FIRE Withdrawl Strategies 101

[marko]

I do something very very simple.

1. No cash bucket.

2. In my taxable accounts, I move the quarterly dividends to my checking account and spend them.

3. In my tax-advantaged accounts, I make no withdrawals and use them for rebalancing to my asset allocation which means no cash ever.

4. If I need more money than my taxable dividends give me (i.e. my checking account gets low), then I sell shares in my taxable account that have the highest cost basis so that I realize the least amount of gains which in turn are offset by previous tax-loss harvesting. I may even sell shares at a loss in order to increase my carryover losses and pay no tax. That means I might sell shares about 10 times a year as needed.

That's it.

You see I simply do not care nor worry about losses in the stock market. I don't even try to avoid them.

+1
Very similar for me. Except rather than sell shares, I also set aside dividends in my IRA and withdraw them once the after-tax dividends are depleted. Haven't had to sell shares since RE'd. This year, got to re-invest 50% of the dividends to boot.

 

[pb4uski]

+1
Very similar for me. Except rather than sell shares, I also set aside dividends in my IRA and withdraw them once the after-tax dividends are depleted. Haven't had to sell shares since RE'd. This year, got to re-invest 50% of the dividends to boot.

Hoarder.

 

[mrfeh]

- Are you now holding a separate cash bucket as part of your previous AA bond bucket which is ear marked for spending X years in case the SHTF or are you staying with your AA and filling 1 years expenses at some point(s) by rebalancing?

We have 3 years of expenses in short-term vehicles (CDs, I Bonds, short term bond fund) to use if the SHTF

- Is your cash bucket outside of your AA effectively?

No, it's considered part of our portfolio and therefor used in the AA calculation

------

 

[street]

My plan was and is to have money in CD's to live from. My investments I don't want to touch or do I have to touch them in my life time if I don't want to. I will have too when RMD starts but that will be the only time I touch those accounts.

So my plan was and is that if the markets all dried up today and stayed there for 20 years I wouldn't need those investment funds. With SS and CD's I can live a great life with all the needs I ever would want.

For me this plan has security built in and even though I don't make high yields from those two CD's the market can't take those away from me. So I don't worry about the markets one way or an other.

 

[REWahoo]

When I hit 59.5 I set up an automatic withdrawal with Vanguard, transferring funds from my IRA to my USAA checking account every two weeks. This approximates the paycheck I got when working and allows me to skip a transfer whenever I want in order to manage my income and taxes.

The withdrawal is from a Vanguard money market account I keep funded with dividends and the occasional sale of mutual funds when the market gods giveth.

I don't think Vanguard allows you to set up an automatic withdrawal with a frequency greater than monthly any longer but anyone with a greater frequency was grandfathered.

 

[Huston55]

- Are you now holding a separate cash bucket as part of your previous AA bond bucket which is ear marked for spending X years in case the SHTF or are you staying with your AA and filling 1 years expenses at some point(s) by rebalancing?

I hold 2-4 yrs of cash-ish (CDs + Bond Fund) in taxable

- Is your cash bucket outside of your AA effectively?

Included in AA (Although it’s a philosophical point, IMHO it’s included in your AA regardless of whether you say it is or isn’t.)

- If you hold the 3rd bucket of $ for expenses, are you tapping it in a market like 2017 to cover next years expenses or rebalancing first?

I have Int/DVD’s swept into the MM/checking account and spend them throughout the year. When the market rises (like 2017), I purchase another rung on the CD Ladder. In a down market, I consume the maturing rung without purchasing another rung.

- Alternatively, in a market like 2018, are you paying expenses first out of your cash bucket and then rebalancing (assuming your cash is part of the AA equation)?

I obtain the upcoming year’s expenses & do any CD/Bond Ladder adjustments in the taxable account. I rebalance, as necessary, in the tax-deferred accounts.

 

[sengsational]

The last few years, because my spending money comes out of a 401k with a mandatory 20% withholding, I'd pull in December for the next year's spending. I've put that money in a "rewards" savings in the past (which paid a higher than market interest rate), but got tired of playing that game, so now it's just in the credit union.

I engineer the December pull such that the resulting AA will be closer to target (in other words, I sell the asset classes that are above their target).

I have a stated cash % in my AA, but I don't worry too much about balancing between guaranteed income, bank accounts, and bonds. In other words, if those all total up to the combined target percentage, then I'm done.

Doing an annual pull isn't the way I prefer to do it. I like the "paycheck" approach, mentioned earlier. But until I'm 59 1/2, I think this way is good. One benefit of the annual approach is that I can skip estimated tax payments. This year, only a portion of 2018 spending came from the 20% withholding 401k...the rest came from DW's IRA (zero withholding). So I engineered the withholding for both state and federal so that I'll break-even. If it works, I'll owe them each just a few bucks.

 

[RobLJ]

What is the Guyton Klinger method in brief--or alternatively which of the links you posted has the information?

I've enjoyed the posts since I'm about to start "pulling" this year and in year 4 & 5 will need to pull about 6-6.5 percent before DW hits 59.5 and then my SS kicks in. The issue is how much cash/bonds to hoard for SORR which will be most acute in 4-5 years; after that, not so much.

Links to references and calculators:
I am leaning to a Guyton Klinger method for filling the buckets, but a VPW age based income stream for a high equity based portfolio coupled with a high guaranteed income. RE starts in two years.

Atom

 

[Huston55]

What is the Guyton Klinger method in brief--or alternatively which of the links you posted has the information?

I've enjoyed the posts since I'm about to start "pulling" this year and in year 4 & 5 will need to pull about 6-6.5 percent before DW hits 59.5 and then my SS kicks in. The issue is how much cash/bonds to hoard for SORR which will be most acute in 4-5 years; after that, not so much.

In brief, G-K is a ‘guardrails’ WD methodology that enables a higher early-retirement WD rate.

Not sure AtomSmasher was referring to this G-K methodology. But, this is the one I practice.

http://cornerstonewealthadvisors.com/wp-content/uploads/2014/09/08-06_WebsiteArticle.pdf

 

[RobLJ]

Thanks; I'll read the link after the Alamo Bowl finishes. Priorities!

 

[pb4uski]

..... Doing an annual pull isn't the way I prefer to do it. I like the "paycheck" approach, mentioned earlier. But until I'm 59 1/2, I think this way is good. One benefit of the annual approach is that I can skip estimated tax payments. This year, only a portion of 2018 spending came from the 20% withholding 401k...the rest came from DW's IRA (zero withholding). So I engineered the withholding for both state and federal so that I'll break-even. If it works, I'll owe them each just a few bucks.

I do something like your "annual pull" when I rebalance... the proceeds are in an online savings account that earns 1.15%... I have a monthly "paycheck" transfer from that online savings account to the checking account that I use to pay our bills.... seems like you could have both.

 

[atmsmshr]

In brief, G-K is a ‘guardrails’ WD methodology that enables a higher early-retirement WD rate.

Not sure AtomSmasher was referring to this G-K methodology. But, this is the one I practice.

http://cornerstonewealthadvisors.com/wp-content/uploads/2014/09/08-06_WebsiteArticle.pdf

Thanks Huston - That's correct.

G-K withdrawal sequence for different asset classes in variable markets is appealing.

For the amount, Table 5 of the attached JPF article by Delorme puts together everything else in one box; either maximizing safety or utility depending on one's circumstance and risk tolerance.

https://www.onefpa.org/journal/Pages/SEP15-A-Blueprint-for-Retirement-Spending.aspx

YMMV - Atom