Where do you actually get your money in retirement?

[Stormy Kromer]

I am 56, DW is 60.

I sold my business at age 50 and receive a monthly payment that more than covers our living expenses, including tax & health insurance. This will last til I'm 62.

At age 62 DW & I will start SS and I will start drawing from my SEP. This will be more than our current income. We may start taking dividends from our investment accounts instead of reinvesting them at that time, or beyond.

 

[jollystomper]

One thing I focused on for retirement was having (as much as possible) all of our bill due around the same time of the month. Since my pension comes in the 1st of thew month, we chose to have our bills due between the 4th and the 9th of the month. In addition, as much as possible we use our credit cards for spending.

About 3 or 4 days before the end of the month DW and I manually pay the bulk of the bills via our credit union electronic payment process. We also write out any checks for those few bills than are easier/more secure to pay that way. The payments are also entered into Quicken at this time, so I know whether our not my pension + cash in the checking account (kept minimal as it pays zero interest) will cover them. If there is a deficient I then do a funds transfer from our online savings account (Ally) to cover it before the bills hit.

We replenish the online cash account from dividends from a couple of mutual funds we are no longer reinvesting into. DW's SS comes in mid month, but for now we are DCA'ing that into investments due to our cash levels.

We have several years of planned withdrawals in cash, so almost anything we do with our taxable/tax deferred accounts have to do with Roth conversions or tax payments. We don't budget anymore, but I do track and forecast cash flow with our process above.

 

[tb001]

From retirement at age 56 to current age of 65, we've lived off our taxable brokerage account. I've generally kept a years worth of expenses in cash from dividends and by selling equities periodically. We've kept income low in order to maximize ACA subsidies - which has become harder as the remaining equities are far more capital gains than basis. Mechanically, I transfer cash from the brokerage account to a checking account in $10,000 increments when needed, and all outbound expenses are paid from the checking account.


Next year everything changes as we both will have moved to Medicare, so the ACA income limits aren't an issue. We'll start up a small pension and the smaller Social Security payment, and begin IRA withdrawals, as well as Roth conversions. The taxable account will be pretty much gone at that point, so the timing worked out well.

I struggle most with how to think about tax minimization.

We’re in the same boat as the OP. In our 50s, with the majority of money we intend to live on in our taxable account. No pension and minimal SS. In our first year of withdrawing. We don’t reinvest dividends. We sold enough equities to fund the year in December.

We basically picked funds to sell which gave us the lowest capital gains and still maintained our target AA. But I struggle with wondering if we would be better off ‘smoothing’ out our tax burden, like we would do with Roth conversions. I guess the argument against it is that RMDs are a sure thing vs equities which can go down?

We don’t have an aca subsidy to manage to, though we’ve considered doing an every other year withdrawal strategy so that we would have an aca subsidy I. The years we don’t withdraw. I’m not sure if the added complexity is worth it though.

 

[scrabbler1]

I am similar to Major Tom. I retired 13 years ago at age 45, so all I had was my taxable account to live off until around now (more on that below). I took a large, lump-sum payout from cashing out my company stock and invested it in a bond fund whose price was extra low due to the 2008 financial crisis.

I have been living mainly off that bond fund's monthly dividends although at times I needed to supplement it with dividends from a stock fund and some other small bond fund holdings.

Most of the excess dividends and other income in general (i.e. cap gain distributions) were reinvested into that big bond fund which was a good thing because that bond fund's monthly dividends have eroded over the 13 years. I have added many more shares to that fund which have offset much of the cents-per-share dividend decline.

At the end of 2019, I sold off all the shares in that (actively-managed) stock fund I had owned since 1996 and switched to a comparable index fund. This reduced my income but also got me back on the ACA premium subsidy train, something whose value had increased greatly over the years. My expenses are now at all-time lows.

I am also entering the time when one of my "reinforcements" has arrived. Those 3 are (1) my frozen company pension, available at age 65, (2) Social Security, available at age 62 but I will likely wait until at least age 65, if not 67 FRA, and (3) unfettered access to my rollover IRA, something I can actually tap into this year because I turn 59.5 in October. I won't need any money from it, of course, but knowing I have reached the age where I can tap into one of those "reinforcements" is comforting.

