Withdraw retirement funds once/year or ???

[mystang52]

I don't envision drawing on my tax-deferred retirement funds for another 4 years or so, but this question just dawned on me:

If I need $X for the year, is there a best strategy for taking that money? A single lump sum at beginning of the year, monthly withdrawals, or does it make little difference?

 

[pb4uski]

Probably doesn't make a lot of difference. My retirement accounts AA includes 6% cash and cash equivalents as part of my 40% of fixed income and I typically rebalance each year. I hold this 6% in a Discover Bank FDIC insured savings account that pays .8% IIRC - not a lot but better than most.

I have dividends from our taxable accounts go to our checking account. I have a monthly transfer from Discover Bank to our checking account that is roughly 1/12th of our annual living costs less what I expect in dividends - our monthly "paycheck".

We pay our bills from the checking account and I monitor it and if we have some big expense I might have to do a special transfer but that is rare.

 

[nun]

I've just started spending my retirement funds. I began with 18 months of cash in my bank account and I'm spending that right now. I'm taking quarterly dividends and when I have 6 months of cash left in the bank account I'll top it back up to 18 months by selling something that's done well over the previous year. My asset allocation is 20% bonds, 60% equity, 18% stable value fund paying 2.2% and 2% cash. I'm using the stable value fund in place of a short term bond fund. If stocks crash I can use the stable value fund until they recover.

 

[jebmke]

I stay fully invested and sell stuff in my taxable account monthly to pay the bills.

 

[Animorph]

Slightly more flexibility if things change during the year if you take withdrawals throughout the year. If you want to be conservative you can sell for cash at the start of the year and then withdraw it as needed throughout the year. I'm not taking from a tIRA yet, but I withdraw from my taxable accounts as needed and will continue that for the tIRA's when the time comes. Also keeping in mind that I'll want tIRA withdrawals to fill a tax bracket. So that may mean adjusting the amount at the end of the year and using more or less Roth/taxable to fill in the rest of our expenses.

 

[ShortInSeattle]

Probably doesn't make a lot of difference. My retirement accounts AA includes 6% cash and cash equivalents as part of my 40% of fixed income and I typically rebalance each year. I hold this 6% in a Discover Bank FDIC insured savings account that pays .8% IIRC - not a lot but better than most.

I have dividends from our taxable accounts go to our checking account. I have a monthly transfer from Discover Bank to our checking account that is roughly 1/12th of our annual living costs less what I expect in dividends - our monthly "paycheck".

We pay our bills from the checking account and I monitor it and if we have some big expense I might have to do a special transfer but that is rare.

We're not ER yet but this is how we plan to handle it. A partial cash allocation in our portfolio, transferred into checking as needed, with dividends spent first.

SIS

 

[6miths]

I'm not withdrawing from the retirement accounts at this point (or for quite awhile to come) but for my mom, who doesn't require the extra money for day to day expenses and puts much of the withdrawn money into non-tax sheltered investments, we take the entire amount required that year out in late December in order to maximize tax deferred growth.

 

[W2R]

I withdraw once a year because to me that is simpler and I feel more confident that I am staying within my chosen WR. There is probably a slight financial disadvantage to doing it this way but I just feel drawn towards what (to me) seems simplest.

 

[MichaelB]

I withdraw once a year because to me that is simpler and I feel more confident that I am staying within my chosen WR. There is probably a slight financial disadvantage to doing it this way but I just feel drawn towards what (to me) seems simplest.

Same here.

 

[Meadbh]

I withdraw a combination of corporate dividends and taxable accounts. I know I need to take some dividends to minimize corporate taxes, so I start with a corporate dividend. I split the withdrawal from taxable into two, in January and July, and put most of it into a HISA in my trading account, yielding 1.5%. As the year progresses I move that to my checking account. If I need to take out more towards the end of the year, options include another corporate dividend, another taxable account withdrawal, or my TFSA. So I can have up to 4 withdrawals in a year.

 

[bizlady]

We too are getting ready to draw next year. I see many of you take "the dividends" and or sell annually when it is time to rebalance. Why not take the capital gains also??

Our retirement accounts are, unfortunately, all taxable traditional IRA and/or rollover 401k. We are in the 15% tax bracket, and expect to stay there until "maybe" we hit RMD, but since we are now only 58 and 57, who knows by then.

We are currently living off a small pension, some residual income from the sale of my business, and taxable savings accounts, which will be mostly depleted when DH turns 58.5 late next year.

Currently letting our dividends and capital gains go to a money market account within the IRA's to build a cash reserve of about 6 months expenses (essentially our emergency fund if a car quits etc).

Will sell annually what we need when we rebalance at the beginning of each year.

What am I missing in terms of strategy for withdrawal?

 

[nun]

I withdraw once a year because to me that is simpler and I feel more confident that I am staying within my chosen WR. There is probably a slight financial disadvantage to doing it this way but I just feel drawn towards what (to me) seems simplest.

I agree, for budgeting purposes I like to do withdrawals annually.

 

[marko]

We just changed from an as needed withdrawal to a monthly "paycheck" which is 1/12 of our budgeted withdrawals. It is two weeks behind my newly arrived SS check, so I get a paycheck every other week.

The withdrawal comes from a MM account which is a holding account for dividends (instead of reinvest). We reinvest CGs "just because" and it sometimes gives our holdings a nice boost at year end.

