Withdrawal money from mutual funds

[Blue Collar Guy]

We don't have a fixed schedule - just withdraw as needed.

I dig that concept. When I hit the draw down stage that is my plan.

 

[rayvt]

One caveat- I applied for a mortgage after retirement and even though I provided them with a nice spreadsheet showing movement from the brokerage account to the checking account with a total for all invested assets (which had increased in the year since my retirement) the silly bank wanted to see a nice, even flow of $X,000 per month.

Correct. They didn't even bother to look at your spreadsheet. That's not what they were looking for, so they didn't care about it.
They want to see a regular, steady monthly flow that has the same look as a pay check. Moreover, they want that cash flow to come from a "retirement account", not regular accounts.

It's easy to do. A couple of months before you apply, fill out your broker's form that is the "Directive to Do Periodic Monthly Withdrawal of $XXXX per month". Deposit that into your checking account. This retirement account balance must be 36 times the mortgage payment, or enough to sustain 36 months of payments.

They all go by the FNMA Guidelines, and that's what the guidelines say.

Remember, they want to see something that acts like a paycheck.

Then apply for the mortgage. After the loan closes, cancel the directive.

After I retired, the first refi they only wanted to see my copy of the Directive, and a current statement showing the IRA balance.
The next time, the underwriter wanted to see the same things, then wanted to see 2 checking account statement(s) showing the deposits. The 3rd time, they again just wanted to see the directive & latest IRA statement.

The reasoning for all this stupid stuff is understandable. 99.99% of the people who get a mortgage have a steady weekly/monthly paycheck. All the rules, guidelines, and precedures are set up for this case. We are the 0.01% of the cases, so we are the oddball circumstance that nobody has seen before, so we're an unknown. So they want us to look like we fit into the same round hole as the other 99.99% of their clients.


Funny thing nowadays. Nobody gets hardcopy paper statements anymore, it's all just on-line electronic statements. You have to log in and download a PDF file. Heck, there are some brokers that don't even generate a monthly statement--all they have is a current balance/holdings statement that is generated on-the-fly.

Now, the thing about PDF files is that you can edit the file and, say, stick in an extra 0. Or delete a line-item like a margin balance. It's fraud, of course, but it's a lot easier to change a PDF than a paper statement.

 

[rayvt]

"We don't have a fixed schedule - just withdraw as needed."
I dig that concept. When I hit the draw down stage that is my plan.

That works for normal cases, but not for large expenditures. Especially an unplanned large expenditure.

It's easy to work in a $2500 bill for an air conditioned repair into your budget. Not so easy to work in a $35,000 new car or a $60,000 world cruise in. Yeah, who knew in January that a November world cruise would come out in July for half-price?

It's not so much a "can we afford it?" -- because if you've got a $M or so you can easily afford it. It's more that "we'll just offset it by reducing our withdrawals for the next 20 months, so the long-term average withdrawal stays in the 4% range."

You don't want to suddenly discover at 80 that you shouldn't have taken out an extra $60,000 at 70.

 

[NW-Bound]

Yes.

That's why I periodically look at Quicken's tracking of expenses to see my expenses over: YTD, last 12 months, last 36 months, and since my earned income stopped.

As lumpy as my spending is, it should average out to something reasonable, or I would be in big trouble. The fact that my stash shows wonderful increase may simply mean the bull market is hiding some sinful spending. When the market god changes his mind, how will I fare? Can't let the bull market lure me into complacency.

 

[athena53]

It's easy to do. A couple of months before you apply, fill out your broker's form that is the "Directive to Do Periodic Monthly Withdrawal of $XXXX per month". Deposit that into your checking account. This retirement account balance must be 36 times the mortgage payment, or enough to sustain 36 months of payments.

They all go by the FNMA Guidelines, and that's what the guidelines say.

Remember, they want to see something that acts like a paycheck.

Then apply for the mortgage. After the loan closes, cancel the directive.

Thanks- good to know even though I'm unlikely to apply for another mortgage (current one is at 3% and I don't plan to move out of here till I need assisted living). You never know.