I have various "slush funds" I can use if I have a large expense I can't fund with my current checking account balance which is usually in the $2k-$3k range, enough to cover smaller, unforeseen expenses. One of those slush funds has checkwriting privileges which is also very useful. I consider it a second-tier emergency fund.

This system has worked very well for me in the last 13 years, with the various tweaks.

 

[38Chevy454]

For OP disneysteve, you should use the proceeds (dividends, cap gains distributions) from your after tax savings to live on, since those are taxed each year whether you spend them or reinvest. So for OP's case, use that cash as part of your living expenses. If trying to minimize income for ACA, then get supplemental money from the after tax account as well, but you can use some of the IRA as long as you keep an eye on total withdrawals so you stay under ACA limits. Be aware that even your after tax withdrawals may have tax implications if you sell equities that have cap gains.
As many have said, the answer to the general question varies for each person based on what they have available: pension, SS, after tax, pretax, rental, or whatever other source of money. Then throw in the tax implications if trying to keep taxable income lower for ACA or general tax minimization.

 

[mountainsoft]

I understand the big picture side of funding my retirement but I'd love if some of you could walk through the actual day to day nuts and bolts of how/when/where you draw your money from to pay your expenses in retirement.

We are still a year and a half from retiring, but I expect to spend down our money the same way we do now after retiring.

1. Any income is auto deposited to our checking account. Right now that's mainly my wife's paycheck, but it will be her pension and our SS payments later on. My business income is handled similarly, but in different accounts.

2. The only thing we generally spend from checking is gas for the cars as gas usually costs more to pay with credit cards. After that I leave $2000 in checking (to cover the minimum balance to avoid bank fees, plus any miscellaneous we might spend). I transfer the rest to our "high yield" savings account at Discover.

Side note: My local bank charges a fee to transfer money out of checking. So I have Discover "pull" the money from checking as the transfer is free in that direction.

3. All of our expenses are billed to our Citi 2% cash back Mastercard. We're spending the money anyway, might as well earn a bit along the way. This includes utilities, groceries, online shopping, etc.

4. The credit card is paid off automatically each month from our savings account, so we never pay interest.

5. I try to keep about 2 years worth of expenses in our savings account. Anything over that gets invested in our taxable account. Then I make our Roth contributions each year from our taxable account to our Roth accounts.

Once we retire, I plan to replenish savings once or twice a year (haven't decided how often yet). I will start with the funds from our taxable account until it's gone, then from my Roth account, and finally from my wife's Roth account. I don't have a traditional IRA anymore (converted to Roth), but I would draw from that before the Roth accounts.

By keeping 2 years of expenses in our savings account, we should be able to ride out any major downturn in the market and replenish savings once things recover. It also ensures there is always enough cash on hand to pay off the credit card each month, and to cover most emergencies that might come up (water heater, roof, car repairs, etc.).

 

[EastWest Gal]

My situation is not all that different from the original poster. I am single, now 59, but retired at 56. No pension. No SS yet. I have no Roth IRA. I have a traditional IRA and a much larger taxable brokerage account. I'm not doing Roth conversions because I'm keeping my income low to get affordable health insurance.

I started retirement with about 2 years expenses in savings accounts. For the most part, I lived off that for the first 2 years. At that time, I reinvested all other income.

At the start of year 3, I turned off reinvesting and started to pull out that income as it came in to add to my spending money. But then, shortly after, I sold a second home that netted me about 2 more years of income. I put 1/2 of that in the savings accounts to replenish them and I invested about 1/2 of it in my taxable brokerage. Since I now have a sizable amount in savings again, I've been reinvesting income again.

I see 2022 as being covered by my savings accounts. In 2023, I will likely turn off reinvestments and start pulling that out for spending money as I wind down my savings accounts. I may need to finally sell something in early 2023 as well. That will be the first time (other than the second home) since I retired at the end of 2018.