There is no "right" way IMO.

 

[ripper1]

Probably doesn't make a lot of difference. My retirement accounts AA includes 6% cash and cash equivalents as part of my 40% of fixed income and I typically rebalance each year. I hold this 6% in a Discover Bank FDIC insured savings account that pays .8% IIRC - not a lot but better than most.

I have dividends from our taxable accounts go to our checking account. I have a monthly transfer from Discover Bank to our checking account that is roughly 1/12th of our annual living costs less what I expect in dividends - our monthly "paycheck".

We pay our bills from the checking account and I monitor it and if we have some big expense I might have to do a special transfer but that is rare.

+1...Wow this is eerily familiar to what we do.

 

[GrayHare]

The difference is usually small, but since in general asset values increase over time, taking your withdrawal from tax-deferred money early in the year avoids the dreaded tax-at-ordinary-income-rates on that growth during the year ahead. Conversely, since there is no tax on growth in Roth accounts, it is usually wise to delay withdrawals from those until year end.

 

[scrabbler1]

I set up my portfolio so that my one big bond fund sends its monthly dividends to my local bank's checking account from which I pay my bills. It is my "paycheck" for not doing anything, my kind of paycheck LOL! I also have a stock fund send its quarterly dividends to the same bank account to give me a little extra boost every 3 months in case I need it. Any excess dividends over expenses gets reinvested (taking into account that soem expenses are large and not monthly, so I have to plan ahead). Any dividends from other mutual funds also get reinvested. And all cap gain distributions get reinvested, as they are erratic so I don't want to count on them. I consider then "gravy."

 

[donheff]

When it feels like an intermittent peak (e.g., last week) I pull a bit from taxable. I accelerate the withdrawals a bit in the fall to get a sizable chunk in cash for the new year. So far that has worked well. Could be more confusing in a long term downward trend which is bound to come one of these days.

 

[urn2bfree]

The difference is usually small, but since in general asset values increase over time, taking your withdrawal from tax-deferred money early in the year avoids the dreaded tax-at-ordinary-income-rates on that growth during the year ahead. Conversely, since there is no tax on growth in Roth accounts, it is usually wise to delay withdrawals from those until year end.

I think this is referring to RMD situations only (i.e. for those over 70 1/2). Otherwise I do not understand how it would matter. If you pay taxes at ordinary income rates, the rate is going to be the same whether you take your planned amount out at the beginning of the year or the end of the year. The main difference is that any money you leave untouched within the tax-deferrred account can continue to grow, thus increasing the total value and increasing your RMD and the taxes owed -as it is calculated as a percent of total account value. While it could be a painful situation on the cusps of certain situations (eg-if it kicked you into a higher bracket causing you to lose health care subsidies, or make Social Security taxable) in general this is not the worst problem- owing more taxes because you have more money.



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[DFA]

Currently using DW's income (still working, 13 months), my pension, and on a monthly basis savings account. Next year's sale of house and income tax refund (should be large) will provide enough in savings account for as needed withdrawals to last until I am 59.5 and then Rollover IRA on a monthly basis to reduce RMD with Roth conversion until DW's pension comes on-line at 59.5 which pushes us into 25% tax bracket and income exceeds planned expenses, so withdrawal will be planned as needed.

 

[REWahoo]

+1...Wow this is eerily familiar to what we do.

Same here.

Since we spent our working lives getting a paycheck every two weeks, I set up two week auto transfers from our Vanguard MMkt IRA to the bank checking account. This made the cash and bill management transition from working to retirement a non-event.

 

[Senator]

I would think that if regular contributions is the way to go with money on the way in, regular withdrawals is the way to go on the way out.

Have a maximum withdrawal rate per week/month/qtr, and never exceed it.

That is the way I am planning it.

 

[bizlady]

I would think that if regular contributions is the way to go with money on the way in, regular withdrawals is the way to go on the way out.

Have a maximum withdrawal rate per week/month/qtr, and never exceed it.

That is the way I am planning it.

Dollar cost averaging during withdrawals is generally thought not to be a good idea. Dollar cost averaging - Bogleheads

 

[Which Roger]

Dollar cost averaging during withdrawals is generally thought not to be a good idea. Dollar cost averaging - Bogleheads

But if you rebalance via withdrawals, you're selling the assets that have performed better, which is not addressed in the article.

 

[H2ODude]

Keep about a year's worth of cash, replenish when the mood strikes me (OK, I'm guilty of a bit of timing, just reap occasionally to keep the pile). Move set amount monthly to checking. It's more than we need, so on first remainder gets moved to local savings which theoretically we will use for splurging/unexpected. As it's grown to about 6x the monthly move we seem to need to adjust something or have a big expense:roll eyes:

 

[karluk]

I recently discovered that periodic distributions from retirement accounts that are expected to last for ten years or longer are not subject to the usual mandatory 20% federal tax withholding. Instead, one can adjust withholding to match one's expected tax liability for the year. That feature makes periodic distributions vastly superior to lump sum distributions, in my opinion at least.

Note that this doesn't directly answer OP's question. I'm fairly certain that the periodic distribution doesn't need to be monthly in order to be exempt from mandatory 20% withholding. It could be quarterly or (I believe) annual as well. But once I decided on periodic distributions, it was hard to resist the appeal of a monthly distribution that in effect replaced my paycheck.