What to do with unspent withdrawal money?

[JDARNELL]

So do any of you take extra SWR each year and if so do you just set it aside?

I remember a decade ago Galeno talked about a smoothing strategy with using a living fund. Even though I was FI in 2011 after retiring from the military I am working a bridge career for now. I actually will be giving my notice in the next 30 days and completely retiring in my mid 40s with college funding around the corner for my kids. Going to walk away from the FERS deferred annuity for now and I figure if I ever need it I can go back and do something until I get 5 yrs vested at a much lower grade and less crap. High three is already set and I will fully fund my TSP and HSA before I leave, thus the reason for a couple of months work this year.

At this point I don't think I am going to take a SWR for 2015 but rather go ahead and pull 2 yrs of projected college cost off the table tomorrow. Then in 2016 start a small SWR just to have more cash on hand.

JDARNELL

 

[W2R]

So do any of you take extra SWR each year and if so do you just set it aside?

I remember a decade ago Galeno talked about a smoothing strategy with using a living fund. Even though I was FI in 2011 after retiring from the military I am working a bridge career for now. I actually will be giving my notice in the next 30 days and completely retiring in my mid 40s with college funding around the corner for my kids. Going to walk away from the FERS deferred annuity for now and I figure if I ever need it I can go back and do something until I get 5 yrs vested at a much lower grade and less crap. High three is already set and I will fully fund my TSP and HSA before I leave, thus the reason for a couple of months work this year.

At this point I don't think I am going to take a SWR for 2015 but rather go ahead and pull 2 yrs of projected college cost off the table tomorrow. Then in 2016 start a small SWR just to have more cash on hand.

JDARNELL

Congratulations in advance on your upcoming retirement.

I'm not sure if I understand your question exactly, but when I retired (November 2009), I had enough from my last paycheck and money from unused leave to last me a while so I didn't withdraw anything for 2009. Similarly, from your above post, it sounds like you will be getting enough from your bridge job to avoid withdrawing anything for 2015.

Also, if I was in your shoes I'd set the college money aside and not consider it as part of my retirement portfolio. It's already obligated. By not considering it as part of your portfolio, the amount you will eventually be withdrawing for a given WR will be less because your portfolio will be smaller.

For every year from 2010-2015 I have withdrawn the whole year's "allowance" on January 1st. I don't always spend all that I withdraw and what remains unspent goes back to Vanguard. For example, on December 31st, 2014 I had $14,966 left over from the money I withdrew on January 1, 2014.

The leftover money essentially goes back to Vanguard. I subtracted $14,966 from my 2015 withdrawal this morning in order to avoid two transactions, but the result is the same as if I sent $14,966 back to Vanguard and then withdrew the full amount of my 2015 money from Vanguard in another transaction.

 

[2B]

For every year from 2010-2015 I have withdrawn the whole year's "allowance" on January 1st. I don't always spend all that I withdraw and what remains unspent goes back to Vanguard. For example, on December 31st, 2014 I had $14,966 left over from the money I withdrew on January 1, 2014.

The leftover money essentially goes back to Vanguard. I subtracted $14,966 from my 2015 withdrawal this morning in order to avoid two transactions, but the result is the same as if I sent $14,966 back to Vanguard and then withdrew the full amount of my 2015 money from Vanguard in another transaction.

This is my plan too. I'll top-off my local bank account to get to my 2015 withdrawal needed. My pensions will be set to direct deposit into this account. For 2015 I've also reduced the amount moved to account for the pay out from unused PTO.

 

[NW-Bound]

I do not have any "unspent" money the way I withdraw it: monthly transfer or as needed from investment account into the checking account. Money is money, wherever it sits. I do not have to predraw it.

Quicken tells me how much I have spent in the last rolling 12 months, and I can throttle my spending by the info I have.

 

[REWahoo]

Same here with regards to 'unspent' withdrawals. I rarely have any as I have an automatic transfer set up from my Vanguard MM account to my checking account every two weeks. I can turn off a scheduled transfer and usually skip two or three withdrawals late in the year to manage my taxes.

