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WR management mechanism
Old 01-02-2015, 02:18 PM   #1
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WR management mechanism

Saw the threads on WR where people specify their withdrawal for the year. Just curious about mechanisms for doing this. Looking to retire middle of this year and my plan is arrange for a chunk of money in the Roth accounts to go into cash, 3month, and maybe 6 month CDs. I expect some variation in income due to rental property, consulting gigs, sale of assets. I would pull from the Roth accounts on a monthly basis as needed to have a certain checking balance every month.

From the postings, it sounds almost like some people pull a wad of cash out of the investment/retirement accounts Jan. 1st and put it in a bank account to spend.
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Old 01-02-2015, 02:47 PM   #2
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Rather than CDs, some of us use an online savings account. Mine pays 0.95% which beats most short term CDs. Easy to transfer money in/out as needed.
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Old 01-02-2015, 03:20 PM   #3
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This will be my first year of ER. I put my annual budget into a separate online savings account and set up a monthly transfer to my checking account. Mostly this is to keep me honest in my spending. Since my target AA is 6% cash and 8% Short Term Bonds these separate accounts are really just mind games. Next year when I replenish my accounts I will pull from Equities / Bonds as needed to reach target AA.
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Old 01-02-2015, 03:31 PM   #4
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In December I pulled out some money from the IRA to the top (or close to it) of the 15% tax bracket. We have high expenses in 2015 (kids in college) so if I pulled out only in 2015 we would hit the 25% bracket. This way we won't. I've budgeted for 2015 and after we've spent the after tax money that we have I will withdraw from the short term fund in the IRA a monthly pro rata portion of the money needed for the year. In the past I've sometimes varied that depending on what expenses come up when during the year. Basically I keep the money I will need during the year in the short term investment grade fund in the IRA at Vanguard and withdraw some of it monthly.
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Old 01-02-2015, 03:42 PM   #5
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I have in mind to move from the 401K and/or rollover accounts to the Roth at the end of each year to the limit allowed to stay in the 15% bracket. Other than that, I was planning on keeping almost everything in the Roth and moving it out as needed on a monthly basis. I would probably change the asset allocation as mentioned above but keep the CDs in the Roth accounts.
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Old 01-02-2015, 03:52 PM   #6
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Rather than CDs, some of us use an online savings account. Mine pays 0.95% which beats most short term CDs. Easy to transfer money in/out as needed.
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Originally Posted by Live And Learn View Post
This will be my first year of ER. I put my annual budget into a separate online savings account and set up a monthly transfer to my checking account. Mostly this is to keep me honest in my spending. Since my target AA is 6% cash and 8% Short Term Bonds these separate accounts are really just mind games. Next year when I replenish my accounts I will pull from Equities / Bonds as needed to reach target AA.
Similar approach here. My target AA is 60/34/6 stocks/fixed income/cash. The 6% cash is in an online savings account earning 0.9%. I have a monthly transfer out of the online savings to our local bank from which we withdraw cash and pay bills. We also take dividends and and CG distributions in cash and the supplement the transfers. Every once in a while I need to make additional transfers. My home tab in Quicken shows the projected balances of the local bank account for the next 90 days so I can easily see when we might need an additional transfer.
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Old 01-02-2015, 04:56 PM   #7
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I have a large bond fund which generates a sufficient monthly dividend to cover my expenses. But because some of my expenses are not monthly such as car insurance, dental visits, and income taxes, I have to make sure I carry forward monthly surpluses in the other months to cover the months which have larger expenses. The 3 "lumpy" expenses happen to occur in roughly the same months so I have to carefully monitor my expenses from to month so I will know what my "true" surplus is versus what surplus I need to carry forward into those high-expense months.


Because my big bond fund's monthly dividends have dropped a little bit over the years, I have added my stock fund's quarterly dividends to the cash mix. Luckily, those quarterly dividends happen to coincide with the lumpy expense months so that greatly stabilizes my overall cash flow.
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Old 01-02-2015, 05:13 PM   #8
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Originally Posted by ArkTinkerer View Post
Saw the threads on WR where people specify their withdrawal for the year. Just curious about mechanisms for doing this. Looking to retire middle of this year and my plan is arrange for a chunk of money in the Roth accounts to go into cash, 3month, and maybe 6 month CDs. I expect some variation in income due to rental property, consulting gigs, sale of assets. I would pull from the Roth accounts on a monthly basis as needed to have a certain checking balance every month.

