Newbie-Withdraw Strategy for 2018. Annual, monthly?

[supernova72]

I search the forum and at risk of this being discussed many times I'm going to throw it out there. So new in terms of withdraw strategy.

I'm 18 months into an ER due to Megacorp downsizing. Have posted here several times leading up to it and have really appreciated all the feedback.

The skinny: Starting in 2018 I'll need to tap in to my company 401K to supplement my expenses. I *retired* with a pension and medical that essentially covers my day to day expenses. What it won't cover is taxes (house and Fed), homeowners insurance, and vacations if I chose to travel next year.

For the past 18 months the above expenses were covered from an account that was my severance which has not dried up (5 trips---Whoa).

I'm 57 and might not go back to *work* and if I do it will be PT most likely.

IT project manager and Financial Analyst (cost accountant).

I have about $800K in my 401K. I would next to WD 2.8% in 2018 and 1.8% thereafter (big tax hit in 2018).

My question is do most folks do it in January and be done with it? Or do the pay themselves on the monthly or quarterly basis---or with WD as they need it. Apologize in advance if this is a repeat question. New territory for me. Cheers.

 

[HI Bill]

I'm not retired, but I've seen folks on this board discussing numerous methods.

It sounds like you have no taxable accounts. If you do, and you have taxable dividends, you might want to use those (quarterly), since you'll pay taxes on them anyway, as part of the income.

One way might be to try to time the market (good luck), or to take regular disbursements (kind of like reverse dollar cost averaging)....my dad took his out early this year and was crying because of the lost gains he would have had if he had taken it out more incrementally (the opposite could also happen).

Taking $ from your 401(k) early will help lower your RMDs later. At age 57, you're not subject to the 10% early withdrawal penalty, as long as you don't move the $ to an IRA!

 

[supernova72]

OP here. Yes 95% of my retirement investments are in my 401K. In hindsight not the best mix of pre-tax and post tax.

Yea, I'm living the rule of 55 thing with no 10% penalty. Our mix of funds is very good and super low expenses. Thanks. If 2018 is like 2017 I would be crying as well if I took it all in January. Cheers.

 

[Red Badger]

Hey ~72.

I'm only retired for six months. Been reaching into the kitty on an "as needed" basis. Don't want to withdraw more than needed for obvious tax reasons.

But, there's folks here retired longer than I've been alive, so best to wait and let them weigh in.

 

[pb4uski]

Inquire about any restrictions on your 401k withdrawals.... some plans only allow a certain number per year, minimum amounts... to as extreme as 100% or nothing... if there are constraints then you need to factor them into your plan.

At one end you could do 1 withdrawal in January, plunk it in an online savings account and take it as needed... on the other extreme you could schedule a set amount monthly.... in the long run it really doesn't matter much.

One thing that might make a difference... usually they require 20% federal tax withholding so you might do a single withdrawal at the end of a year to minimie the term of your interest free laon to the federal government.

 

[GravitySucks]

I pull three months worth out of the 401K every quarter unless an unexpected comes up.
Coming up on 5 years now and it works well for me.

 

[Independent]

WD as they need it?

We withdraw as we spend it, and our spending is lumpy (e.g. pay property taxes twice a year, travel at random times, unpredictable home repairs).

That's what we did when I was working. In those days we carried big enough checking/MMMF balances to pay for things like this without using credit cards. Now we hit the IRA as needed.

(When I retired, we had money in taxable assets, so taxes on withdrawals weren't a big deal.)

 

[Dawg52]

For my first few years I drew down as needed. Probably 8-10 times a year. Recently I set up monthly auto transfers from my Fidelity taxable acct to my checking. Those w/d's plus SS handles most everything throughout the year. I'm 7 years from having to tap into my IRA acct.

There is no right or wrong way to w/d money. I like the monthly system as it simulates getting paid monthly as in my working days or having a pension. The games we play with our mind.

 

[DrRoy]

I RE'd last year so I am just getting into this. This week I pulled what I needed for the year out of my investment account and moved it to a money market to pull from as needed. I also did a small rebalance as the withdrawal pushed my AA a little.

 

[BrianB]

If you have reached the end of your severance period you should look into filing for unemployment. It could delay the need to tap into your 401k so soon.

Also, be sure to verify your withdrawal plan with knowledgeable people at your old company, and get their answers in writing or e-mail. Unintentional bad information could cost you considerably in taxes and penalties.

 

[audreyh1]

For my first few years I drew down as needed. Probably 8-10 times a year. Recently I set up monthly auto transfers from my Fidelity taxable acct to my checking. Those w/d's plus SS handles most everything throughout the year. I'm 7 years from having to tap into my IRA acct.

There is no right or wrong way to w/d money. I like the monthly system as it simulates getting paid monthly as in my working days or having a pension. The games we play with our mind.

I move the entire annual withdrawal into a high yield savings account, and have automatic monthly transfers from there to the checking account to cover monthly expenses. Also looks like a paycheck.

Lots of ways to skin a catfish.

 

[donheff]

I keep several months of expenses in cash. I try to time liquidations with apparent peaks in the market (I just can't help it). If the market shoots up I will push a few months out to 6 or even more months. Eventually we will hit a prolonged bear market that will make this method impossible. At that point I intend to tap my Thrift Savings Plan (TSP) which is in the ultra safe G fund. If the bear outlives that stash I will figure out a plan B.

 

[Winemaker]

When I originally ER'D, I took monthly distributions from my 401k of $2500. They would sell my securities, get the proceeds after 3 business days, then send a check via snail mail. I tried to have them deposit funds in a checking account with their parent firm but it took just as long; and the parent firm bank does not have a branch office near me within 4 hours driving distance. I eventually told them to shove it with their silly ways, and moved that portion of my 401k that was started before 401ks existed, to cash. I then take 1 distribution in January, get the check in 3 days, and deposit it in my bank. I take monthly distributions from that account.

