61 and getting closer, a question on withdraw...does it pain you?

[Danmar]

I am reluctant to touch principal and generally only spend dividends. Overall plan is to leave a legacy of at least my current balance, so there is some room to withdraw principal as the portfolio increases. Maybe withdraw half the appreciation over inflation? Still trying to come up with a methodology.

Retired 10 years, age 66.

 

[pb4uski]

Planning on retiring in a few more years. However, after years and years of contributing into retirement accounts, the thought of doing withdrawals even thought the right thing, seems painful to me.

SS will cover the majority of my expenses and I'll have to withdraw some cash out which is already bugging me. I guess I have been conditioned to NEVER TOUCH THAT is still in my head, even though that's what it's designed for. I hate the thought of DEPLETION.

Any of you struggle with this reversal in processes? Just curious. And all the calculators give me the green light, FYI.

Thanks.

Did you save that money to hoard it or to use it in retirement?

I had no trouble in that it was part of the plan all along and I set up a monthly automatic transfer of a fixed amount from my online savings account (part of the cash portion of my AA) to our local bank as my monthly retirement "paycheck" (in addition to dividends from our taxable accounts).

Even so, our nestegg is 14% higher than when we retired and 23% higher if I include the winter condo that we bought from the nestegg.... thanks to strong market returns over the last 4-5 years.

 

[Alan]

61 and getting closer, a question on withdraw...does it pain you?

No it doesn't pain me to make the withdrawals, although the first 3 years I was very conservative.

 

[Koolau]

To OP's point, specifically, yes, at first, it bothered me a lot to make withdrawals. We really needed to do so for the life style we chose, even though I have a modest pension and now DW takes SS.

I eventually got used to making withdrawals as needed. It helped that the portfolio continued to increase. Soon that may not be the case. This is now the final year that I will be able to withdraw the exact amount I want as next year, I will be subject to RMDs. I think I will hate that more than figuring out on my own how much I might need for a years expenses. At some point, since my port is roughly half qualified money, my overall portfolio may start to decrease (unless I find a good way to use any left-over RMDs in taxable funds - not my strong suit.)

Don't worry, you will get used to it and you will be glad you have a portfolio to tap - even though it will feel very strange at first. Good luck and YMMV.

 

[John Galt III]

Age 62 and getting by very well with only pension, knock on wood. I will start SS in a few years and income will go way up. Hope to not have any withdrawals til RMD at 70.

 

[Car-Guy]

Approaching 5 years into retirement now and it has never concerned me to "tap" my retirement savings. Amazingly to me, my "cash/investable" net worth continues to stay within 5% of what I had when I retired. Sometimes 5% more, sometimes 5% less, inflation adjusted. However, my "estimated" physical asset value has increased considerably but is harder to track/calculate. (Expensive hobbies)

I'm beginning to realize I can easily increase my WR if I wanted to but really find no interest to do so.

 

[kcowan]

I have to admit that our draw-down in 2008 did make me wonder when/if it would turn around. But I had to remind myself about FIRECALC and the odds-based approach. Tough out the down years watching it decline and don't overspend in the up years. In 14 years, there have been only 2 down years so far so we are due for a few more. I am ready for them!

 

[socca]

Hope to not have any withdrawals til RMD at 70.

I am living entirely off dividends and business income. I hope to be able to keep this up until I finally kick the bucket at age 200 (could be a bit less ). According to my current conceptualization, when it comes time to take RMDs 17 years from now, I still will not be touching principal. Each RMD will just be a transfer of principal from the tax-deferred bucket to the already-taxed bucket. Of course, there will be less principal after the transfer as the IRS finally collects its deferred taxes, but that's the only consequence.

 

[MrLoco]

Your fear is not withdrawing the money you saved for retirement. Your fear is running out of money. If you have a 50/50 stocks/fixed income AA; withdraw 2.5 to 3.0%, supplemented with a pension/social security/ annuities and maybe a part time job you will not run out of money.

A more important consideration is to really get a handle on expenses as this is directly correlated to your withdrawals.

Relax.

 

[RobLJ]

Since the OP seems to be able to "get by" on pension and SS, that is my suggestion--transfer dividends (bonds and stock) automatically to a stock account and probably long-term gains from stock mutuals with less turnover, like indexes.
In that way, OP can "feel" his way into spending income, until he becomes comfortable spending principal if necessary. In large up years, I plan to "spend" large gains or capital gains into cash or short-term, as a kind of bucket approach, available for either spending or reinvestment.
I'm semi-working (12-15 hours on a modified employment), so I'm not withdrawing, but I'm cheered to see the last 4.5 years of gains would fund what I plan to withdraw without affecting the balance-or 10% cash outside of the 401k/403bs/IRAs.
This is a mental problem, however, after years of automatic savings funded by employment.