After that, I plan on selling selectively to minimize capital gains as best I can. I doubt I will take SS until at least age 67 unless I start to feel the need for more income coming in.

If I were you, I’d sell at the end of 2022. There is no ACA cliff in 2022. It’s scheduled to return in 2023. Unless Congress changes it.

 

[EastWest Gal]

I have a large taxable account. I get about $50K in dividends, so I sell about $50K worth of investments to make up the rest. I’ll sell extra this year and do a small Roth conversion. Next year I plan on selling no equities and will sell minimally in 2024 due to the ACA cliff. We start Medicare in 2024.

I transfer monthly from the cash in Schwab to our checking account. I transfer more when we have large expenses, such as quarterly taxes or our LTC premium.

 

[brett]

Employer DB pension, Government SS like pension, investment income.

We are extremely fortunate. Years of careful investing and good life and employment choices paid off in spades for us.

 

[shortstop14]

We basically picked funds to sell which gave us the lowest capital gains and still maintained our target AA. But I struggle with wondering if we would be better off ‘smoothing’ out our tax burden, like we would do with Roth conversions. I guess the argument against it is that RMDs are a sure thing vs equities which can go down?

We don’t have an aca subsidy to manage to, though we’ve considered doing an every other year withdrawal strategy so that we would have an aca subsidy I. The years we don’t withdraw. I’m not sure if the added complexity is worth it though.

I determined that the ACA subsidy was worth keeping our income low for the last ten years, and I had enough low capital gains equities and bond funds to do that while still providing adequate cash to meet expenses. That had the side benefit of keeping our income tax rate at virtually zero. However, that may bite me down the road as I'll only have about six years to do Roth conversions prior to RMDs, so there may be a painful tax bite down the road.

 

[gcgang]

Retired 9 years ago at age 58. No pension, still delaying Social Security.

I’ve always run everything with a brokerage Cash Management Account, where all my taxable assets are held. Any cash in the account - dividends, interest, deposited checks - automatically sweep into a money market checking. Bills are either on autopay, or I do online bill pay.

I used to ladder Treasuries, as they matured I’d spend them. Rates got so bad I did open online Ally bank for CDs. My last TNote comes due in July. For spending money after that, I’ll periodically transfer 6 months expenses from Ally to the CMA.

Used to be that the money market checking would keep you up with inflation, but those days are gone, for now.

Only reason I’ve had a brick and mortar bank account in the last 40 years has been to rent a safety deposit box.

 

[Bruno]

I funded a couple of MYGA annuities, each with over 200K cash. I get about 5k per month for the next 7 years. That and SS I usually send extra cash each month to Discover savings acct. I have not ever pull any thing from my Fido, EJ or VG accounts. I am not sure this is good way of doing it. I think i need to figure out how to do a backdoor Roth.

 

[TheWizard]

As others have indicated, this is a highly variable question.

We retired at 57/56, no pensions, minimal Roths (although started Roth clocks 5+ years before retirement), and grossly disproportionate tIRAs. Had enough in taxable to make it to 59.5, along with a HELOC standing by, just in case.

We withdrew from taxable as needed to sustain spending, and aggressively converted to Roths--paying taxes from taxable. In 3 years, we exhausted the taxable accounts, and started withdrawing as needed from tIRAs, whilst continuing Roth conversions (now doing so to top of 32% bracket, paying taxes out of the tIRAs). Beginning last year, we set up an automatic monthly withdrawal from tIRAs that equates to about 3/4 of allowed spending. Every 6 months, we sell from whatever we are heavy in to fund 6 months of withdrawals. To the extent we spend more than 3/4 of our allowed amount, we sell an overweighted position as needed.

ACA subsidies were never an option, nor is completely avoiding IRMAA. Plan to keep on this path at least until DW hits 70. If we are lucky, we won't get our Roths equal to our tIRAs by then--although we'll try our damnedest!

32% tax bracket for Roth conversions is high.
Are you confident you'll still be in that bracket, or at least have a similar AGI once you're age 72 and beyond?