 

[supernova72]

Hey ~72.

I'm only retired for six months. Been reaching into the kitty on an "as needed" basis. Don't want to withdraw more than needed for obvious tax reasons.

But, there's folks here retired longer than I've been alive, so best to wait and let them weigh in.

Cheers. As needed might be the plan for me. Thanks.

 

[supernova72]

Inquire about any restrictions on your 401k withdrawals.... some plans only allow a certain number per year, minimum amounts... to as extreme as 100% or nothing... if there are constraints then you need to factor them into your plan.

At one end you could do 1 withdrawal in January, plunk it in an online savings account and take it as needed... on the other extreme you could schedule a set amount monthly.... in the long run it really doesn't matter much.

One thing that might make a difference... usually they require 20% federal tax withholding so you might do a single withdrawal at the end of a year to minimie the term of your interest free laon to the federal government.

I did check with the retirement office and asked about the ins and outs. The SA said if I pick a continuous income stream I can't change that value? Seems weird to me so I'm double checking that. My friend said you can change it once a year which makes better sense to me. Cheers.

 

[supernova72]

I pull three months worth out of the 401K every quarter unless an unexpected comes up.
Coming up on 5 years now and it works well for me.

That is a good plan. I had not considered quarterly until getting feedback like yours. My bigger hits would be prop taxes twice a year and then vacations. I went to inexpensive places. this year like Nicaragua, Colombia, Oaxaca MX, Vietnam. Sort of got the travel bug. Ha.

 

[supernova72]

We withdraw as we spend it, and our spending is lumpy (e.g. pay property taxes twice a year, travel at random times, unpredictable home repairs).

That's what we did when I was working. In those days we carried big enough checking/MMMF balances to pay for things like this without using credit cards. Now we hit the IRA as needed.

(When I retired, we had money in taxable assets, so taxes on withdrawals weren't a big deal.)

The more feedback I read on this I sensing withdraw as spend seems to be the most popular strategy. My after-tax savings is quite small right now. It will feel weird to start drawing down but I guess that's why I saved for 30 years...

 

[supernova72]

For my first few years I drew down as needed. Probably 8-10 times a year. Recently I set up monthly auto transfers from my Fidelity taxable acct to my checking. Those w/d's plus SS handles most everything throughout the year. I'm 7 years from having to tap into my IRA acct.

There is no right or wrong way to w/d money. I like the monthly system as it simulates getting paid monthly as in my working days or having a pension. The games we play with our mind.

My initial thought exactly as I wanted to create a regular "paycheck" so was going to do monthly transfers. I thinking it would put me on more of a budget just like when I was working. Like you say so right or wrong way.

 

[supernova72]

I RE'd last year so I am just getting into this. This week I pulled what I needed for the year out of my investment account and moved it to a money market to pull from as needed. I also did a small rebalance as the withdrawal pushed my AA a little.

When ER'd I opened a Ally.com savings account which I put my severance into. I drew on that for vacations and property taxes and homeowners as needed. Paid off a car etc and repaired some stuff. Now it's down to about zero. Need to check my AA as well.

 

[supernova72]

If you have reached the end of your severance period you should look into filing for unemployment. It could delay the need to tap into your 401k so soon.

Also, be sure to verify your withdrawal plan with knowledgeable people at your old company, and get their answers in writing or e-mail. Unintentional bad information could cost you considerably in taxes and penalties.

I took a lump on the severance and did it in reverse. UE for a bit then started my pension. We can't double dip in WA state.

I need to get something in writing regarding the withdraw policy. I've found with our retirement office they try hard but sometimes the answers vary depending how the call is routed (help desk sourcing model). Ha.

 

[supernova72]

I move the entire annual withdrawal into a high yield savings account, and have automatic monthly transfers from there to the checking account to cover monthly expenses. Also looks like a paycheck.

Lots of ways to skin a catfish.

That was on the list of choices for me as well. I opened an Ally.com that yields quite well. I also like the paycheck model. Cheers.

 

[supernova72]

I keep several months of expenses in cash. I try to time liquidations with apparent peaks in the market (I just can't help it). If the market shoots up I will push a few months out to 6 or even more months. Eventually we will hit a prolonged bear market that will make this method impossible. At that point I intend to tap my Thrift Savings Plan (TSP) which is in the ultra safe G fund. If the bear outlives that stash I will figure out a plan B.

I was thinking what if I put a years worth of expenses in a savings account and my investments grow at 16% like this year? I realized 2017 is an exception (or is it?). I say I'm not a market timer but then find myself wondering what is 2018 performs the same as this year.

 

[supernova72]

When I originally ER'D, I took monthly distributions from my 401k of $2500. They would sell my securities, get the proceeds after 3 business days, then send a check via snail mail. I tried to have them deposit funds in a checking account with their parent firm but it took just as long; and the parent firm bank does not have a branch office near me within 4 hours driving distance. I eventually told them to shove it with their silly ways, and moved that portion of my 401k that was started before 401ks existed, to cash. I then take 1 distribution in January, get the check in 3 days, and deposit it in my bank. I take monthly distributions from that account.

Wow---snail mail is like 1980's stuff. They told me 3-5 business days but we can have it done via ETF method into my checking account. Glad you figured about a plan B. Cheers.

 

[camfused]

Pulling quarterly from 401K etc is also convenient for paying quarterly tax payments.

 

[supernova72]

Pulling quarterly from 401K etc is also convenient for paying quarterly tax payments.

Good point. I have not completely figured out my tax strategy. Do I pay as I go or just wait till Turbo Tax lets me know the damage in April of the following year?