thepalmersinking
Recycles dryer sheets
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- Mar 29, 2015
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If a person has a stock/bond mix of 70-30 at retirement, what would be the recommended withdrawal rate from each bucket?
If a person has a stock/bond mix of 70-30 at retirement, what would be the recommended withdrawal rate from each bucket?
Example: You've got a million dollar stash, with a 70/30 AA, and you want to extract 40k. 70% X 40k = 28k, so that's what you take from the equity bucket. 30% X 40k = 12k, so you take 12 thousand from the bond bucket.
28k + 12k = 40k.
If over the next year, as prices of stocks and bonds fluctuate, you'd withdraw your 40 split is such a fashion that you'll return your portfolio to the target AA.
While I have an different AA, I include a cash bucket... so in your situation you could go to 70/25/5 or something like that. During the year, I draw money from the cash bucket for spending needs... in December I rebalance.... I replenish the cash bucket as part of my December rebalancing back to 70/25/5.
I also have taxable account dividends and capital gain distributions go into cash rather than be automatically reinvested.
IOW, my "retirement" money is ring-fenced with the cash account being the "gatekeeper".
with a cash bucket, do you withdraw from bonds and equities in a down market or just use up the cash first ?
Assume you want to maintain 70/30?
Take all distributions from dividends, interest, and cap gains in your taxable account as cash. Figure out how much additional you need to withdraw, and withdraw from each account as required to get back to 70/30 based on the returns since you last withdrew. If stocks have grown, you're probably overweight in stocks so sell them. If stocks sank, sell from bonds.
Not really, if you've done things right.What about my personal rate of income taxes. Won't this make a difference? Thank you. Newbie here.
What about my personal rate of income taxes. Won't this make a difference? Thank you. Newbie here.
No... because withdrawals to pay taxes are no different from withdrawals to pay for groceries (or hookers).... a withdrawal is a withdrawal irrespective of what it is spent on or even if it is saved outside the ring-fence of retirement savings.
I will be using all of my taxable investments when the time comes in 2021 when I have only income of 15k per year and need 65 k for expenses. I have almost 2 million in taxable, 1 million in brokerage, and 800 in IRAs. Still am scared to death at the idea of living off of it.
p.s. I own my home and have zero dept.
An extreme but real-life warning against letting taxes dictate action:Thanks RunningBum. I do have my index funds invested as Vanguard suggests. However, I am having a wee bit of a hard time not letting taxes effect withdrawals. I will need help with using specific ID when the time comes.
I will be using all of my taxable investments when the time comes in 2021 when I have only income of 15k per year and need 65 k for expenses. I have almost 2 million in taxable, 1 million in brokerage, and 800 in IRAs. Still am scared to death at the idea of living off of it.
Lots to consider...
p.s. I own my home and have zero dept.
.... I will be using all of my taxable investments when the time comes in 2021 when I have only income of 15k per year and need 65 k for expenses. I have almost 2 million in taxable, 1 million in brokerage, and 800 in IRAs. Still am scared to death at the idea of living off of it. ...
So after your 15Kyr income you will need 50K/yr draw. Easy peasy. You have 2. 8 mil (or so). A 4% pull gets you over 100Kyr safetly. With that low 15Kyr income you may want to look into ROTH converstions for the IRA. I am guessing with 2 mil taxable you may even get close to 50K/yr in dividends.
Your fear is understandable. Perhaps proper asset allocation will solve the problem and increase your confidenceHaving lived through the Great Recession, I still quake at the idea of having only my investments to live on. Please understand I am grateful I have what I have and always want to help others. I just saw what happened to my investments in 2008 and 2009 and it seems to me that having a stash of cash for 5 years for market recovery is the safest thing to do.