a straight sell out of your taxable account.

If you're pulling withdrawals from your tIRA, it doesn't matter what you sell because the whole withdrawal is taxed, no matter whether it was stocks or bonds in the account. If it's from a Roth, the withdrawal is untaxed. (This is for common IRA cases--there are some complexities for things like early withdrawals and other things like that, which I'm not going to cover.)

While it's true that selling stocks in taxable is a taxable event and one you may want to avoid, you can do some harvesting of any losses or shares that have small gains. You should be selling any mutual funds using Specific ID basis to help with this. And if you do pay taxes, it's probably at a 15% LTCG rate, which is not too bad.

IMO it's more important to keep a safe AA than it is to avoid taxes at all costs. Don't let tax avoidance rule your strategy. Determine your strategy, then try to figure out how to optimize for taxes, rather than the other way around.
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Old 08-12-2019, 09:51 AM   #11
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What about my personal rate of income taxes. Won't this make a difference? Thank you. Newbie here.
No... because withdrawals to pay taxes are no different from withdrawals to pay for groceries (or hookers).... a withdrawal is a withdrawal irrespective of what it is spent on or even if it is saved outside the ring-fence of retirement savings.
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Old 08-12-2019, 09:57 AM   #12
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No... because withdrawals to pay taxes are no different from withdrawals to pay for groceries (or hookers).... a withdrawal is a withdrawal irrespective of what it is spent on or even if it is saved outside the ring-fence of retirement savings.
LOL, hookers and groceries(wants and needs)
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Old 08-12-2019, 10:31 AM   #13
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Thanks RunningBum. I do have my index funds invested as Vanguard suggests. However, I am having a wee bit of a hard time not letting taxes effect withdrawals. I will need help with using specific ID when the time comes.



I will be using all of my taxable investments when the time comes in 2021 when I have only income of 15k per year and need 65 k for expenses. I have almost 2 million in taxable, 1 million in brokerage, and 800 in IRAs. Still am scared to death at the idea of living off of it.


Lots to consider...


p.s. I own my home and have zero dept.
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Old 08-12-2019, 10:48 AM   #14
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I will be using all of my taxable investments when the time comes in 2021 when I have only income of 15k per year and need 65 k for expenses. I have almost 2 million in taxable, 1 million in brokerage, and 800 in IRAs. Still am scared to death at the idea of living off of it.

p.s. I own my home and have zero dept.
So after your 15Kyr income you will need 50K/yr draw. Easy peasy. You have 2. 8 mil (or so). A 4% pull gets you over 100Kyr safetly. With that low 15Kyr income you may want to look into ROTH converstions for the IRA. I am guessing with 2 mil taxable you may even get close to 50K/yr in dividends.
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Old 08-12-2019, 10:51 AM   #15
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Originally Posted by sadie1958 View Post
Thanks RunningBum. I do have my index funds invested as Vanguard suggests. However, I am having a wee bit of a hard time not letting taxes effect withdrawals. I will need help with using specific ID when the time comes.



I will be using all of my taxable investments when the time comes in 2021 when I have only income of 15k per year and need 65 k for expenses. I have almost 2 million in taxable, 1 million in brokerage, and 800 in IRAs. Still am scared to death at the idea of living off of it.


Lots to consider...


p.s. I own my home and have zero dept.
An extreme but real-life warning against letting taxes dictate action:

In 2000 I had a paper fortune in unexercised employee stock options. I had definite plans to move to a state with a 2% lower income tax rate the next year Why not wait a year? That 2% would be a nice new car.

Guess what? The bubble burst. Many of the options went under water, and never came back up before they expired. I don't even want to remember the exact amount but I lost well over $1 million, and it set back my early retirement about a decade.

Since then, taxes are secondary in my investment decisions.

From your brief description, you look like you're in great shape. I encourage you to write a "Hi, I am" intro post under that forum and people can make suggests and probably mostly help you get over your anxieties. Most of us who retired early had some concerns about pulling the cord, but most all of us have no issues and laugh when we look back on how worried we were.
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Old 08-12-2019, 10:52 AM   #16
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.... I will be using all of my taxable investments when the time comes in 2021 when I have only income of 15k per year and need 65 k for expenses. I have almost 2 million in taxable, 1 million in brokerage, and 800 in IRAs. Still am scared to death at the idea of living off of it. ...
Being scared is normal. But a withdrawal of $50k a year on a $3.8m portfolio is only 1.3%... your dividends and interest would likely be more than that so no need to be afraid.

If you are over 59 1/2 when you need these withdrawals you may be better off to do IRA withdrawals if you are at that point in a lower tax bracket than you will be later in retirement once SS starts (or any pensions).
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Old 08-12-2019, 10:53 AM   #17
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So after your 15Kyr income you will need 50K/yr draw. Easy peasy. You have 2. 8 mil (or so). A 4% pull gets you over 100Kyr safetly. With that low 15Kyr income you may want to look into ROTH converstions for the IRA. I am guessing with 2 mil taxable you may even get close to 50K/yr in dividends.
Dawg, I think she has $3.8m, not $2.8m.
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Old 08-12-2019, 11:00 AM   #18
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This is partly why I suggest Sadie open her own thread to fully explain her situation if she wants to, rather than a partial and somewhat confusing picture.
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Old 08-12-2019, 11:00 AM   #19
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Having lived through the Great Recession, I still quake at the idea of having only my investments to live on. Please understand I am grateful I have what I have and always want to help others. I just saw what happened to my investments in 2008 and 2009 and it seems to me that having a stash of cash for 5 years for market recovery is the safest thing to do.
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Old 08-12-2019, 11:09 AM   #20
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If your withdrawals are only $50k a year, you could take $500k and set up a 10 year CD ladder of $50k/year to fund the first 10 years of retirement and invest the remaining $3.3m in an asset allocation that allows you to sleep well at night.
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