I am reluctant to touch principal and generally only spend dividends. Overall plan is to leave a legacy of at least my current balance, so there is some room to withdraw principal as the portfolio increases. Maybe withdraw half the appreciation over inflation? Still trying to come up with a methodology.

Retired 10 years, age 66.

 

[RobbieB]

I love making withdrawals, writing big checks and sending thousands every month to support my lobster and caviar habit.

Thousands for solar panels, dental work, booze and exotic hotels on the Monterey coast.

Ye-ha! And I now have more dough than I ever had. I'm still making dough faster than I can spend it. That's the LBYM lifestyle baby -

 

[jollystomper]

To the OP, we will be in a similar situation as my pension will cover about 60% of our target spending, and if we choose to take SS early pension + SS could cover over 80%. So part of my "pre-retirement planning" is to increase spending to get used to making withdrawals . We are modelling our retirement spending and have loosened the purse strings for some long term home improvements, and had to deal with a couple of unexpected expenses. With dividends coming in we have learned the withdrawal impact is not as great was we thought, and we are actually below our expected withdrawal rate so far.

We also have enough in cash to cover withdrawals through our earliest SS target date, so there is comfort knowing that our withdrawals will likely not force us to sell securities for a while.

 

[shotgunner]

Planning on retiring in a few more years. However, after years and years of contributing into retirement accounts, the thought of doing withdrawals even thought the right thing, seems painful to me.

SS will cover the majority of my expenses and I'll have to withdraw some cash out which is already bugging me. I guess I have been conditioned to NEVER TOUCH THAT is still in my head, even though that's what it's designed for. I hate the thought of DEPLETION.

Any of you struggle with this reversal in processes? Just curious. And all the calculators give me the green light, FYI.

Thanks.

Seriously, it gets easier the more you do it and it's a lot easier in a bull market. Going to work, saving and investing, LBYM are or become habits, habits for 30 to 40 years. Habits are hard to break.

I think the fear of running out of money is far greater than the actual possibility for a person conditioned to be LBYM.

The occasional and continuing loss of friends and classmates also contributed to my ease of entering the withdrawal phase, each death is a splash of ice cold water reminding me my problems are small, I won't live forever and enjoy life while I have the legs and lungs to do it.

I find it interesting you are concerned about this when you still plan to work a few more years, could you retire now but your concerns have you in a One More Year (OMY) mindset?

 

[BarbWire]

I retired last October at 58....

One thing that really helped me initially was having my Vanguard advisor look over the portfolio and help me set it up for the retirement phase. Before that I kept thinking "What if I did the numbers wrong? What if there is some huge iceberg I didn't take into consideration?" BTW a one-time advisor lookover is free. I already knew I wanted to avoid managed funds and he didn't suggest any anyway.

How does one get this service -- which is exactly what I need?

I have a Flagship representative who is, in general, pretty clueless and who pointed me to their Vanguard Personal Advisor Service to manage my portfolio, which is not what I want.

What specifically should I be asking for (and from whom) for the one-time lookover? I need help developing a strategy for creating an income stream and possibly rebalancing / tweaking for the retirement phase.

Thanks!

 

[skipro33]

Man, if the thought of withdraws are getting to you, just wait until you actually make one and they take another 25% for state and federal taxes!!

I realized, of course, that the money in my 401K, 457 and IRA was tax deferred, that I would have to pay taxes on those funds when I withdrew them, but that was academic. It wasn't until I made a $20,000 withdraw and my account dropped by $25,000 that I realized what my account was REALLY worth. I always thought of my $Millions$ as mine. It's not. A big chunk of it is the governments and they'll take their share out when I take my share out. OUCH!!

It feels like a built-in inflation; I want to buy a candy bar for a dollar but I have to withdraw a buck twenty-five to buy it. Oh, and that buck twenty-five? They take MORE taxes out of that at the cash register!! DOUBLE OUCH! 8% more. Now a buck twenty five buys me 92 cents worth of goods. I'd be happy to withdraw 92 cents to buy a candy bar, but I have to withdraw a buck twenty-five to buy the candy bar. Federal income tax, State income tax and State sales tax. OUCH, OUCH, OUCH!!

 

[nanannjen]

Man, if the thought of withdraws are getting to you, just wait until you actually make one and they take another 25% for state and federal taxes!!

I realized, of course, that the money in my 401K, 457 and IRA was tax deferred, that I would have to pay taxes on those funds when I withdrew them, but that was academic. It wasn't until I made a $20,000 withdraw and my account dropped by $25,000 that I realized what my account was REALLY worth. I always thought of my $Millions$ as mine. It's not. A big chunk of it is the governments and they'll take their share out when I take my share out. OUCH!!

It feels like a built-in inflation; I want to buy a candy bar for a dollar but I have to withdraw a buck twenty-five to buy it. Oh, and that buck twenty-five? They take MORE taxes out of that at the cash register!! DOUBLE OUCH! 8% more. Now a buck twenty five buys me 92 cents worth of goods. I'd be happy to withdraw 92 cents to buy a candy bar, but I have to withdraw a buck twenty-five to buy the candy bar. Federal income tax, State income tax and State sales tax. OUCH, OUCH, OUCH!!

