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Another withdrawal thread
Old 04-15-2021, 05:52 AM   #1
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Another withdrawal thread

Hypothetically, if you have $3 million portfolio made up of 70% stocks and 30% bonds and wish to embark on a 5% withdrawal rate then what it the general thinking on he drawdown from each category? Would you take 50% of your needs out of each, or a weighted withdrawal based on the category and rebalance at the same time. Thinking of a once a year lump sum withdrawal.
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Old 04-15-2021, 06:25 AM   #2
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First, I would turn off reinvestment of dividends and CG distributions and use that as part of my 5%. To get the rest I'd weight withdrawals to bring my portfolio back to my desired AA.
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Old 04-15-2021, 07:00 AM   #3
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Personally, I do as RunningBum says. But if you prefer to do once-a-year withdrawal, then I would withdraw from the investment(s) that will help you rebalance back to your desired allocation. That could be from one investment or multiple depending on what has happened to your allocation due to market conditions.
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Old 04-15-2021, 07:55 AM   #4
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First, I would turn off reinvestment of dividends and CG distributions and use that as part of my 5%. To get the rest I'd weight withdrawals to bring my portfolio back to my desired AA.
Does it matter if it was taxable or a tax-advantaged account? I know this makes sense for a taxable account, since you have to pay income tax on those distributions whether you reinvest or not; in fact, I've been doing that in our taxable account and just using it for spending money. (Our distributions are low and the taxable account is still growing.) But for a tax-advantaged account, all withdrawals are counted the same no matter where they come from, no STCG, so I lean towards reinvesting in the short term. But please tell me why I'm wrong, that's how I learn.
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Old 04-15-2021, 08:09 AM   #5
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Does it matter if it was taxable or a tax-advantaged account? I know this makes sense for a taxable account, since you have to pay income tax on those distributions whether you reinvest or not; in fact, I've been doing that in our taxable account and just using it for spending money. (Our distributions are low and the taxable account is still growing.) But for a tax-advantaged account, all withdrawals are counted the same no matter where they come from, no STCG, so I lean towards reinvesting in the short term. But please tell me why I'm wrong, that's how I learn.
I'm not RunningBum, but from my perspective, you are correct.
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Old 04-15-2021, 08:15 AM   #6
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Sell whichever one exceeds the AA target. If that isn't enough, sell 70% stock 30% bond. The net result is that you're back at 70/30.
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Old 04-15-2021, 10:52 AM   #7
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Does it matter if it was taxable or a tax-advantaged account? I know this makes sense for a taxable account, since you have to pay income tax on those distributions whether you reinvest or not; in fact, I've been doing that in our taxable account and just using it for spending money. (Our distributions are low and the taxable account is still growing.) But for a tax-advantaged account, all withdrawals are counted the same no matter where they come from, no STCG, so I lean towards reinvesting in the short term. But please tell me why I'm wrong, that's how I learn.
It can matter. I'm under 59.5, so I'm not withdrawing at all from IRAs, so I reinvest dividends in my IRAs. If I was withdrawing from IRAs, I'd probably not reinvest.

Your point about not having to worry about STCGs is accurate, but if I was going to be withdrawing cash from an IRA in the near future, I'd probably rather have it in cash in my IRA. I haven't fully thought that through yet for myself. I don't see a problem with reinvesting dividends and staying fully invested right up until you need the cash.
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Old 04-15-2021, 11:42 AM   #8
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Originally Posted by thepalmersinking View Post
Hypothetically, if you have $3 million portfolio made up of 70% stocks and 30% bonds and wish to embark on a 5% withdrawal rate then what it the general thinking on he drawdown from each category? Would you take 50% of your needs out of each, or a weighted withdrawal based on the category and rebalance at the same time. Thinking of a once a year lump sum withdrawal.
I let all mutual fund distributions go to cash, which I then leave in my retirement portfolio until the next Jan. This is usually enough to cover my Jan withdrawal which is more like 3.5% of taxable investments or 3% including our IRAs. So I’m not trying to meet 5%. After withdrawing my annual income from cash, I then rebalance my retirement portfolio to my target AA.
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Old 04-17-2021, 12:09 PM   #9
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Originally Posted by thepalmersinking View Post
Hypothetically, if you have $3 million portfolio made up of 70% stocks and 30% bonds and wish to embark on a 5% withdrawal rate then what it the general thinking on he drawdown from each category? Would you take 50% of your needs out of each, or a weighted withdrawal based on the category and rebalance at the same time. Thinking of a once a year lump sum withdrawal.
First, a 5% WR might or might not be sustainable. This is far more important to assess than the question you actually asked.

As for your question, withdraw however is convenient, and rebalance periodically (every year or so seems to be fine) back to 70/30. Avoid rebalancing in taxable accounts as much as possible.

I reinvest dividends in tax-deferred and do not reinvest dividends in taxable. Taxable dividends just go into the spending stream.
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Old 04-20-2021, 12:24 AM   #10
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More than one way to skin a withdrawal strategy...but I think like audrey does since we are heavy in cash....I take the withdrawal from cash, then rebalance the portfolio...which is pretty easy since we have relatively few different investments.
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