How Do You Withdraw?

[Rianne]

We are 62. Consider ourselves ER, but DH has a consulting gig from home that brings approx. $42K/yr. He makes his own schedule and is free from mega corp, I am fully retired from 50 years of working (started at 12 in my parents restaurant).
We've not drawn from our portfolio 50/35 and 15% in laddered CD's all under VG umbrella.
We have approx. $200K+ in outside I bonds, EE bonds and cash combined with consulting, we're good for 2-3 years without touching portfolio. 60% of our portfolio is after tax. The rest in IRA. We both have Roth IRAs and fund every year since start of the benefit. Own home/cars, no debt.


Guessing will take SS @ 64 which will bring $40K after DH quits consulting.


Currently we re invest dividends and any capital gains/interest from CD's.
What tool or advice on how to withdraw when the time comes. Some here re balance every year. I understand this is a complex question, but ask for a start. Our tax rate would be 12% over the next 10 years. Should we convert to more cash? We have 3 more years of ACA, but understand Medicare cost is based on income.


We plan our income based on ACA requirements. D/H could earn more consulting but chose not to. It would end up a wash and he enjoys his free time.

 

[VanWinkle]

We are 62. Consider ourselves ER, but DH has a consulting gig from home that brings approx. $42K/yr. He makes his own schedule and is free from mega corp, I am fully retired from 50 years of working (started at 12 in my parents restaurant).
We've not drawn from our portfolio 50/35 and 15% in laddered CD's all under VG umbrella.
We have approx. $200K+ in outside I bonds, EE bonds and cash combined with consulting, we're good for 2-3 years without touching portfolio.


Guessing will take SS @ 64 which will bring $40K after DH quits consulting.


Currently we re invest dividends and any capital gains/interest from CD's.
What tool or advice on how to withdraw when the time comes. Some here re balance every year. I understand this is a complex question, but ask for a start. Our tax rate would be 12% over the next 10 years. Should we convert to more cash? We have 3 more years of ACA, but understand Medicare cost is based on income.

In my case, I am also on the ACA and am currently controlling income for maximum subsidies and cost sharing. At 65, I will delay SS and start Roth conversions with my IRA to reduce the RMD tax damage at 70 1/2.
I currently hold 2 years in short term cash and bond funds for income. I replace the funds with re-balancing my taxable account. I do auto withdrawal from Vanguard to my checking account monthly for income.
I do not reinvest dividends in my taxable account due to tax loss harvesting.

 

[HadEnuff]

I think a lot depends upon what your WR needs to be to maintain your lifestyle after the consulting money goes away.

You can rebalance as you withdraw from your IRAs, or anytime you think things have got too far out of whack.
You can live off of your after-tax accounts and take your IRA withdrawals all at once near year's end, or budget a certain amount each month. I take my IRA withdrawals near year's end. Just my personal preference.

Like you, I have enough after-tax money that I don't have to touch my IRA money for a while, other than some Inherited IRA money I have to take. I am trying to figure out for myself if I should take some out now, and get up to the 75K threshold for Taxable Income, (and lose a bit of ACA money for DW's premium-I'm on Medicare), or hold off. I still haven't figured that out yet. I'm not sure, in the long run, if it makes much of a difference, really.

Less tax now? More tax later? Vice-versa?? Who knows?

 

[pb4uski]

If you're constrained by ACA you probably don't have sufficient headroom to do much.... perhaps some very modest tax-deferred withdrawals or Roth conversions or gains trading.

You may have a short window between Medicare at 65 and SS at FRA or 70 where you will have more headroom. We are leaving our taxable accounts to grow since they'll get a stepped-up basis and focusing on tax-deferred withdrawals to minimize the tax torpedo.

 

[SumDay]

I was struggling with this last year when we were actually giving notice to retire. These two articles helped me with the minutia of the whole process. They do go into Asset Allocation more than you probably care for, but there are some good nuggets in both. After 6+ months, I will say that I made it much more complicated than it actually is.

https://www.theretirementmanifesto.com/our-retirement-investment-drawdown-strategy/

https://www.theretirementmanifesto.com/how-to-build-a-retirement-paycheck/

Good luck!

