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Withdrawing funds in retirement
Old 09-20-2015, 01:05 PM   #1
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Withdrawing funds in retirement

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.
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Old 09-20-2015, 01:43 PM   #2
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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.
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Old 09-20-2015, 02:08 PM   #3
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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?
No, keep it balanced.

The problem with withdrawing from the income side only, is that your asset allocation shifts heavier to stocks the longer the bear market goes on. In an extreme, you could wind up 100% in stocks in the 4th year of a bear market, and be selling stocks for a huge loss that you could have sold 3 years earlier at a small loss.
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Old 09-20-2015, 02:32 PM   #4
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The act of rebalancing makes these decisions for you properly, so I recommend sticking to your rebalancing criteria and plan.


Also, I would suggest that you take your dividends in cash and then use that cash as part of your withdrawal and/or for rebalancing afterwards.
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Old 09-20-2015, 04:14 PM   #5
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I run my Mom's investments with a very similar portfolio to OP. Although she does not make any regular withdrawals. The plan is to rebalance normally unless the S&P 500 is more than 20% down from its peak. At that point any withdrawals will come from bonds and any rebalancing will not add to bonds but can add to stocks, until the S&P is back to within 10% of its peak.

I do roughly the same with my portfolio, normal operation until there's a bear market. Then I try to leave equities alone or add to them. I was busy buying equities through 2008 and 2009 after having built up a big cash allocation for retirement.
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Old 09-20-2015, 04:53 PM   #6
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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?
Withdrawing only from the income side effectively increases your equity percentage. Since your equity % is down, the net effect is the same as (slowly) rebalancing towards your previous percentage.

Depending on tax etc .. if therefore might be easiest to indeed withdraw from the income side until you hit your previous (desired) ratio equities/income.

Obviously if the market drops a bunch and your withdrawal rate is low that rebalancing approach might take too long. Conversely, if you keep withdrawing from the income part you'll overshoot your ratio, which is also not good.

[Edit] Guess what I'm saying is: consider rebalancing through withdrawing from fixed only, but your desired ratio is priority #1
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Old 09-20-2015, 04:58 PM   #7
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The classic answer is to withdraw from the Bond fund, and wait for the stock funds to go up. I follow a "bucket" approach. Money to support 2-3 years living expenses should be in CASH or short term bonds, or money market only. For longer term needs, they can be in stocks, and intermediate grade bond funds. Slowly move money as you need to replenish the cash position.
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Old 09-20-2015, 10:40 PM   #8
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....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?....
While I prefer to rebalance annually, you could rebalance by skewing future withdrawals to bonds which over time will get you back to 60/40. The inverse if at some future point you are overweight in equities.
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Old 09-23-2015, 03:59 AM   #9
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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.
pretty much our plan but at 40-50% allocation and 2 years cash . . only difference is if we are still down in january i may take my ss earlier .
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Old 09-23-2015, 01:49 PM   #10
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Speaking of SS. We are approaching 62 and the decision weather to take early SS or not. Is it worthwhile checking out social security solutions? For $500 they consult with you over the phone and come up with the best plan based on your average life expectancy and burn rate.
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Of all tyrannies a tyranny sincerely exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies, The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for own good will torment us without end, for they do so with the approval of their own conscience.
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Old 09-23-2015, 03:20 PM   #11
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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.
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Old 09-23-2015, 04:48 PM   #12
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but depending how assets are set up not spending the dividends in a taxable account and instead reinvesting them and spending money from an ira will get you taxed 2x that year on the income ,
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Old 09-23-2015, 04:53 PM   #13
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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.
got a link on this ? because in a video i saw on morningstar they said they saw no difference whether a cash bucket was used vs systematic withdrawals from all parts of the pie maintaining your allocation .

the reinvested dividends while spending down other assets will increase equity allocations but that won't happen if you rebalnce .
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Old 09-23-2015, 04:57 PM   #14
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$500 to determine how to draw SSS benefit, based on life expectancy and burn rate?
That's a joke. There's a lot of factors that are unknown. Save yourself a bundle, just for to the public library and there is always a reference book on Social security, or the best is to go to your local social security Office at any federal building. They are very knowledgeable and will tell you your real score.
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Old 09-23-2015, 04:59 PM   #15
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got a link on this ? because in a video i saw on morningstar they said they saw no difference whether a cash bucket was used vs systematic withdrawals from all parts of the pie maintaining your allocation .

the reinvested dividends while spending down other assets will increase equity allocations but that won't happen if you rebalnce .
not handy, but the M* video I described is a couple years old and has been discussed on the board several times
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Old 09-23-2015, 09:25 PM   #16
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Speaking of SS. We are approaching 62 and the decision weather to take early SS or not. Is it worthwhile checking out social security solutions? For $500 they consult with you over the phone and come up with the best plan based on your average life expectancy and burn rate.
Yes it is worth checking out solutions, but spending $500 is not worth it. I see and hear a lot about Soc Sec guidance these days, mostly from folks that are selling annuities. There are many resources online that show results for various claiming strategies, but here the one I like the best so far.

Social Security Benefits Evaluator - T. Rowe Price
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Old 09-23-2015, 10:05 PM   #17
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To begin with, it isn't $500 and they offer less expensive options depending on how much work you want to do. See Social Security Solutions

Also, I thought this was a pretty good source for free.... SSAnalyze - Bedrock Capital Management
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Old 09-24-2015, 07:37 AM   #18
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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.
Take a look at your total stock percentage and compare it to your international. Look at your gains in recent years and look to the future of total stock compared to International. I think you'll find that you've had your gains in TS, Less profits or even big losses in INt.......today, the financial guru's are saying USA will do better in the future, China....Int forcasted weaker. I've drastically downsized my Int.....Vanguard, I think, now recommends 20% Int, it used to be 40%...... I will own even less........THIS IS A BUNCH OF YOUR MONEY....LOOK HARD AND GOOD LUCK.
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Old 09-24-2015, 10:05 AM   #19
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To begin with, it isn't $500 and they offer less expensive options depending on how much work you want to do. See Social Security Solutions

Also, I thought this was a pretty good source for free.... SSAnalyze - Bedrock Capital Management
Thanks for the free calculator, but it doesn't take your current portfolio into account. As for the cost of the integrated plan here is pdf of the frequently asked questions that was emailed to me.
https://bd105.infusionsoft.com/app/l...a6c2accca085e0
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Old 09-24-2015, 03:10 PM   #20
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I don't see why your investments would be an input to optimizing SS. I concede that the amount of your retirement assets might make certain strategies more or less feasible, but what you have isn't an input to optimization.
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