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Old 02-12-2013, 08:34 PM   #21
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Probably the biggest headache after my withdrawal is guesstimating the amount of money to set aside for paying estimated taxes during the year.
I'm still w*rking, but I have to do estimated tax payments as well. I don't spend any energy trying to estimate my true likely tax obligation, I always just use the dollar figure I paid the year prior. It might turn out to be way low or high, but the IRS can't fine folks who do this for underreporting and I don't have to think of it again for the year. I am fairly lazy about these things.
And for folks who haven't tried it, I strongly recommend the EFTPS system that automatically debits your bank account for the tax payments. It takes a couple of steps to set up the account, but after that it takes just 10 minutes once per year to arrange for the automatic "quarterly" payments. Since they aren't truly quarterly, it would be easy for me to forget to make one if it weren't on autopilot.
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Old 02-12-2013, 08:53 PM   #22
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I'm still w*rking, but I have to do estimated tax payments as well. I don't spend any energy trying to estimate my true likely tax obligation, I always just use the dollar figure I paid the year prior. It might turn out to be way low or high, but the IRS can't fine folks who do this for underreporting and I don't have to think of it again for the year. I am fairly lazy about these things.
And for folks who haven't tried it, I strongly recommend the EFTPS system that automatically debits your bank account for the tax payments. It takes a couple of steps to set up the account, but after that it takes just 10 minutes once per year to arrange for the automatic "quarterly" payments. Since they aren't truly quarterly, it would be easy for me to forget to make one if it weren't on autopilot.
I have a huge variability in my year to year taxable income, but yes, I start with the "safe harbor" value based on prior years taxes*1.1 for the initial set aside for taxes to be paid during the year. But I don't know this value for sure until April 15th (or maybe March) of the new year, so on Jan 2nd I am still guesstimating both what I owe remaining on April 15 for the prior year's taxes plus the rest of the year's estimated tax payments.

But, no, I don't think I'm willing to overpay $10K or more in taxes, only to get it back as a refund many months later. So at some point, if I think I'm overpaying, I'll do the extra work. I have all the spreadsheets and many years of experience.
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Old 02-12-2013, 09:10 PM   #23
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So at some point, if I think I'm overpaying, I'll do the extra work. I have all the spreadsheets and many years of experience.
You definitely run a tighter ship than I do! And your way makes a lot of sense, especially if making (unnecessarily high) estimated payments means paying cap gains to get the money.
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Old 02-12-2013, 09:23 PM   #24
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You definitely run a tighter ship than I do! And your way makes a lot of sense, especially if making (unnecessarily high) estimated payments means paying cap gains to get the money.
It would be nice if my taxable income only varied +/- 10% each year or increased gradually from year to year. Then I'd just do the safe harbor quarterly payments and be done with it. But it has rarely worked out that way.

It doesn't help that often >80% of my taxable income is received in December.
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Old 02-12-2013, 11:26 PM   #25
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No, my dividends are not paying out to my savings account during the year. They stay accumulating as cash in the portfolio until the end of the year. That may not have been clear from my original post (and I will correct it). Then at the end of the year, I know how much my portfolio grew (or shrank) including the dividends, and I calculate the withdrawal amount based on the total portfolio value at the end of the year.
Do you only rebalance once a year or based on rebalancing bands? If the latter, does the increase in cash in your portfolio due to dividends ever cause you to rebalance your portfolio during the year?

I don't track cash in my AA at this point (still accumulating), but I can see where it might be helpful to track a percentage in cash once in the withdrawal phase.
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Old 02-13-2013, 07:21 AM   #26
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Do you only rebalance once a year or based on rebalancing bands? If the latter, does the increase in cash in your portfolio due to dividends ever cause you to rebalance your portfolio during the year?

I don't track cash in my AA at this point (still accumulating), but I can see where it might be helpful to track a percentage in cash once in the withdrawal phase.
I rebalance based on rebalancing bands, but it's rare that they get triggered since I also do a rebalance at the same time I take my withdrawal. End of year mutual fund distributions usually have my AA out of balance by Jan.

No, I don't count my accumulating cash from distributions in my rebalance equation so that doesn't trigger a rebalance. This is for the simple reason that most (if not all) of it will be withdrawn, and it doesn't make sense to reinvest it and then turn around and sell assets (incurring more taxes) to meet the annual withdrawal. I receive >80% of my distributions in Dec anyway, so Jan is close enough to do the withdrawal and rebalance.

But if we were to have a big market event during the year, it might trigger rebalancing, even ignoring the accumulated cash from distributions.