 

[Freedom56]

Every situation is different. It depends on all your sources of income. For us, we receive interest payments and dividends in both taxable and tax deferred accounts from bonds, CDs, money market accounts/funds throughout the year. We re-invest 100% of the tax deferred income in whatever fixed income instruments yields the best risk/reward. We don't plan to touch our tax deferred accounts until age 70 1/2. With respect to interest income deposited in taxable accounts, we withdraw what we need to pay our income taxes and big item purchases or major home renovations. Otherwise that income is also 100% re-invested in whatever fixed income instruments that yields the best risk/reward. I have a pension that covers all our expenses including travel with some margin. However with this pension, I have to take SS at age 62 since it will be reduced by the SS amount at age 62.

 

[audreyh1]

You simply withdraw the funds including taxes and rebalance. How often you do it up is up to you. Once a year works for me as I don’t care to rebalance more often. I picked a withdrawal rate and draw that much annually, set aside funds to cover expected taxes, and the remainder is available for spending.

We are above ACA limits so I don’t take that into account.

 

[Rianne]

I was struggling with this last year when we were actually giving notice to retire. These two articles helped me with the minutia of the whole process. They do go into Asset Allocation more than you probably care for, but there are some good nuggets in both. After 6+ months, I will say that I made it much more complicated than it actually is.

https://www.theretirementmanifesto.com/our-retirement-investment-drawdown-strategy/

https://www.theretirementmanifesto.com/how-to-build-a-retirement-paycheck/

Good luck!

Great tools (articles)! Both links. Yes, I'm probably over thinking this. Since we have a couple of years to w/d from the portfolio. But then, I worry about a deep dive into bear territory and wonder if we should re balance to safer investments.

Yesterday, I was connected to a "sharp cookie" at VG who talked me through some strategies re: a loser of stock we've had for many years. Kept it as it showed promise then disappointed in a major way. We sold at at (basically) the same price we bought at in 2011. I learn a little more everyday.

 

[gerntz]

RMD

 

[kgtest]

We are 62. Consider ourselves ER, but DH has a consulting gig from home that brings approx. $42K/yr. He makes his own schedule and is free from mega corp, I am fully retired from 50 years of working (started at 12 in my parents restaurant).
We've not drawn from our portfolio 50/35 and 15% in laddered CD's all under VG umbrella.
We have approx. $200K+ in outside I bonds, EE bonds and cash combined with consulting, we're good for 2-3 years without touching portfolio. 60% of our portfolio is after tax. The rest in IRA. We both have Roth IRAs and fund every year since start of the benefit. Own home/cars, no debt.


Guessing will take SS @ 64 which will bring $40K after DH quits consulting.


Currently we re invest dividends and any capital gains/interest from CD's.
What tool or advice on how to withdraw when the time comes. Some here re balance every year. I understand this is a complex question, but ask for a start. Our tax rate would be 12% over the next 10 years. Should we convert to more cash? We have 3 more years of ACA, but understand Medicare cost is based on income.


We plan our income based on ACA requirements. D/H could earn more consulting but chose not to. It would end up a wash and he enjoys his free time.

https://www.i-orp.com/bequest/index.html Optimal Retirement Planner.

 

[GrayHare]

I generally raise spending cash by selling whatever has outperformed during recent years. That both locks in the gain and rebalances in one step. If the cap gain is large and therefore the tax projects high, before year end sometimes I'll also dispose of a loser to decrease the net cap gain and tax.