From the postings, it sounds almost like some people pull a wad of cash out of the investment/retirement accounts Jan. 1st and put it in a bank account to spend.
The details of pulling from our respective "stashes" for yearly cash vary quite a bit within this group. My only suggestion would be to consider leaving your Roths alone as long as possible. Maybe pull from Traditional IRA or brokerage accts, etc. before touching the Roths. Naturally, you need to consider tax consequences of any and all of your strategies. The Roths have some of the best tax advantages as well as overall flexibility (especially for estate planning). Of course, if Roths are all you have (not such a bad thing, I suppose) you have to take from them. In my case, I plan to either die with my Roths in tact or live a heck of a long time. Naturally, YMMV.
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Old 01-02-2015, 05:18 PM   #9
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Originally Posted by Live And Learn View Post
This will be my first year of ER. I put my annual budget into a separate online savings account and set up a monthly transfer to my checking account. Mostly this is to keep me honest in my spending. Since my target AA is 6% cash and 8% Short Term Bonds these separate accounts are really just mind games. Next year when I replenish my accounts I will pull from Equities / Bonds as needed to reach target AA.
This is exactly what I did when I first retired, and for me it worked well and was a lot like a paycheck, which I liked.

After a few years I stopped the regular monthly transfers of a set amount to checking and instead started transferring when my balance in checking went below a certain amount. By that time I had a pretty good handle on all of this and didn't feel I needed the simulated paycheck approach any more. But for me that was a great way to begin retirement.
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Old 01-02-2015, 05:34 PM   #10
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My target AA is 60/34/6 stocks/fixed income/cash. The 6% cash is in an online savings account earning 0.9%. I have a monthly transfer out of the online savings to our local bank from which we withdraw cash and pay bills. We also take dividends and and CG distributions in cash and the supplement the transfers. Every once in a while I need to make additional transfers. My home tab in Quicken shows the projected balances of the local bank account for the next 90 days so I can easily see when we might need an additional transfer.
If you don't mind me asking, what is your process or mechanism for replenishing the online savings?

Our approach is similar. AA includes 5% cash, which is mainly at Ally online savings earning 0.99%. We have a cash management account (CMA) at Fidelity that functions like a bank account. Our cash dividends and capital gains from the taxable account go directly to the CMA, along with my pension, rental income, and DW's net pay. When the CMA balance falls below a certain threshold, I make a transfer from Ally. Likewise, when the Ally balance falls below a certain threshold, I do some rebalancing within the taxable investment portfolio, which generates cash to replenish the Ally balance. There is no regular timing to these actions. It's strictly need-driven, and typically tied to large, irregular expenses like property tax, international travel, home improvements, etc. Usually just once or twice per year.

We don't manage our spending according to any specific WR. And we don't transfer money based on large, annual planned withdrawals, as many here appear to do. For us, the WR is just one of many metrics that we use to plan and monitor overall retirement preparedness, especially as it relates to various stages and income flows. With DW currently still working OMY, our WR is very low (1%), so this method works well for us. When she retires and the WR goes up, we might look at other mechanisms.
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Old 01-02-2015, 06:19 PM   #11
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If you don't mind me asking, what is your process or mechanism for replenishing the online savings?

Our approach is similar. AA includes 5% cash, which is mainly at Ally online savings earning 0.99%. We have a cash management account (CMA) at Fidelity that functions like a bank account. Our cash dividends and capital gains from the taxable account go directly to the CMA, along with my pension, rental income, and DW's net pay. When the CMA balance falls below a certain threshold, I make a transfer from Ally. Likewise, when the Ally balance falls below a certain threshold, I do some rebalancing within the taxable investment portfolio, which generates cash to replenish the Ally balance. There is no regular timing to these actions. It's strictly need-driven, and typically tied to large, irregular expenses like property tax, international travel, home improvements, etc. Usually just once or twice per year.



We don't manage our spending according to any specific WR. And we don't transfer money based on large, annual planned withdrawals, as many here appear to do. For us, the WR is just one of many metrics that we use to plan and monitor overall retirement preparedness, especially as it relates to various stages and income flows. With DW currently still working OMY, our WR is very low (1%), so this method works well for us. When she retires and the WR goes up, we might look at other mechanisms.
I have been doing almost exactly what you are doing, Cobra. Except my DW is retiring in the next 60 days. So our withdrawal amounts will increase. Our taxable accounts produce about 40% of our needed income in dividends and capital gains. I plan to withdraw the rest from a cash bucket (Ally) and I'll replenish the cash bucket occasionally when the market does well (and when I need to take taxable gains to fill up the 15% tax bracket). My main question is how much to put into the cash bucket. Since I'm not real high on bonds right now (about a 20% allocation), I'll probably start with about 4 or 5 years of living expenses. This seems a bit high, but I want to be conservative. Other thoughts??
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Old 01-02-2015, 07:13 PM   #12
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My main question is how much to put into the cash bucket. Since I'm not real high on bonds right now (about a 20% allocation), I'll probably start with about 4 or 5 years of living expenses. This seems a bit high, but I want to be conservative. Other thoughts??
I'm newly retired and still trying to figure this out myself. I'm not really comfortable holding a cash allocation higher than 5% due to the performance hit. Also, 5% corresponds to roughly 2-3 years cash need for us, which seems like a reasonable period to protect against a downturn. I'm sure some would prefer longer. But we also have 2 pensions and rentals. So even after DW retires, those income streams plus cash dividends will cover most of our living expenses. So the reliance on withdrawals and cash reserves is not so critical. If we were more dependent on portfolio withdrawals to meet expenses, I'd probably be inclined to hold a larger cash reserve.