Note: I think Vanguard eliminated the option for a once-every-two-week auto transfer a couple of years ago. I'm grandfathered but can't change the amount of the scheduled transfer or I'll have to go to a monthly schedule. Not a big deal but after spending 35 years getting paid every two weeks that's what I've grown comfortable with.

 

[pb4uski]

I also have automatic withdrawals from my online savings account (which I considers as part of my retirement investments and is my 6% cash in my 60/34/6 target AA) and usually have to make additional transfers a few times a year as needed (my property taxes and insurances are all due in November as an example) so I never really have unspent withdrawal money.

If I had unspent withdrawals, I would just reduce future withdrawals to offset any unspent withdrawals or splurge on some spending.

 

[2B]

I do not have any "unspent" money the way I withdraw it: monthly transfer or as needed from investment account into the checking account. Money is money, wherever it sits. I do not have to predraw it.

Quicken tells me how much I have spent in the last rolling 12 months, and I can throttle my spending by the info I have.

I want mine in a pile I can see. My goal is to spend it. I want it sitting there to encourage me to plan another trip.

 

[MichaelB]

Any over or under we have is rolled back into the portfolio. We already have funds set aside for special purposes, so for us a budget surplus (or shortfall) is simply a miss with no other impact.

 

[Meadbh]

I have a surplus from my 2014 withdrawals and I am simply going to roll it into my 2015 operating funds.

 

[JDARNELL]

So you don't keep a little more cash than you anticipated? From what I remember about the Galeno model he kept a living account of so many months of spending. Each year he added his SWR to the account divided by the number of months and that set his monthly withdraw for that year. In lean years it might go down but was spread out over the total months so effect was minimal. Likewise with a great year he got a raise that was going to be consumed over the next year but again averaged over a longer period. The intent was to smooth out monthly fluctuations in spending. I think he also would shorten the months setting aside or lengthen them as needed.

SWR for me is something that I have never really thought about as my other revenue streams cover spending and more. Just not sure at what point I will start using portfolio money.

 

[growing_older]

Note: I think Vanguard eliminated the option for a once-every-two-week auto transfer a couple of years ago. I'm grandfathered but can't change the amount of the scheduled transfer or I'll have to go to a monthly schedule. Not a big deal but after spending 35 years getting paid every two weeks that's what I've grown comfortable with.

I got around this with a second bank account that gets all the transfers, monthly, weekly, whatever. I make sure to leave a balance in there equal to the minimum to be "free" plus a buffer of a half months desired "every two weeks" paycheck. Then I use the bank's autopay system to transfer into my working checking on the schedule I want. It means leaving a small pile of cash in an account to make the machinery run smoothly, but it seems worth it to me for a set-and-forget system that runs without my direct intervention once it was set-up. I hated having to log in periodically and remember to make transfers on a schedule.

 

[Hermit]

This year I took cash out to get me up to the break point for Savings Bonds for education. I figured I could take it out now and pay 25% taxes or wait 'til 70 and pay 28% or more.

My reason for not doing Roth conversions is I have some very fuzzy expenses out there between estimates for the house I am building going up considerably and my son taking longer to graduate from college. It just seemed most reasonable to have more money for cash needs as they arise this year.

 

[NW-Bound]

I want mine in a pile I can see. My goal is to spend it. I want it sitting there to encourage me to plan another trip.

Oh, Quicken lets me see all my money all right. And I'd rather have more of it sitting in investable accounts than in the checking account, because the latter is just a holding place before the money gets transferred into somebody's greedy palms.

When I was still working, I had a lot of cash sloshing in the checking acccount, but not anymore. I have not had the balance above $10K for a long time, unless when I had a big check waiting to get cleared.

When I was working, I tended to forget to move money out from the checking account to the investable accounts. Now, it seems like I am constantly transferring money into it, twice in most months. My expenses are lumpy, so I have not bothered to do auto transfer. And then, I need no encouragement to spend more. At 4%WR last year, I need the pain of withdrawing money twice a month to make sure we do not spend more. Also, I want to look at my accounts often to see where I should draw the money. Sell stocks, MFs, or I-bonds? It helps me keep an eye on the accounts, although I do not trade that often.