BTW I keep 5% in cash already as part of my retirement portfolio AA.
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Old 02-13-2013, 08:31 AM   #27
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I take full amount of expenses out each year and park in tax exempt money market. Move monthly expense amount to checking account 1st of each month. All dividends, cap gains etc over the course of the year are taken in cash and go into money market. I then use those proceeds to fund the next year's expenses and/or to affect rebalancing.
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Old 02-13-2013, 08:52 AM   #28
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Most of my investment income comes from monthly dividends from a bond fund account. That dividend goes to my local bank's checking account from which my bills are paid. I have two other (much smaller) bond funds whose dividends get reinvested, along with a stock fund whose quarterly dividends get reinvested. All cap gain distributions, including those from the big bond fund, get reinvested.

Because some of my bills are not monthly, especially the larger ones such as auto insurance, estimated income taxes, and health insurance, I have to carefully plan my budget so that I have enough of a surplus from previous months to cover the larger, infrequent bills (which are often due the same month) But despite that, I still have some small surpluses from the big bond fund's dividend so that I can reinvest it back into the fund.

I also keep a small cushion in my bank's checking account (over the minimum balance to avoid monthly fees) to cover any small, unforeseen expenses. For larger, unforeseen expenses, I have other bond "slush" funds I can tap into. I want as much of my money as possible earning some kind of return, not sitting in an account earning next to nothing.

As for bookkeeping for tax purposes, each mutual fund has a spreadsheet so I can easily keep track of my FIFO cost basis whenever I sell shares which is pretty rare (in 2011, for example, for the first time since I began buying mutual fund shares in 1990, I did not have to file a Schedule D). Most of the rebalancing I do is in my TIRA, as I have a wider range of acceptable AAs in my taxable accounts.
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Old 02-13-2013, 01:18 PM   #29
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BTW - I think another interesting related topic is what do you do with spending money that you did not spend the year before?

Some people leave (or return) the excess in their long-term portfolio.

I have the philosophy that once an annual withdrawal is made, it doesn't get returned to the long-term portfolio, because I don't want it subjected to the risks and volatility of the long-term retirement portfolio. I prefer to let excess spending money accumulate outside the retriement portfolio (in short-term bond funds). Then I can blow it on something . Or maybe we have an emergency, or someone in dire need that we have to help. Or, more realistically, we have a really bad market year and are forced to withdraw substantially less from the retirement portfolio because it shrank. I might not need it now, but I might in a year or two. You never know!
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Old 02-13-2013, 01:38 PM   #30
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I have the philosophy that once an annual withdrawal is made, it doesn't get returned to the long-term portfolio, because I don't want it subjected to the risks and volatility of the long-term retirement portfolio. I prefer to let excess spending money accumulate outside the retriement portfolio (in short-term bond funds). Then I can blow it on something . Or maybe we have an emergency, or someone in dire need that we have to help. Or, more realistically, we have a really bad market year and are forced to withdraw substantially less from the retirement portfolio because it shrank. I might not need it now, but I might in a year or two. You never know!
I completely agree. Although recently ER, I have been taking corporate dividends for some time. If I end up with money to spare, I certainly don't put it back. Up to now I have used it primarily to fund my TFSA (Like a Roth) and then to pay down principal on mortgages of rental property, thereby hastening the advent of another income stream. In a couple of years when my car payment is out of the picture I may put some in a "fun" account. Of course, if I am routinely underspending my planned SWR, and if the markets are doing well, it will be time for a rethink!
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Old 02-13-2013, 03:57 PM   #31
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BTW - I think another interesting related topic is what do you do with spending money that you did not spend the year before?

Some people leave (or return) the excess in their long-term portfolio.

I have the philosophy that once an annual withdrawal is made, it doesn't get returned to the long-term portfolio, because I don't want it subjected to the risks and volatility of the long-term retirement portfolio. I prefer to let excess spending money accumulate outside the retriement portfolio (in short-term bond funds). Then I can blow it on something . Or maybe we have an emergency, or someone in dire need that we have to help. Or, more realistically, we have a really bad market year and are forced to withdraw substantially less from the retirement portfolio because it shrank. I might not need it now, but I might in a year or two. You never know!
Why not just roll it over, ie use it towards next year's expenses and withdraw less than you would have % wise?
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Old 02-13-2013, 04:32 PM   #32
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BTW - I think another interesting related topic is what do you do with spending money that you did not spend the year before?

Some people leave (or return) the excess in their long-term portfolio.

