Withdrawal Techniques

[CitricAcid]

Don't flame just yet, I actually have a somewhat different picture of withdrawals than all of the other threads about it.

When I retire, I plan to have a smattering of about 40% broad index, 30% broad international growth, 5% bond, 5% crash, and about 20% in individual stocks. This would be distributed across a Roth IRA, 401k, and individual brokerage accounts.

Obviously, the question revolves around the best way to mitigate commissions and tax burdens. I also want to find the best way to turn the account into something like a 25% broad US index, 25% broad international, 35% bond, 15% cash. Would it be best to sell the worst performing stock first and then slowly take out from my Roth IRA? The problem with this is it leaves me with a little less diversification, but it avoids a lot of the commission problems.

Also, once I have attained my ultimate diversification goal, it should be easy to live off of dividend and regular withdrawals from the different mutual funds. Most of this will obviously depend on the way the stock market is performing and how much I have in my account and how long I have to live, otherwise it would be simple to sell off until I get my desired goal, but I want the transition to mitigate most of the costs as possible.

Any thought on the subject?

[youbet]

Quote:

Originally Posted by CitricAcid Most of this will obviously depend on the way the stock market is performing and how much I have in my account and how long I have to live

You have won the "youbet understatement of the day award!" Congratulations! I couldn't agree more with you!

[d]

Quote:

Originally Posted by CitricAcid When I retire, I plan to have a smattering of ... 5% crash ... . Any thought on the subject?

well, that's one way to look at it

[Nords]

Quote:

Withdrawal Techniques

Eewwwkay, this thread turned out to be about a whole 'nother subject. Guess I didn't have my coffee mind on the financial aspects yet.

It sounds like you have the rebalancing project from hell. The best way to handle it would be two lists of where you are and where you want to be, followed by an estimate of the taxes (long term/short term) and expenses involved in liquidating. Hopefully your finished portfolio will have minimal expenses & commissions.

The conventional wisdom is to have your most tax-inefficient investments (bonds, high-tax dividends) in a Roth IRA where withdrawals will never be taxed. Since you're not taxed on selling/buying within an IRA, you could sell your Roth's old assets and buy your new Roth assets whenever you're ready.

Then you can try to sell your assets in taxable accounts in a manner that balances cap gains with cap losses to minimize taxes. You might also want to limit the size of the transactions to limit your annual AGI, although that would stretch the rebalancing out over two or more years. Keep in mind that 2008-9-10 are likely to have the lowest cap gains taxes in history.

When you're done rebalancing to your final portfolio, you could take each year's spending money by rebalancing your asset allocation. Ideally you wouldn't touch the Roth until after you're at least 59.5 years old, which would allow the maximum tax-free compounding without 72(t) withdrawals. It would also spend down your taxable accounts in the years before you start withdrawing SS, which might help to avoid some taxation of SS distributions. Some years you might have to rebalance by selling a portion of your Roth assets to buy other Roth assets, which is a great tax-free method to bring your AA back in line.

[LOL!]

I don't see what the problem is. First, you should have all your accounts at a broker that doesn't charge any commissions such as WellsFargo. OK, now that the commissions problem has gone away, let's deal with the tax problem.

Ooops, there is no tax problem because your taxable account will hold your tax efficient broad market index and international index (not growth!) funds. You won't be changing those at all. Your IRAs will have your other stuff, so you can sell without tax consequences to shift to fixed income.

OK, you have no problems. Next question!

[jIMOh]

Quote:

Originally Posted by CitricAcid Would it be best to sell the worst performing stock first and then slowly take out from my Roth IRA? The problem with this is it leaves me with a little less diversification, but it avoids a lot of the commission problems.

Do not let expenses tail wag the income dog.

The expenses should not influence decision more than the market or account type (taxes) does. I think taxes are a bigger concern than the expense (transaction cost) of selling from a brokerage.

Unless your brokerage expenses are real high, then the issue is really to find a better brokerage.

[pedorrero]

I prefer methods that don't require me to withdraw sorry I couldn't resist.

[chinaco]

Quote:

Originally Posted by Nords Eewwwkay...

My thoughts too.

To the OP - You missed an item... surviving down stock markets (that could last for several years). Conventional wisdom is to have more bonds when your retire. Of course... that wisdom is a bit dependent on how much you spend relative to the size of your portfolio. For example, if you spend $24k/yr and have a portfolio of $5M... then S&P 500 dividends (about 1.9%) should cover it which would make holding bonds less of an issue. On the other hand if you spend $24k yr and only have $600k... you might consider how to survive down markets without belt tightening.