I did Roth conversions well into the 24% bracket over the past decade but now that I'm 72 with RMDs, I've stopped doing them. But my AGI (and taxes) will stay about the same, inching upward, due to my planning...

 

[DrRoy]

We get about 1/4 from my pension. I then accumulate all interest, dividends, distributions, and matured bond $ from the taxable account. If we need more I sell equities. It varies from year to year. No SS or RMS's yet.

 

[old medic]

Unlike most, monthly pensions will be the biggest leg on our stool. But this thread is still a great read, so here is ours.

58.5 and just retired, my pension is enough to meet our required expenses with a little left over, add $700/month in a couple years. May continue PT just enough to fund my HSA and maybe start a tIRA. Also have plenty of cash job opportunities should I wish.
DW, 53.5, still working 3-5 more years, currently putting about 35% into 401K , may increase to help with my ACA . She will get about the same amount in her pension plus has insurance as a benefit.
A year in cash savings, currently 6 years in 401K/Roth and growing. Just started Roth's for us last year and plan to put the max in each year, possibly more (conversions) if there is room within the ACA window.
I will need to wait till Medicare before considering SS due to ACA, and she will also have SS. Hopefully it will still be available...
We should have around a 5-7 year window from when she retires until I start SS that we can convert a bunch of our 401K to Roth at the lowest tax rate.

 

[SecondCor521]

I understand the big picture side of funding my retirement but I'd love if some of you could walk through the actual day to day nuts and bolts of how/when/where you draw your money from to pay your expenses in retirement. I realize it will vary person to person. It will depend on if you have a pension, if you're already taking SS, etc. So let's focus on a 57-year-old guy with no pension and not collecting SS yet. Wife is 58, also no pension or SS. We have cash accounts, taxable mutual funds, traditional and Roth IRAs, a small SEP IRA, a 401k, and an inherited traditional and Roth IRA. The inherited t-IRA has an annual RMD starting this year of so that piece is already handled. Assume that the portfolio is about 50% taxable, 50% retirement accounts.

How do we approach accessing our accounts beyond that? Do you start by drawing out income (interest, dividends, capital gains)? Or do you still reinvest all of that and just sell shares as needed? How do you draw from your cash accounts, if at all? What sort of schedule do you follow?

I hope my question makes sense. Basically, we have this 7-figure portfolio ready to go and I'm just trying to wrap my head around what happens when I actually retire and need to start spending from that portfolio. When the bills start coming in, where do I reach to get the money to pay them?

Thanks in advance.

I'm in a roughly similar position, except I am single, already FIREd, and do not yet have the inherited IRAs.

Big picture, switching from working to retired is, as you're guessing, quite different to manage. It has taken me several years, but I finally feel like I'm getting my sea legs. You're smart and thinking about these things so I'm sure you will figure it out as well.

Big picture, it's also a multivariable problem. You will likely want to wrap your head around cash flow, taxes, asset allocation, and long term planning. Each of these is really a separate topic but they often interrelate.

Also, few places give any sort of advanced advice, and the advice typically given is outdated, wrong, or simplistic.

Anyway, here's what I do, which is similar to others. I'll also briefly explain why I do things the way I do; that might be helpful to you to decide how you're going to do things (which will undoubtedly be different).

For day to day spending needs, I pay for things with a credit card. I use a Fidelity 2% cash back VISA because it gives me 2% cash back, is a VISA, and has no annual fee. That 2% cash back goes into my Fidelity HSA, which enables more Roth conversions, so is worth another 0.66%. So 2.66% tax free cash back on my spending.

My credit card and all my other bills are autopay from my main checking account. I've been on autopay for forever and never had a problem. Also, running everything through one central location means I only have to pay attention to cash flow in one place - if my checking account balance is positive, then I'm OK cash flow wise. I use Quicken and have all of my bills set up in there so I can project my checking account balance out several months into the future and see whether it's going to stay positive.