BTW, this structure was very much by design in our case. We elected the annuity option on both pensions and paid off the mortgage using funds from the taxable account. We also moved 15% of our AA from bonds to income-producing real estate. All these actions were intended to reduce dependency on portfolio withdrawals to meet ongoing expenses. It varies by stage and timing of various income streams, but we average around 55-60% of our expenses covered by guaranteed income. We have a smaller portfolio as a result, but we are very comfortable with that trade-off.
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Old 01-02-2015, 07:33 PM   #13
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If you don't mind me asking, what is your process or mechanism for replenishing the online savings?....
I sell equities in our taxable accounts sufficient for the proceeds to bring the cash back to 6% and then transfer the proceeds to the online savings account.

Then I look at our AA compared to our target AA and exchange equities and fixed income as needed in my IRA to rebalance everything back to target.

I also make a transfer from my IRA to my Roth for the Roth conversion for the year but since it is equities to equities it doesn't affect my AA.

The second two parts I could do in any order as long as at the end of the day the AA is consistent with target.
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Old 01-03-2015, 12:20 PM   #14
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The details of pulling from our respective "stashes" for yearly cash vary quite a bit within this group. My only suggestion would be to consider leaving your Roths alone as long as possible. Maybe pull from Traditional IRA or brokerage accts, etc. before touching the Roths. Naturally, you need to consider tax consequences of any and all of your strategies. The Roths have some of the best tax advantages as well as overall flexibility (especially for estate planning). Of course, if Roths are all you have (not such a bad thing, I suppose) you have to take from them. In my case, I plan to either die with my Roths in tact or live a heck of a long time. Naturally, YMMV.
Most of my investments are in rollover IRAs, my 401K, and Roth IRAs. We have a nominal amount outside these, some investment real estate and some rental property. RE at 51 this year will result in us needing some more cash than the rentals provide. I will probably try and sell some property but it is very likely I will need to tap the Roths soon--maybe even this year.
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Old 01-04-2015, 08:39 AM   #15
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Rather than CDs, some of us use an online savings account. Mine pays 0.95% which beats most short term CDs. Easy to transfer money in/out as needed.
+1

We transfer funds each month to checking.

Also keep our estimated tax funds in the high yield savings.
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Old 01-04-2015, 09:08 AM   #16
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Rather than CDs, some of us use an online savings account. Mine pays 0.95% which beats most short term CDs. Easy to transfer money in/out as needed.
+1
With low spending and income from SS and a few dividend checks, one small withdrawal at the beginning of the year from IRA's is all that's usually needed.
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Old 01-04-2015, 10:53 AM   #17
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Thanks for starting this thread. DH retires on Feb. 3rd. We are doing an NUA. Now to figure out the transferring enough to meet monthly expenses from one account to our checking account. Retiring is not for wimps! lol
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Old 01-05-2015, 02:26 PM   #18
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All of our money is in IRA's. So we pull out 6 months of living expenses in January and July each year and put the money in an online savings account Capital One 360. We transfer a monthly stipend from that account to our checking account. We also have a pension check that deposits on the last business day of the month.


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Old 01-05-2015, 02:42 PM   #19
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During my first year of retirement, I pulled from my checking as needed. I'm going to rearrange some stuff to take monthly draws from somewhere into my checking. I just haven't figured out yet whether the somewhere will be taxable or non taxable.


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Old 01-05-2015, 03:01 PM   #20
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With a 40/60 AA, the bond allocation will consist of 2 years expenses in cash, 3 years in ST bonds (OTAR's recommendation), and the rest in total bond. I will accomplish this by parking 2 years cash in my current ALLY MM account, then set up a monthly transfer into a separate ALLY checking account to simulate a paycheck. Also allows me to finally drop my too-big-to-fail Bank of America after 40 years. I can't wait to close BOA.
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