Ha - one reason we moved away from California! No state income tax in Texas!

 

[misshathaway]

How does one get this service -- which is exactly what I need?

I have a Flagship representative who is, in general, pretty clueless and who pointed me to their Vanguard Personal Advisor Service to manage my portfolio, which is not what I want.

What specifically should I be asking for (and from whom) for the one-time lookover? I need help developing a strategy for creating an income stream and possibly rebalancing / tweaking for the retirement phase.

Thanks!

I retired only last October 2015 so maybe things have changed recently, but all I did was ask my Flagship representative for a one time evaluation. I made it clear that I did not want an ongoing advisor. At the time it said that you could get periodic evaluations on request as part of your Flagship services.

I was lucky though I guess. My rep, although recently trained, did a great job. I retired unexpectedly so I was not paying much attention to tax efficiency in the taxable account. I asked for a new portfolio with a 50/50 asset allocation, and tax efficiency. Also with help on the transfer of a few IRA's that were coming in to Vanguard.

I think they probably have a template for this kind of setup. My guess is that he ran my numbers through the Vanguard retirement simulation plotter, and, then set up the funds using one of the Vanguard templates as a model. At the end of it I had the list of funds and amounts for the taxable and nontaxable sides. I did all of the fund transfers myself in Jan.

Your needs may be more complex than mine. I don't know if you can request a different rep but my guy's name is Nick Zuzelo.

 

[BarbWire]

Thanks. My scenario is almost identical to yours: I took unexpected early retirement in 2014 at 58, whilst I was still in my "education/pre-retirement" phase and not yet set up for the retirement phase.

Since my Flagship rep is clueless (or eager to sell the company's services) Ii will see if I can at least speak to Nick.

 

[Cut-Throat]

No problem at all! Plans work and I work the plan.....

I take an increasing percentage of my Portfolio Every Year. I will never run out. Currently at 4.5% of Portfolio Balance.

Much safer than any fixed SWR, no matter how low the Percentage.

 

[fourwaystreet]

I retired eight weeks ago at 59, 2 months and 28 days, not that I was counting. I may start taking a bit from my 401k next year as long as it keeps me in the 15% bracket. I could just spend down savings. My WR is 1.9%

 

[INTJ10]

I could see myself having the same issue as the OP. That is withdrawing from the stash. I wonder if buying a managed payout fund would make it seem like a pension and less painful to withdraw.

 

[REWahoo]

I could see myself having the same issue as the OP. That is withdrawing from the stash. I wonder if buying a managed payout fund would make it seem like a pension and less painful to withdraw.

That might work. For myself, I set up an automatic transfer from my Vanguard account to my checking account, simulating the "regular paycheck" I had while w*rking. That has done the trick for me for 11+ years, with no withdrawal symptoms.

 

[Bir48die]

This

+1

 

[Bir48die]

+1

Sorry, this said "my portfolio has gone up since I have been withdrawing but concerned about the upcoming bear market". I agree

 

[pb4uski]

Man, if the thought of withdraws are getting to you, just wait until you actually make one and they take another 25% for state and federal taxes!!

I realized, of course, that the money in my 401K, 457 and IRA was tax deferred, that I would have to pay taxes on those funds when I withdrew them, but that was academic. It wasn't until I made a $20,000 withdraw and my account dropped by $25,000 that I realized what my account was REALLY worth. I always thought of my $Millions$ as mine. It's not. A big chunk of it is the governments and they'll take their share out when I take my share out. OUCH!!

It feels like a built-in inflation; I want to buy a candy bar for a dollar but I have to withdraw a buck twenty-five to buy it. Oh, and that buck twenty-five? They take MORE taxes out of that at the cash register!! DOUBLE OUCH! 8% more. Now a buck twenty five buys me 92 cents worth of goods. I'd be happy to withdraw 92 cents to buy a candy bar, but I have to withdraw a buck twenty-five to buy the candy bar. Federal income tax, State income tax and State sales tax. OUCH, OUCH, OUCH!!

You need to differentiate between what they withhold and what you actually end up paying as the difference can be significant.

For example, a married couple in California that withdraws $90k from a 401k would pay a total of $12,391 (13.8%) in income taxes; $9,488 (10.5%) federal and $2,904 (3.2%) California.... MUCH less that the amount withheld.

So if it is for a couple and you get $90k distribution and they withhold $18k then you would get a ~$7k refund when you file your tax return.

BTW, if they distribute $25k and you end up with $20k the withholding rate is 20%, not 25% ($5k/$25k = 20% or $25*(1-20%)=$20k).

I'm betting that you avoided a lot more than what you will end up actually paying in tax when you deferred that income.... so you are way ahead and have nothing to rant about. Besides... you're the one who choses to live in California.