Like most people, I do funnel my taxable dividends, tax rebates, gifts, side gig income, bridge winnings, etc. into my checking account and spend those first. If/when I have an inherited IRA, my 10 year withdrawals would also go into this account to be spent.

(If I ended up in a cash flow positive situation and/or had anything beyond maybe 6 months in cash, I'd probably put some of that back in taxable and invest it.)

When Quicken shows me that my checking account will be running low, I sell mutual funds in my taxable account and deposit the proceeds into my checking account. I usually sell to raise a few months at a time; it is my personal preference not to have large amounts of cash lying around.

I also have a Roth conversion ladder going, so if my taxable were to run out before 59.5, I could draw on my Roth. It doesn't look like that is going to happen. However, any early retiree will need to look at the various ages of access and develop some sort of plan to make sure that they not only have enough money overall but also have enough money available when it's needed.

If I do have several months cash lying around, I have a tendency to shift some of that money into a savings account to earn a bit of interest, but that's not really a big deal these days.

Before I retired, I thought I'd have a schedule - like every January 1st and July 1st I'd sit down and do a formal cash refilling ritual. The way it has actually turned out, I am event driven. What this means is that I monitor everything via Quicken and Excel, and I've got a couple of dashboards that show me visually if everything is OK. If something is out of range, I know what I need to do to fix it.

So for example, my dashboards show me:

Is my cashflow OK?
Is my spending at a safe level?
Is my kids' college funded enough?
Is my kids' college money allocated the way I want?
Is my AA where I want it?
Is my Roth pipeline fully funded?

So I just update the data every few days, check the dashboard, and address any cells with red background. After doing this for six years, though, I intuitively know how things are going and that they're going just fine; the dashboards are just to do as well as I can just because I'm competitive with myself that way.

I also have other longer term bigger picture spreadsheets dealing with estate taxes, RMDs, and my HSA which I consult as well periodically.

That's how I do things anyway. Your situation is different, your goals are different, and you'll have different preferences, so your solution will be different. But again, you're smart and probably well prepared, so you'll figure it out. Give yourself some grace for the inevitable mistakes you'll make; they're highly unlikely to be fatal or even serious if you're even halfway thoughtful and have halfway decent luck.

 

[2017ish]

32% tax bracket for Roth conversions is high.
Are you confident you'll still be in that bracket, or at least have a similar AGI once you're age 72 and beyond?
....

Pretty confident, yes. Even after 4.5 years of high spend and aggressive conversions, tIRAs remain at 4 million. If SS stays the way it is now, we will be getting near six figures once we both claim at 70. Tax rates are scheduled to snap back in 2026, meaning married filing jointly will hit 33% marginal rate at less than 250k taxable income. (And widowed/single at less than 200k).

Given the RMDs and likely tax rates for a single person in her 80s-90s, 32% seems like a relatively safe bet.

 

[donheff]

Pretty confident, yes. Even after 4.5 years of high spend and aggressive conversions, tIRAs remain at 4 million. If SS stays the way it is now, we will be getting near six figures once we both claim at 70. Tax rates are scheduled to snap back in 2026, meaning married filing jointly will hit 33% marginal rate at less than 250k taxable income. (And widowed/single at less than 200k).

Given the RMDs and likely tax rates for a single person in her 80s-90s, 32% seems like a relatively safe bet.

Yeah. I am thinking of heading the same way this year. I want to talk it over with a CPA first but with large pension and SS income and large IRAs it probably makes sense to get more out up to 32% while we can.

 

[WestUniversity]

So we have SS and pension income, in addition to our investments.

Basically the total dollar amount of our budgeted MONTHLY expenses (less monthly pension payment amount and less monthly social security payment amounts) is auto transferred from FIDO at the beginning of each month. That transfer amount ends up being a portion of our investment income.

Our budgeted ANNUAL expenses (e.g. property taxes, HOA fees, homeowners insurance, etc.) and any unplanned “lumpy” expenses (major car repairs, large medical expenses) are transferred as needed.

Our cash gets topped up at the beginning of the year when I rebalance our portfolio to our desired AA.

