How do you plan your withdrawals?

[Helena]

.

The government would like us all to delay SS as long as possible... and it holds out a nice carrot as an incentive to do just that. But in spite of all the propaganda to the contrary, one size does not fit all. Each person should do his own math to make an educated decision based on his own situation and needs. Because genetics play an important role in longevity, the longevity in his own family [or lack thereof] should be a factor.

.

 

[Helena]

the reason we can all think of someone who died younger like right after retiring is because they stand out because they are so rare .

try making a list of your friends who died in their 60's or even early 70's vs all those you have known who lived to go on .

Friends ?

One's longevity is influenced by one's own family genetics.

.

 

[Major Tom]

For those in this conversation who are talking about a break even point - remember that you can also treat SS as longevity insurance, in which case, the concept of breaking even isn't relevant.

Isn't there a line in "Wish You Were Here" by Pink Floyd about going over the same old ground again and again?

 

[Moemg]

.

I'm thinking of switching my strategy to similar to Audrey and W2R's method - percentage of portfolio on 12/31, dumped into bank on 1/1 (or at least that week). In other word, percentage of portfolio is updated each year. I'm still thinking about it... and figuring out the best way to work in Roth conversions, etc.

I also use that strategy but remember in down years you take a cut . I had a large cut in 2009 right after I had retired . It worked out but it was a belt tightening year .

 

[Perryinva]

I think that no one can automatically conclude that any one method of SWR is superior or inherently better because there are so many variables that are of different importance.. Risk as well as required income to live vs DESIRED income to do more than just live. The less risky is to always evaluate at say 12/31, and adjust accordingly, as mentioned. In a bear run, belt tightening may be required. If, however, ones required living expense income (+ a little hedge) is covered by fixed income that is not market related (pension + SS+annuity), then the effect of the market, and potfolio growth or depletion only affects items of less significant importance: traveling, new car, gifting, donations, etc. I found it very interesting to read so many different means of paying oneself, but without knowing what percentage of their budget is divided between essential and discrectionary, then determining the amount of risk associated with each strategy is of limited value.

None of this is new or revolutionary. Just new people asking the same questions asked before because it's too hard to find old answers.

And FWIW, IF the government (as in the SSA) actually cared as to whether one filed early or late, from an actuarial standpoint they would prefer everyone filed early, because on average people are living way longer than the break even point, so the SSA comes out ahead, dollar wise. I've never seen any propaganda touting filing later as the best one size fits all answer. The "nice carrot" supposedly dangled is simply the actuarial equal of life expectancy and reduced claiming years based on rates that were generally accepted in the mid 1980's. When viewed as a COLA compensated annuity, (or longevity insurance) that passes at 100% to a surviving spouse, there is nothing in the financial markets that can touch it. How many annuities let you chose, as you are paying for it, how long you want to pay for it, and determine your benefit on the fly? None. It's only the deal right now that it is because all the percentages for delayed credits have remained constant since the mid '80s, but rates of return and longevity have certainly not. But it has always been ones individual circumstances that must be considered, not some columnist advice..

My mother died at 68. But I'm not a two pack a day smoker my whole adult life like she was. I've never smoked. My FIL died at 88. His brother and a sister, amd both parents died in their 50's and 60s. So times and health reasons change.

 

[Options]

Friends ?

One's longevity is influenced by one's own family genetics.

.

Exactly--and the current (and estimated future, as much as is possible) state of one's own health, I might add. If I wasn't in the excellent state of health I am in and didn't have grandparents/parents who lived/are living to old age, I would personally seriously consider taking SS at 62. Further, if my health changes (i.e., a severe form of cancer <knock on wood>), I would also reevaluate my decision to delay. Hoping I never have to.

 

[eta2020]

Paying no tax now, and waiting for rmd might not be optimal, but I'm sure paying zero tax is a great feeling.

Especially if you get ACA subsidies.

 

[redduck]

Friends ?

One's longevity is influenced by one's own family genetics.

.

One's longevity can also be influenced by the neighborhood one lives in--and by one's friends who also live in that neighborhood.

 

[Helena]

One's longevity can also be influenced by the neighborhood one lives in--and by one's friends who also live in that neighborhood.