I have the philosophy that once an annual withdrawal is made, it doesn't get returned to the long-term portfolio, because I don't want it subjected to the risks and volatility of the long-term retirement portfolio. I prefer to let excess spending money accumulate outside the retriement portfolio (in short-term bond funds). Then I can blow it on something . Or maybe we have an emergency, or someone in dire need that we have to help. Or, more realistically, we have a really bad market year and are forced to withdraw substantially less from the retirement portfolio because it shrank. I might not need it now, but I might in a year or two. You never know!
I usually only spend part of what I withdraw. Then the next year, I subtract the surplus from what I planned to withdraw. For example, this year I planned to withdraw 2.5%, but only spent 2% last year so I had some left over. I withdrew the difference, so that I ended up with exactly 2.5% in my bank account (where my "spending money", as opposed to my portfolio, is located). As I get more accustomed to retirement, I'll probably have a better idea of what to withdraw so the excess should be less.

I like your method, especially when it comes to the desire to blow some big bux on something. Sounds like something to try, maybe.

Since I am older, I can claim SS whenever I want to and that is my planned strategy if necessary, to avoid withdrawing in case of another 2008-2009 scenario. So, that part is pretty well covered in my case.

I love my house but I am an HGTV addict, and I might end up moving if I ever find the perfect house. If/when I do, with my luck it will cost more than I might wish. I'll probably sit down and figure out the difference between what I spent each year, and 3.5%, and consider that to be spending money. Then if needed I could take more from my portfolio and just let it be permanently smaller. (ugh!) But that way, I would have some idea as to how much my portfolio would be suffering from buying another house. The more I think about it, the more I like my present home.
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Old 02-13-2013, 06:08 PM   #33
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My retirement fund (at least the part I draw from) is all in taxable accounts.

1. I let the dividends/distributions paid out during the year accumulate as cash (not reinvested) within my retirement portfolio. Most of my distributions are paid out in December.

2. At the end of the year, I calculate the amount to withdraw based on a % of the ending portfolio value. I withdraw this amount in cash, and transfer it to an FDIC-insured high yield savings account for my year's spending money.

3. I then rebalance my portfolio some time between the 2nd and 15th of the new year. This will replenish my portfolio cash % (if needed) as well as rebalance my other asset classes.

4. If what I withdraw is in excess of what I actually need for a year, or if I have spending money left over from the prior year, that goes into a short-term bond fund as a "reserve" available for whatever might come up.

Notice that at the end of each year, I am taking my withdrawal from the prior year's distributions + whatever extra cash I need to meet the withdrawal. I don't try to anticipate receiving dividends/distributions for current year income.
1. Do you use the same % withdraw every year -- what % do you use?

2. Were you using this technique in 2008?

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Old 02-13-2013, 06:39 PM   #34
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1. Do you use the same % withdraw every year -- what % do you use?

2. Were you using this technique in 2008?

fd
1. 3.33% - same every year

2. I had other some assets already set aside to spend down in 2008, so I wasn't drawing on my retirement portfolio yet.
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Old 02-13-2013, 06:54 PM   #35
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Why not just roll it over, ie use it towards next year's expenses and withdraw less than you would have % wise?
Mainly because I'm not looking to have leave a large inheritance when I die. I would rather spend the money in the near future (next few years) than save it for decades later (when I might not be alive, or healthy enough to enjoy spending it).

I have already picked a rather conservative withdrawal rate at 3.33% - a trade off between long-term portfolio survival and not leaving a humongous amount of money to heirs. So I don't see the point of reducing my withdrawal rate further just because I didn't spend it all in a given calendar year.

I thinking gave a pretty good list of why the money might be needed within a few years time frame.

By the way - out of our spending money we gift money to heirs (relatives and charities - we have no children) as part of our spending every year. We prefer to give what we can now, rather than only when we die. Our relatives are getting older too.
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Old 02-14-2013, 12:09 AM   #36
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Audrey, thank you for your responses. They've been very informative.
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Old 02-14-2013, 06:56 AM   #37
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Audrey, thank you for your responses. They've been very informative.
You're welcome!
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Old 02-14-2013, 10:44 AM   #38
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By the way - out of our spending money we gift money to heirs (relatives and charities - we have no children) as part of our spending every year.
Wanna adopt a 57 yr. old couple?

I'll add my thanks for all the info/tips; I've added a link to this thread to my OneNote page on withdrawal strategies.... Much fodder for rumination.... (Moo)


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Old 02-14-2013, 11:22 AM   #39
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Audrey, thank you for your responses. They've been very informative.
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Old 02-14-2013, 02:01 PM   #40
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Audrey, thank you for your responses. They've been very informative.
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