 

[pj.mask]

A few questions:

1) you take distributions from stocks or bonds? (comments about missing growth)

2) few comments of delaying taxable distributions - did you consider earlier Roth conversions/tax efficiency?

As far as lumps go, while I am working I keep an emergency fund that could cover a new car or other decently large expenses - dose anyone build or keep an E find out of their retirement 'paycheck'? I expect to set myself up with lots of padding in budget so can build or maintain this - possibly reducing drawdown if it grows too much (or increase spend, probably after a few years of building nest egg)

 

[OldShooter]

A few questions:

1) you take distributions from stocks or bonds? (comments about missing growth)

2) few comments of delaying taxable distributions - did you consider earlier Roth conversions/tax efficiency?

As far as lumps go, while I am working I keep an emergency fund that could cover a new car or other decently large expenses - dose anyone build or keep an E find out of their retirement 'paycheck'? I expect to set myself up with lots of padding in budget so can build or maintain this - possibly reducing drawdown if it grows too much (or increase spend, probably after a few years of building nest egg)

Slight detour: I have never been a fan of the "standard" allocations based on age. The reason is that people's financial circumstances vary so much. A 70 year old woman with $200K to last for the rest of her life is in a far different risk environment than if she had $10M. Hence, her allocation must be different. And, speaking of risk, standard deviation as risk makes some sense for the $200K lady but not for the $10M lady.

Given sufficient assets, the best approach, for us anyway, is the "bucket" strategy. One short-term bucket for maybe 3-5 years of expenses, invested in fairly safe stuff and 0% equities. This is the bucket to draw on for day-to-day expenses and lumpy stuff like cars and big vacations. The short-term bucket is replenished periodically from a long-term mostly-equity bucket except in bad equity periods (maybe several years) during which the first bucket is allowed to decrease, attempting to avoid selling at low prices.

Tax issues may complicate this, of course. And some people may want to think in terms of three buckets but I think the approach makes a lot more sense than looking at allocation ratios. The allocation ratio becomes much more automatic and better tailored to individual circumstances. It's driven mostly by the person's risk tolerance in the long-term bucket.

Now back to our regularly scheduled program: The "what to sell" question becomes much easier in the bucket system because it is limited to what's in the short term bucket. Cash, bills, notes, bonds, etc. No need to worry very much about sequence of returns or market timing. The only real worry is a bad market that lasts longer than the money in bucket #1.

(Of course the owner could choose to draw a "salary" from bucket #1 or, as we do, just withdraw funds as needed. That's a fairly independent issue.)

 

[flintnational]

This is what I do. Say I need $60,000 for the whole year. I make sure to have that amount in cash (in savings or in a money market fund) at the beginning of the year. Then I set up an automatic transfer of $5,000 a month to my checking account. I like the monthly payout because it feels like a paycheck.

Whatever you do, I don't think it matters much.

This is also what we do.

FN

 

[audreyh1]

For practical logistics: I allow all distributions throughout the year to accumulate in cash within my retirement account, and by Jan I usually have enough for my annual withdrawal. After taking out the withdrawal I rebalance.

Most of the mutual fund distributions are paid out in Dec, so timing works well for me.

 

[rayvt]

while I am working I keep an emergency fund that could cover a new car or other decently large expenses - dose anyone build or keep an E fund out of their retirement 'paycheck'?

Look past the surface to the underlying truth. When you aren't getting a paycheck but are living on your investments, your entire portfolio is your "E-fund". And your periodic withdrawals aren't a "paycheck", they are just withdrawals.

The primary reason for having an E-fund is if you lose your job and need to buy groceries, make the mortgage&car payments, etc. in the absense of a paycheck.
But if you are retired, you don't have a paycheck, so you can't lose it.


Consider a couple of spending scenarios and sketch out the cash flow.
a)Withdrawal more than you need, so put the extra in a E-fund.
b)Unexpected large expense, take the money from the E-fund.
The money for the expense comes out of your portfolio, via a side-trip through the E-fund.
Also, where is your e_fund? Savings account? CD's? That's just a piece of your overall portfolio -- so you might as well just leave in it your portfolio and maintain whatever asset allocation you like.