 

[N02L84ER]

We are both under 59.5 y.o. We take all taxable investment dividends and capital gains in cash, deposited to our checking account. We sell $10K to $30K from taxable to top off our withdrawals and base the decision of what to sell to keep our AA in balance. Then we do Roth conversions to bring our MAGI up to $61K to stay within the ACA cliff. We are extremely light users of medical care, so no reason to shoot for maximum premium tax credits or cost sharing.
When DH retired 12+ years ago we had 66% taxable, 32% tax deferred, 2% Roth. We now have 35% taxable, 26% tax deferred, 39% Roth. We do not expect RMDs to be a problem when we are over 70 y.o.

 

[audreyh1]

We take all our distributions in cash and let them accumulate in the portfolio during the year. This usually means we have cash to cover our Jan withdrawal and less rebalancing. This is in a taxable account, so it’s partly motivated by minimizing taxable transactions and less tracking of small lots. But is works our nicely for annual withdrawals too.

 

[CardsFan]

We take all our distributions in cash and let them accumulate in the portfolio during the year. This usually means we have cash to cover our withdrawal and less rebalancing. This is in a taxable account, so it’s partly motivated by minimizing taxable transactions and less tracking of small lots. But is works our nicely for annual withdrawals too.

We do something similar. We take all distributions in cash (both after tax and tIRA). We then sell additional bond funds (which are close to par) in the after tax account to cover expenses. This leaves room for about $60k/year for Roth conversions within the 12% bracket. At the same time we are buying CD's in the tIRA with the distributions, at a bit higher rate than we are selling bonds. This pretty much takes care of re-balancing, as well.

When it comes time to take RMD's, the CD's will give us an option of taking cash if the market is down.

 

[Firezone]

Does anyone feel there may be traction in Congress for Medicare to be reduced to 62 ? We can go early ( both 57 now ) and contemplating going next year at 58 before husbands contract changes the health care ruling . but would only carry benefits for three years which is more than some . I’m not complaining . Should we look at HSA plans . We are so confused . Plan b is to keep working a little more . We have options and some time just wondering

 

[Dtail]

Does anyone feel there may be traction in Congress for Medicare to be reduced to 62 ? We can go early ( both 57 now ) and contemplating going next year at 58 before husbands contract changes the health care ruling . but would only carry benefits for three years which is more than some . I’m not complaining . Should we look at HSA plans . We are so confused . Plan b is to keep working a little more . We have options and some time just wondering

Have you checked out healthsherpa.com and healthgov.org for estimates of health care costs?
Do you have taxable investments to potentially assist in managing income for ACA tax subsidies?

 

[pb4uski]

Does anyone feel there may be traction in Congress for Medicare to be reduced to 62 ?....

Unlikely. Chatter but not enough votes... not to mention that they would need to sort out funding.

 

[RetireBy90]

I just retired so don't know how well this will work after several years but my plan is that I have 2-3 years of withdraws in cash, mostly money market type funds. Most of our $$ is in IRAs, both traditional and Roth. Plan is to leave Roth alone if we can as the legacy. Each year I plan to move next year's funds from the IRA to cash account at the end of the year and pay taxes at that time via withholding. I will re-balance at that time. I went as far as planning what investments to sell first 2 years to get living expenses. May be a bit too much detail in the plan, but it showed me where I needed to think a bit more or where a problem could pop up. I won't follow the plan to the last dot, but will follow spirit of the plan. Remember also that things change and you will need to modify any plan you have as they change and time goes along.

 

[pb4uski]

To major mistake that I made was continuing to live from taxable accounts after I was 59 1/2 rather than shifting to tax-deferred withdrawals as soon as I had penalty free withdrawals available.... I lost out on almost $100k of withdrawals that I could have done to reduce the tax torpedo but LTCG used up some of my headroom.

 

[jimandthom]

I generally raise spending cash by selling whatever has outperformed during recent years. That both locks in the gain and rebalances in one step. If the cap gain is large and therefore the tax projects high, before year end sometimes I'll also dispose of a loser to decrease the net cap gain and tax.

Ditto here ---using a similar plan with tIRAs. Also had a healthy amount of cash in online savings.

I stopped working in 2016 and the above system has worked well for us, even as we are remodeling this old money pit. It helps that we are in a LCOL area except winter time heat bills.

