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Old 09-25-2015, 04:18 AM   #21
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it can take more years to break even using tips than a 60/40 mix as an example .

so opportunity cost is a factor if deciding to delay . how you invest can be an important bit of information if it isn't taken in to consideration . spousal adders are another factor that have to be counted . i am under fra so i can't file and suspend . for every year i delay my wife does not get 2600.00 added to her early benefit .
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Old 09-25-2015, 05:40 AM   #22
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A cash bucket is a form of insurance that protects you from having to sell during a downturn. The Morningstar folks concluded leaving everything on "reinvest" and selling periodically yielded more money for you than being paid dividends as they are issued, but the difference was small.
But if you're in need of cash now and need to sell equities, the difference might be a bit larger.

I put my dividends into a cash account and draw as needed as we're able to live on dividends/cap gains alone. Having to sell in the current market would be horrible!
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Old 09-25-2015, 06:42 AM   #23
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reinvesting the dividends would be akin to increasing your equity allocation . because you would spend down cash and bonds that would have the effect of putting equity's on a rising glide path .

it is only after you sell some equity's and refill at some point down the road that you would regain your original allocation percentages .

so it isn't reinvesting the dividends that make a difference , it is the fact you are increasing your equity allocation.

just spending down from cash and bonds with a portfolio of growth stocks and no dividends would do the same thing assuming the total returns were the same or greater .

spending cash and bonds down against either reinvesting 20k in dividends or a an equity portfolio that grew 20k with no dividends would be the same .

it is only the mechanics of rebalancing and refilling that make a difference not the sources of income taken ..
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Old 09-26-2015, 10:45 AM   #24
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A cash bucket is a form of insurance that protects you from having to sell during a downturn. The Morningstar folks concluded leaving everything on "reinvest" and selling periodically yielded more money for you than being paid dividends as they are issued, but the difference was small.
One other thing to consider is if you are getting ACA plan subsidies and are intent on limiting cap gains to minimize income, take all divs and CGs as they are paid instead of reinvesting because they all count against your MAGI. Then you need to WD less (with less CG on sales) to get to your required income to live on (and/or to replenish cash).
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Old 09-27-2015, 06:28 AM   #25
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if the dividends and cap distributions are going in to a brokerage account whether you spend or reinvest wouldn't make any difference . you get taxed the same .

unless you were going to be double taxed by reinvesting the dividends and cap distributions in the brokerage account while withdrawing money from ira's and getting double taxed on the income that year .

that would make little sense to do in the first place . .
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Old 09-27-2015, 03:43 PM   #26
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We are both 61 a year away from early SS and are living exclusively on IRA withdraws. We are invested with Vanguard in a 3 fund portfolio (total stock market, total international stock market, and total bond market). Our ratio is around 60/40 equities to income.

My question is in a down market should you withdraw from the income side only in order to wait for equities to improve or just try to keep the same percentage equities to income?

We currently have around $900k and our monthly burn rate is currently about 5k gross. At 62 we will be able to receive about $3800 per SS.
I think this is an excellent question. The answer is probably very individual.

Here is what I did in 2009. I was 61 at the time and that downturn was very worrisome. What if it kept going down? It did do that in the 1930's. Of course, now we know we had a great rally and rebalancing into stocks would have worked just fine. But in January 2009, nobody knew that. So I decided to spend from FI and not rebalance.

Since we didn't have SS because we were too young at the time, that was even harder emotionally. So anther point is that having SS or some other income makes spending from FI and not rebalancing an easier decision.

Our stock allocation which had been 55/45 in 2008 went down to something like 44/56. I did eventually rebalance (July 2009, see on the chart below) but only after the market started up again. I had done some backtesting and came up with a method to determine when the market had some upward momentum. This wasn't necessarily a brilliant idea, just a point to put money back into the market after a business recovery was under way. The market pricing (SP500) tells us when a recovery is coming and not necessarily the current newspaper headlines -- at least that is the thesis. NOTE: I am not claiming any formula will work to determine when a market bottom is behind us.

I'll finish this reply with a chart. It shows 3 different market declines. They are arranged so that their peaks coincide. Notice that they all went down somewhat similarly but 2 recovered and the other went down disastrously for some years. Sure, eventually even the 1930's decline recovered but if you were an older retiree you would have been really-really scared and might have done something even stupider in maybe 1933. So that is why, as an older retiree, I will not rebalance into a declining market.


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Old 09-27-2015, 04:03 PM   #27
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My Asset Allocation is 60/32/8 where the 8% is in CD's, checking, savings and MM accounts. Those cash accounts represent about 2 - 2.5 years of living expenses. Depending on where the stock market is in early January I will sell investments equal to another 1/2 year of expenses for 2 years out. If the stock market is low, I'll sell bond funds for the CD and then rebalance to my target allocation. If the stock market is up I may sell both to keep my target allocation. Regardless of which fund I tap for the cash withdrawal, I'll rebalance to my target allocation after.
If you rebalance immediately after your withdrawal it doesn't matter whether you withdraw from equities or from bonds or from some combination of the two. Mathematically it is the same because of the rebalance.
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Old 09-29-2015, 09:25 AM   #28
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If you rebalance immediately after your withdrawal it doesn't matter whether you withdraw from equities or from bonds or from some combination of the two. Mathematically it is the same because of the rebalance.
Good Point. It wouldn't be immediately after.
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