I was thinking natural causes. But now that you mention it, most people who are murdered are murdered by someone they know.

.

 

[Helena]

Especially if you get ACA subsidies.

This is the second time a poster here has mentioned "ACA subsidies."

I had to look up the term because I have company retiree health insurance.

.

 

[jazz4cash]

If I take multiple withdrawals from a tax deferred account (IRA or 401k) will Fidelity send just one 1099 per account or do I get one for each transaction?


Sent from my iPhone using Early Retirement Forum

 

[Winemaker]

I get one 1099R statement in January.

 

[Perryinva]

Minimizing taxable income before Medicare can be huge. Besides qualifying for subsidies, medicare rate paid is dependent on the reported income 2 years prior to filing for Medicare.

One of nice things about delaying filing for SS, is the ability to change ones mind at any time and either start immediately or even get up to 6 months retro, which can be a powerful tool to avoid taxable income in the year it would have been received and move it to the later year. Most people can not afford to delay filing SS, anyway, especially if they FIREed early, because that income stream was part of the plan all along. So unless one COULD have filed easily at FRA or 70, their "reasons" to not delay filing are superfluous, moot, and of no consequence.

 

[Sue J]

Our monthly gozin exceeds our gozout -

I love the way you express this, as this is how it works for us, too.



Sent from my iPod touch using Early Retirement Forum

 

[Finance Dave]

Not FIREd yet...but plan is...


Annually transfer an amount from Vanguard to Credit Union account equal to what we will spend for the upcoming year. In Vanguard we have "buckets", one of which is low risk...so no capital gains or "selling low" implications. Then rebalance Vanguard as needed annually.


In the Credit Union, we have a MM account that pays about 1.2%, so we park it there....and I will do electronic transfers as needed to keep checking at about $12k balance...which gives us a comfortable "float" amount....typically that means I would make a transfer about every 6-8 weeks.

 

[jazz4cash]

...



In the Credit Union, we have a MM account that pays about 1.2%, so we park it there....and I will do electronic transfers as needed to keep checking at about $12k balance...which gives us a comfortable "float" amount....typically that means I would make a transfer about every 6-8 weeks.

Which credit union is that (and can I join)?

 

[UpAnchor]

Which credit union is that (and can I join)?

You beat me to it...

 

[Rosie]

Which credit union is that (and can I join)?

+1

... err, 1.2

 

[rayvt]

Maybe Alliant? They pay like 1% on savings accounts and a little less on checking accounts.

Frankly, at current interest rate levels, the actual dollar amount between 1% and ~1.2% is peanuts. An extra Starbucks coffee.

 

[jazz4cash]

Frankly, at current interest rate levels, the actual dollar amount between 1% and ~1.2% is peanuts. An extra Starbucks coffee.

Very true. I feel awful about groveling for crumbs, but then I do it anyway.


Sent from my iPhone using Early Retirement Forum

 

[DrRoy]

We withdraw when our checking account gets "too low". No particular timing.

I have an idea of our "normal" monthly expenses. Then add in anything unusual that's coming up.

When I was working, we had regular paychecks, but we rarely spent the whole amount. We always spent "what seemed reasonable" rather than "what's in the paycheck". So retirement didn't really change our spending decision making.

We always had "enough" in the checking account to handle a surprise expense. We continued that approach in retirement.

The exact timing of withdrawals isn't a big deal. It's easy to get money quickly from Vanguard mutual funds. There's very little loss in having "too much" in a checking acct these days. So we've got room to err on either side.

I'm 6 mo from RE but otherwise this describes DW and I so well it's spooky.
I also plan to end reinvestment of dividends and cap gains. That plus a small pension will be much of our income. We will make adjustments as needed, and I do not see a need to generate additional periodic withdrawls.

 

[Scuba]

Thanks for all the responses. My takeaway is that a lot of different methods can work depending on one's budget, income sources, and preferences. Since I've been used to a paycheck for so long, I think I'll do monthly withdrawals based on average "recurring" spending, and then supplement with larger withdrawals to fund big ticket occasional purchases.