Our budgeted annual spend is calculated using FIRECalc and the Rich Broke or Dead calculators online….

 

[Clover5]

No pension or SS yet, am 60. At the beginning of the year I sell bonds and stocks equal to the amount I planned for based on my allocation, i place that in an account called Savings. I then pay myself monthly with a automatic transfer from Savings to another account called Day to Day. That’s it…

 

[marko]

Dividends, MF cap gains and SS. That's it.

 

[davidfin]

I’m curious. Many of us during wealth accumulation, made regular (monthly) disciplined contributions to both pre and post tax accounts on our way to FIRE. I read many do annual lump sum cash conversions into their cash account. I’m wondering why that approach is superior to cash on demand such as monthly or quarterly conversions to provide necessary cash. I don’t think anyone can argue we have experienced one heck of a 10 year bull run. Intuitively I think I’ve probably done better using a cash on demand approach as opposed to being 6 figures in cash at the beginning of the year. Especially this year. Comments?

 

[jpeter1093]

As part of our "retirement portfolio" I hold abut a year of withdrawals + $15k in an online savings account that yields a paltry 0.4% (last time I looked). I have a monthly transfer from that online savings account to a local credit union checking account that we use to pay our bills... aka our monthly "paycheck".

I monitor the balance in the local credit union checking account, making sure it has enough to pay any outstanding bills. If we have any extraordinary spending and the checking account won't have enough then I do a special transfer. We have a few lumpy bills in November each year (property taxes and insurances) so I often need to do a special transfer in November, but I try to keep those special transfers to a minimum. I don't consider the checking account to be part of our retirement portfoio and it usually has a negligible balance ($5-10k).

Then toward the end of each year when I do our rebalancing I replenish the online savings account to next years spending + $15k.

We do something very similar; but instead of replenishing based on the calendar; we replenish when the fund gets below 1 month of income back up to our annual income. My thinking is it makes selling the assets to replenish similar to cost averaging when I was working and buying stock from each paycheck.

 

[meleana]

We have a very large cash position outside of our IRAs and also inside. No monthly pensions and not taking SS until age 70. Hubby will be 68 in April and I’m 65. I quit my job in the fall of 2018 while hubby was still working and he retired 12/31/19.

We are living off cash per our fee only Financial Advisors recommendation. I put at least 6 months living expenses or more from our piddly earning savings accounts into our checking account and I double check the balance every 6 months. Of course, I also go over our checking account systems anyway each month.

Living off cash was very helpful in allowing me to be on a ACA plan for a year and a half until I could go on Medicare. Got pretty much full subsidies.

It also keeps our income low because our brokerage account is fairly tax efficient and I only have a small RMD I have to take every year from an inherited IRA. ( I also put that money into our checking account to pay bills - usually about $8000 after taxes).

Our budget is somewhat the same as when we worked plus or minus a few things. We are simple people and not into extravagance. Plus with the pandemic we have not travelled anywhere due to the hassles of it, so no extra expenditure there. Heck we’re on vacation every day anyway! Lol!

So anyhow this low income results in a nice tax refund and also a teeny, tiny property tax refund ( less than $200) from our state.

But this year now that I’m no longer on an ACA plan, our advisor wants us to start doing Roth conversions. He says even doing this for a few years it will help a little bit for when we start taking SS at age 70 when the tax torpedo would hit. Of course, this means we will also have to take cash from our savings accounts to pay the taxes due.

I have to have another conversation with him to see how much we should convert and what the taxes will likely be because we have to make sure we have enough cash to live on until SS for both of us. Plus I still want to make sure we have an emergency cash fund outside an IRA if possible after that.

He thinks I’m too conservative with that. I like the idea of having 2-3 years cash in an emergency fund and he says a year is more than enough.

 

[davidfin]

We do something very similar; but instead of replenishing based on the calendar; we replenish when the fund gets below 1 month of income back up to our annual income. My thinking is it makes selling the assets to replenish similar to cost averaging when I was working and buying stock from each paycheck.

Yup, I also look at it like dollar cost averaging on the way out.