Just have to watch going over into the 22% bracket particularly if we have done some conversion to Roth IRAs.

 

[sengsational]

I buy tax software in November and do my taxes with estimates. I pull tIRA funds in December up to the ACA cliff. This might trigger a rebalance, which for me isn't complicated at all. I'm now running up against a low balance of after tax funds, so when funds run low during the following year, I pull Roth funds. This situation is not wildly common here, as many have after tax cash, so would be Roth converting to a limit, and not pulling Roth to make ends meet.

 

[simple girl]

To major mistake that I made was continuing to live from taxable accounts after I was 59 1/2 rather than shifting to tax-deferred withdrawals as soon as I had penalty free withdrawals available.... I lost out on almost $100k of withdrawals that I could have done to reduce the tax torpedo but LTCG used up some of my headroom.

Prior to the ACA (which changes all rules if trying to limit MAGI), I had thought the recommended advice was to spend all taxable accounts down completely first, then tap 401k's/IRA's, then save Roth's for last.

So are you saying if you have the ability to tap 401K's/IRA's penalty-free that that it is better to do that than spend down your taxable completely first? Is this because you otherwise end up paying more in taxes due to RMD's later on (is that what the tax torpedo is?)?

This obviously is an area which I need to learn more about - not my strength!

Given our situation with needing to manage MAGI for ACA subsidies, my plan is for us to use a mix of our taxable accounts plus DH's 401K (since he left service from that company in the year he turned 55 - yes - I checked - he can make withdrawals). This will allow us to spread out our taxable account money over more years and obtain subsidies longer, I hope.

If tapping our 401K early has a side bonus of reducing our taxes later, too - then yippee! Am I understanding correctly?

 

[Sunset]

....
So are you saying if you have the ability to tap 401K's/IRA's penalty-free that that it is better to do that than spend down your taxable completely first? Is this because you otherwise end up paying more in taxes due to RMD's later on (is that what the tax torpedo is?)?

.......

Yes, as long as you have a good sized 401K/IRA.

RMD's start at approx 3.7% of your total IRA/401K balance, and increase in percentage each year.
So a Million dollar total will add $37,000 to income (on top of your SS) and any other income. It's pretty easy to go up in tax brackets.

 

[simple girl]

Yes, as long as you have a good sized 401K/IRA.

RMD's start at approx 3.7% of your total IRA/401K balance, and increase in percentage each year.
So a Million dollar total will add $37,000 to income (on top of your SS) and any other income. It's pretty easy to go up in tax brackets.

Got it - thank you so much!!!

 

[pb4uski]

Prior to the ACA (which changes all rules if trying to limit MAGI), I had thought the recommended advice was to spend all taxable accounts down completely first, then tap 401k's/IRA's, then save Roth's for last.

So are you saying if you have the ability to tap 401K's/IRA's penalty-free that that it is better to do that than spend down your taxable completely first? Is this because you otherwise end up paying more in taxes due to RMD's later on (is that what the tax torpedo is?)?

This obviously is an area which I need to learn more about - not my strength!

Given our situation with needing to manage MAGI for ACA subsidies, my plan is for us to use a mix of our taxable accounts plus DH's 401K (since he left service from that company in the year he turned 55 - yes - I checked - he can make withdrawals). This will allow us to spread out our taxable account money over more years and obtain subsidies longer, I hope.

If tapping our 401K early has a side bonus of reducing our taxes later, too - then yippee! Am I understanding correctly?

Yes, you got it. It dawned on me that after I turned 59 1/2 that is better to tap tax-deferred accounts to reduce future RMDs and let taxable account investments grow and potentially get a stepped up basis so the embedded gains never get taxed. Unfortunately, I didn't have that epiffany until 2018 when I turned 63, and as a result of annual rebalancing had over 3 years filled about $100k of headroom with LTCG that could have been better used to reduce tax-deferred balances.

We didn't have the complication of managing income for ACA subsidies.