 

[2B]

Oh, Quicken lets me see all my money all right. And I'd rather have more of it sitting in investable accounts than in the checking account, because the latter is just a holding place before the money gets transferred into somebody's greedy palms.

When I was still working, I had a lot of cash sloshing in the checking acccount, but not anymore. I have not had the balance above $10K for a long time, unless when I had a big check waiting to get cleared.

When I was working, I tended to forget to move money out from the checking account to the investable accounts. Now, it seems like I am constantly transferring money into it, twice in most months. My expenses are lumpy, so I have not bothered to do auto transfer. And then, I need no encouragement to spend more. At 4%WR last year, I need the pain of withdrawing money twice a month to make sure we do not spend more. Also, I want to look at my accounts often to see where I should draw the money. Sell stocks, MFs, or I-bonds? It helps me keep an eye on the accounts, although I do not trade that often.

We are financial opposites. I routinely cleaned out my checking account after pay days and only leave enough for the checks written or will be written before the next paycheck comes in. That's all changing now with all future paychecks (maybe 2) going into my 401k.

Left to my own devices, I would be a miser. I want to have my 2015 spending in cash somewhere. I want it there to encourage me to spend it. I don't want to have a monthly reallocation of my portfolio. With interest rates so low, I feel I can just park it in my savings account which pays about the same as the Vanguard money market. I know what my end of year expenses will be (property taxes, house and auto insurance) so I won't go past these amounts.

It's not a right / wrong issue. This will be my first year so I'll see what works.

 

[Independent]

We withdraw "as needed".

When I was working, we spent "as needed" and the leftover got saved. We're sufficiently good at LBYM that over the years there was enough left over to have an adequate nest egg for retirement. So it didn't seem that we needed to change things after I retired.

 

[MBAustin]

We had a couple of unexpectedly large CG distributions hit our savings account in December, enough so that with DHs pension and SS, I don't expect to need to withdraw anything for most of this year. I'll probably just leave it in the savings account although I may move half of it to my VMLUX account (our spending buffer account) if the interest rate looks to be worth it. Need to do the 4th quarter estimated taxes and settle up with my sister on our mother's estate first so no rush.


Sent from my iPad using Early Retirement Forum

 

[W2R]

So you don't keep a little more cash than you anticipated?

Sure, it's good to have a few thousand extra in cash for genuine emergencies as long as that is the only thing it is used for. After the emergency is over, then I would expect myself to kick up the LBYM immediately until I could "pay myself back".

Also, since I withdraw my entire annual amount in early January, there is some inherent flexibility in how much I spend in any given month. If I wanted something expensive in January, I'd just buy it and then cut back for a few weeks until I was back on track.

 

[NW-Bound]

We withdraw "as needed".

When I was working, we spent "as needed" and the leftover got saved. We're sufficiently good at LBYM that over the years there was enough left over to have an adequate nest egg for retirement. So it didn't seem that we needed to change things after I retired.

That was how we operated. Now, living off our savings, I found out that my "means" was not as well defined and I must be careful. For example, having spent $20K this year on house repair, I am still not quite happy because of the deck. Having the 1000-sq.ft. deck replaced would make the house look better, but I was already at 4%WR. Where's the limit? So, I did not even ask for an estimate. This job will have to wait till 2015 or 2016.

A lot of what I spend money on is debatable whether it is really needed. When I was still working, if a lumpy expense meant less savings that year, it was easier for me to go ahead then. Now, every expense means a withdrawal, and I have to be more careful. Surely, it's 4%WR now, but if the market tanks, it will be 6%WR or more. I always keep that perspective in mind, particularly as the market has been really good the last few years, and there is no guarantee that it will continue.

 

[Meadbh]

That was how we operated. Now, living off our savings, I found out that my "means" was not as well defined and I must be careful. For example, having spent $20K this year on house repair, I am still not quite happy because of the deck. Having the 1000-sq.ft. deck replaced would make the house look better, but I was already at 4%WR. Where's the limit? So, I did not even ask for an estimate. This job will have to wait till 2015 or 2016.