Sent from my iPhone using Early Retirement Forum

 

[rayvt]

Thanks for all the responses. My takeaway is that a lot of different methods can work depending on one's budget, income sources, and preferences. Since I've been used to a paycheck for so long, I think I'll do monthly withdrawals based on average "recurring" spending, and then supplement with larger withdrawals to fund big ticket occasional purchases.

There's a couple of problems with this. I know about these because I started off the way you said.

* You still have to stay, on average, within your planned SWR, 4% or whatever. If you take sporatic large draws, how will you know that you are still on track?

* When a big-ticket item comes early in the time-period rather than later, where does the money come from? If you are doing "paycheck-like" draws, then you have to effectively borrow the money and then pay it back by taking smaller draws afterwards. How do you know when it balances out?

* Let's say your 4% SWR is $5000 and your average recurring expenses are $3500. Treating this like a paycheck, what do you do with the remaining $1500? Probably save it, maybe to a savings account. But then you say, "Hold on, when I was working I'd just invest (some of) that money in my investment account." So you draw $5000, spend $3500, and put $1500 back in. After a month or two you realize that taking out $1500 and putting it right back in is kinda silly.

* There are many advantages to treating your SWR like a paycheck. But I never had a paycheck where I could only take half-pay now and the rest of it later whenever I wanted to. Or a paycheck where I could take triple-pay now and then half-pay for the next 6 months.

* Every once in a while your expenses will line up such that you have enough cash-on-hand to handle them without withdrawing ANY money. So you leave the $3500 in, and make a note that in a month or two you can spend that $3500. Effectively, you will spend the April draw in May. Or in July and August. Or in July, September and December.

* When you are FIRE, you can do things you never could before. Like: Get a last-minute great deal on a Galapagos cruise/tour. $30,000 for the two of you, compared to the regular price of $50,000. Or pay for your son's unexpected wedding: $10,000. Or your daughter's unexpected $15,000 divorce legal bill.
You've got plenty of money, just not the lump sum. So you take out the large draw now and pay it back by taking smaller draws for the next year or two.

After awhile it becomes obvious that you have to keep track, both to see how you are doing compared to your target SWR, and to know when you have finished the paying back the large one-time expense, and to know if you have saved enough (by lower draws) to pay for a large expense.

* When your wife looks at the portfolio statement and says, "We have $1 million dollars, so why can't I buy this $3000 diamond necklace?" You'd better have an answer!
Or maybe it's you asking why you can't buy this $5000 bass boat.

If you are keeping track, you just look at the spreadsheet and see how much over/under you are.

 

[pb4uski]

Thanks for all the responses. My takeaway is that a lot of different methods can work depending on one's budget, income sources, and preferences. Since I've been used to a paycheck for so long, I think I'll do monthly withdrawals based on average "recurring" spending, and then supplement with larger withdrawals to fund big ticket occasional purchases. ...

Actually, despite rayvt's concerns, that is exactly what we do and what we would have done when working. We have a regular paycheck that, along with taxable account dividends, covers our normal expenses (including some lumpy items within home maintenance like replacing a $500 heat exchanger that went kaput). We do other withdrawals for things like cars, a garage we built, winter condo, etc.

We are not wed to a specific WR and over the period we have been retired our WR has fluctuated some. As long as our expenses (including depreciation that implicitly provides for car replacements) is ~3.5% I sleep well at night. Also supplemented by periodic updates of Quicken Lifetime Planner and Firecalc that we continue to "have enough". If that started to turn sideways we would begin belt tightening.

 

[nvestysly]

I'm definitely in the same camp as rayvt. Our monthly paycheck includes our estimate for big ticket items that come up once in a while. Most months we have more money than we need and the cash accumulates in a savings account. Big ticket expenses for us are in the several thousand dollar range - new roof, $7k, new AC/heat $5k, basement waterproofing $12k and so on. In any given year we don't know specifically which item will raise it's ugly head and need repair/replacement.

If you decide to do special withdrawals for big ticket items you should definitely consider some sort of tracking to ensure you're not in trouble. Watch the trend from year to year to make sure there is some consistency in your withdrawals and you're not spending too quickly. FIREcalc and other tools can help with this.

Best wishes. It's an exciting time but there is some angst.