Withdrawing: annually, quarterly?

[seraphim]

Next year we plan to start our withdrawel phase. AA is 60s/35b/5mm. VG mutual funds.

I had planned to make an annual 2% withdrawel, and budget the money out over the year. DW wonders if we have the discipline to eek that money out over a one year period, and wonders if we should make quarterly withdrawels instead.

By my thinking, I would have some leeway about when to make an annual withdrawel. Enough cash in savings to hold us over if I wanted to delay a few months or six, because of a dip in the market or some such.

Any thoughts on pros or cons of either method?

In a similar vein, if we go with an annual draw, is there a particular time of the year in which markets tend to be higher? Heard the old 'sell in May' saw.

Or, am I just being totally anal?

Give it to me straight - I can take it lol.

 

[REWahoo]

Do a forum search on 'withdrawal strategy' for several threads discussing the subject.

 

[Animorph]

Selling as late as possible allows for more gains, on average. For a long retirement period, that should work in your favor. So quarterly withdrawals will be slightly better financially, if you don't mind the extra work. However, special circumstances, like IRA RMD's may favor something different. You don't want to be stuck having to sell equities to make a big RMD just after a big mid-year market crash. There have been a couple of recent threads that shouldn't be too hard to find.

 

[heeyy_joe]

Consider setting up monthly automatic withdrawals for your fixed expenses and do your discretionary either quarterly or as you might need to do so.

 

[Katsmeow]

I set up monthly withdrawals which are automatically made. At the beginning of the year I withdraw a little bit extra beyond those set amounts which is meant to be a reserve to smooth any irregular expenses. Of course, the extra withdrawn is counted as part of the whole annual withdrawal amount.

 

[dtbach]

I set up monthly withdrawals which are automatically made. At the beginning of the year I withdraw a little bit extra beyond those set amounts which is meant to be a reserve to smooth any irregular expenses. Of course, the extra withdrawn is counted as part of the whole annual withdrawal amount.

+1. I make it feel like a paycheck.

 

[seraphim]

Thank you for the responses. I have read the other threads on withdrawel strategies, but don't remember this specific aspect being discussed in detail. I should have mentioned our fixed expenses are covered by our pensions - the asset withdrawel is mostly for our discretionary travel plans.

I don't mind the extra work of quarterly withdrawels, and would prefer to arrange them myself that I might choose where the funds are coming from - stock, bond or money market - to take advantage of which is doing well.

 

[Packman]

I should have mentioned our fixed expenses are covered by our pensions - the asset withdrawel is mostly for our discretionary travel plans.

Then just withdraw it all . Nice to have a pension to cover all the fixed expenses - it must take some of the worry away from running out of money.

 

[seraphim]

Lol. Well, it would if I weren't concerned about long term health care. DW has a family history of long life and Alzheimer's.

 

[Ed_The_Gypsy]

IIRC, the IRS figures your RMD from your IRA based on your balance on Dec 31. I believe Vanguard has a service whereby they will calculate your RMD and send it to you at the end of the year. Simple.

I seem to recall that they will also spread it out over the following 12 months in monthly payments as well. (I like this idea, myself.)

Or you can take the big check once a year and do it yourself.

Of course, if something expensive comes up, you can always take more out in the middle of the year. I don't know how this affects the end-of-year RMD calculation though.

 

[sengsational]

I've heard that you can do it when you rebalance, so quarterly would be too often to rebalance, whereas annually might be about right.

 

[scrabbler1]

I use the monthly dividends from a big bond fund I am invested in as a substitute "paycheck" to cover my expenses. Any excess dividends and all cap gain distributions get reinvested, the same way excess wage income got reinvested when I was working.

 

[Tyro]

I should have mentioned our fixed expenses are covered by our pensions - the asset withdrawel is mostly for our discretionary travel plans.

I don't mind the extra work of quarterly withdrawels, and would prefer to arrange them myself that I might choose where the funds are coming from - stock, bond or money market - to take advantage of which is doing well.

In that case, why not withdraw discretionary funds from the MM "as needed" and replenish that from stocks, bonds, or both -- to take advantage of which is doing well -- when rebalancing?

Tyro

 

[MichaelB]

A couple of threads that discuss different approaches used by forum members
http://www.early-retirement.org/forums/f28/withdrawl-strategies-65087.html
http://www.early-retirement.org/forums/f28/best-method-of-withdrawing-money-63823.html

 

[seraphim]

Michael

Thanks. The top link covered my questions fairly well, as did responses on this thread. Your link didn't pop up in my searches; can a moderator correct the thread title for spelling? It's a good thread, and I think my search missed it due to the misspelling.

Thanks again

 

[seraphim]

BTW, VG does have an excellent RMD service. It can be set up, then modified online. We're using it for RMDs on an inherited IRA. Took our first end if March when our VTSAX shares were high. Put as much of it as possible into the HSA account for the tax deduction. Unfortunately, our retirement insurance won't be an HSA. One less tax deduction...

 

[obgyn65]

I plan to withdraw annually and live on this annual income for the full year.

 

[RockyMtn]

my choice is to put year's expenses in a brokerage mm fund at first of year as part of rebalancing of AA. Then I move my "paycheck" to checking account first of each month.

 

[pb4uski]

Taxable account income goes directly into checking and provides about 1/3 of our living expenses. The remainder is drawn via a regular monthly "paycheck" from a "liquidity fund" in an online savings account that has a couple years of living expenses in it at any given point in time. When I rebalance my investment portfolio I replenish the liquidity fund.

 

[seraphim]

Several good ideas. I have another month before I can roll money over from my employee tax deferred accounts into VG funds, so I still have time to decide. I won't need anything for the remainder of this year. I'm running a test portfolio with my current funds and those I'm looking at adding, and with a few tweaks I may have the final setup planned. I'll submit one more thread for the membership's review - this one comprehensive.

Everyone here has been a great help.

 

[W2R]

Weighing in with one more method, better late than never.

During the first week of every January, I withdraw the total that I plan to spend for that whole year, minus what is left over from the previous year. By "withdraw", I mean that I move this from Vanguard to my bricks-n-mortar bank. This method has two advantages for me:

1. This way I am sure I will not spend a penny more than planned, since this is the only withdrawal for the year; and,
2. This requires almost no work on my part.

This is not the brilliant investor's choice, most likely, but it is a method that seems tailor-made for someone like me. What I mean by that is that I'd probably make a little more, on average, if I withdrew more frequently. However, the simplicity of this (to me, foolproof) method is worth it to me.

I put the entire withdrawal into my savings account at my local bricks-n-mortar bank, and then move money to my checking account throughout the year. I don't spend anything until it hits my checking account so I don't spend too far ahead, this way.

 

[mickeyd]

totally anal?

Give it to me straight - I can take it lol.

Do you want to re-word that?

I've been churning that withdrawal puzzle myself but only because RMD time is marching toward me and I gotta do it. I'm leaning towards taking my distributions on a quarterly basis but I can not tell you exactly why.

Stay tuned for a change to that idea.

 

[seraphim]

A bit of a guessing game, I suppose, depending on how the market performs at any given time.

Reminds me of when I set up RMDs for my wife's inherited IRA: the rep setting up the account asked me when we wanted to take our distributions.

Answer: when the share values are at their highest... Duh.

He got a kick out of that.

I settled for April 1st