A lot of what I spend money on is debatable whether it is really needed. When I was still working, if a lumpy expense meant less savings that year, it was easier for me to go ahead then. Now, every expense means a withdrawal, and I have to be more careful. Surely, it's 4%WR now, but if the market tanks, it will be 6%WR or more. I always keep that perspective in mind, particularly as the market has been really good the last few years, and there is no guarantee that it will continue.

That's why they invented those budget thingies!

 

[galeno]

My preference: spend it. Have some fun. Other option: save it and roll it into next year's AW.

 

[NW-Bound]

That's why they invented those budget thingies!

I do have my budget thingy. I look at the expenses YTD, and the expenses over the last 12 months. If they look a lot lower than 3.5%, I go ahead with big ticket expenses. If not, I look at the year before, and the year before that to see what they were. If they bounce around 3.5%WR, then it's good. If they stay consistently above 3.5%WR, then I should slow down or delay big projects if at all possible.

Just a quick look at Quicken tells me that in 2015 if there's nothing else that will suck up $20K like the home repair in 2014, then that's money I can spend on other stuff if I want to, or I can just let it sit there for money counting pleasure. I do not need a fancy spreadsheet.

 

[WannabeRetired]

I will fully fund my TSP and HSA before I leave, thus the reason for a couple of months work this year.

Does the IRS allow you to fully fund an HSA if you aren't paying for a high deductible health plan for the full year?

 

[REWahoo]

Does the IRS allow you to fully fund an HSA if you aren't paying for a high deductible health plan for the full year?

No. You can only fund 1/12 of the annual limit for each month you were enrolled in a qualifying health plan.

 

[audreyh1]

So do any of you take extra SWR each year and if so do you just set it aside?

I remember a decade ago Galeno talked about a smoothing strategy with using a living fund. Even though I was FI in 2011 after retiring from the military I am working a bridge career for now. I actually will be giving my notice in the next 30 days and completely retiring in my mid 40s with college funding around the corner for my kids. Going to walk away from the FERS deferred annuity for now and I figure if I ever need it I can go back and do something until I get 5 yrs vested at a much lower grade and less crap. High three is already set and I will fully fund my TSP and HSA before I leave, thus the reason for a couple of months work this year.

At this point I don't think I am going to take a SWR for 2015 but rather go ahead and pull 2 yrs of projected college cost off the table tomorrow. Then in 2016 start a small SWR just to have more cash on hand.

JDARNELL

I never put money withdrawn back in the portfolio, even if I don't spend it all in one year. It can go in a rainy day fund, or saving for something special, or whatever. Once I've withdrawn the amount the calcs say that I can each year, I see no reason to expose those funds to market risk again. It's there to be spent in the not so distant future.

I have long-term investments (the retirement portfolio) and short term investments - a couple of years of living expenses plus money earmarked for various thing I might do in the next few years. They are managed independently, and only the long term investments hold equity funds.

Unspent money doesn't have to sit in checking. There are FDIC savings that pay 1% - which is where I put my annual withdrawal, and short-term bond funds for money needed 2 years out. Or CDs for money needed after a year.

 

[Meadbh]

I never put money withdrawn back in the portfolio, even if I don't spend it all in one year. It can go in a rainy day fund, or saving for something special, or whatever. Once I've withdrawn the amount the calcs say that I can each year, I see no reason to expose those funds to market risk again. It's there to be spent in the not so distant future.

I have long-term investments (the retirement portfolio) and short term investments - a couple of years of living expenses plus money earmarked for various thing I might do in the next few years. They are managed independently, and only the long term investments hold equity funds.

Unspent money doesn't have to sit in checking. There are FDIC savings that pay 1% - which is where I put my annual withdrawal, and short-term bond funds for money needed 2 years out. Or CDs for money needed after a year.

I agree. I withdraw 2-3 times in the year to my current account, and then put most of it into TDB8150, an investment savings account with a current yield of 1.5% (only available in Canada). Right now, that account has about $11K in it, half of which is capital gains from a share buyout and the other half of which is a surplus from the second half of 2014. It will get used up in the first half of 2015; I just won't have to withdraw as much as I otherwise would.