Withdrawal money from mutual funds

[alterreur]

I am new to posting but have been reading this web site for at least 1 year. (Learned A lot).
Myself and my DW are about 2 years away and I have a question on how to withdrawal from my 457K. I see people on this web taking it out once at the beginning of the year, others quarterly and monthly...

Is there any benefits on when or how you do this?

 

[pb4uski]

Does your 457k plan impose any restxrictions on the amount or frequency of withdrawals? That might force your approach irrespective of any advice that you find here.

 

[rayvt]

On average, over the long haul, it doesn't really matter when in the year you withdraw or the frequency.

 

[alterreur]

Thanks for the reply.. The 457k I have it looks like I can do either ways.. I was trying to see if there was any benefits from them.

 

[W2R]

I withdraw my year's spending money once a year, during the first week in January. Then I don't withdraw a penny more for the rest of the year.

The advantage of this (for me), is that it is very simple to know how much my annual withdrawal was. I want the process to be completely foolproof, so that I don't make a mistake and spend too much. Besides, this way I do it once and then I'm done with it and don't have to waste any more time fooling around with it.

I suppose that a disadvantage during the present bull market is that my spending money is in the bank, and not in the market (possibly) making money during the present year. But, I'd rather take that chance.

 

[FIREd]

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.

 

[pb4uski]

+1

I rolled over my 401k to an IRA and haven't started withdrawls from my IRAs yet so I haven't had to address issue yet. However, what I do is I have a monthly automatic withdrawal from my cash allocation to my local checking account that I use to pay my bills... I refer to it as my monthly "paycheck". While I know it is a bit smoke and mirrors, I find it useful in managing our finances.

You could do somethign similar in one of two ways... you could make an annual withdrawal each year a la W2R to an online savings account and then schedule automatic transfers to your checking account, or if your plan permits, just schedule monthly automatic withdrawals to your checking account.

But in terms of annual or periodic being preferable.... I don't think it matters much.

 

[rayvt]

That's an easy way to handle it if your spending is level, but what if it is lumpy? What about the case where you buy a new car? Or if you decide to take a round-the-world cruise? How do you handle a one-off expense that amounts to 4-6 times your normal monthly "income"?
On the flip side, what do you do if you have a couple of months where your expenses are extraordinarily low?


Seems to me that somehow or another you need to track these things so you can keep your average spending at the right level, even as the monthly spending swings up and down.

 

[CitizenK]

If you make one large withdrawal, do you have to pay estimated taxes for the whole amount that quarter? Or can you wait until next April?

 

[pb4uski]

That's an easy way to handle it if your spending is level, but what if it is lumpy? What about the case where you buy a new car? Or if you decide to take a round-the-world cruise? How do you handle a one-off expense that amounts to 4-6 times your normal monthly "income"?
On the flip side, what do you do if you have a couple of months where your expenses are extraordinarily low?


Seems to me that somehow or another you need to track these things so you can keep your average spending at the right level, even as the monthly spending swings up and down.

My expenses are a little lumpy as I have two property tax bills and annual insurance renewals in November... I just get online and do a special withdrawal if/as needed to cover these.... if I have a couple months where expenses are low then the checking account gets a little healthier.

If I buy a new car or do a around the world cruise of have other one-offs then I ght need to do other special withdrawals (did one for DD's wedding recently).... I don't sweat the small stuff since all this is included in my spending bogey when I look at porfolio survivability.

If the OP's expenses are lumpy and they do monthly withdrawals then they might want to set the monthly withdrawals to 1/12th of the annual amount or overwithdraw a little and then adjust the next year's monthly withdrawal or just carry some emergency funds in cash.

 

[pb4uski]

If you make one large withdrawal, do you have to pay estimated taxes for the whole amount that quarter? Or can you wait until next April?

That quarter.... though it is probably easier just to have withholding rather than doing two transactions.... one for withdrawal and then another for the estimated payment.

 

[athena53]

I know what I want to take out for the year but I take it out quarterly. It's not constant; if I've booked a trip or have major home repairs I'll take out more. I don't like doing it all in one lump because by doing it quarterly I'm spreading the risk of liquidating it at the bottom of a bear market. Having said that- right now my checking account has what I need to get through the end of the year but my brokerage account has 6 months more in cash. The market has been pretty good so I figured it was time to take a little off the table.

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. They loaned us less than we asked for; I swear all they counted was DH's SS and my $900/month pension. The invested assets, which could have purchased the house 10 times over, meant nothing.

There are other threads on mortgages in retirement and how to circumvent this idiocy- but keep in mind that if you might want a mortgage, a predictable track record of withdrawals is best.

 

[NW-Bound]

That's an easy way to handle it if your spending is level, but what if it is lumpy? What about the case where you buy a new car? Or if you decide to take a round-the-world cruise? How do you handle a one-off expense that amounts to 4-6 times your normal monthly "income"?
On the flip side, what do you do if you have a couple of months where your expenses are extraordinarily low?


Seems to me that somehow or another you need to track these things so you can keep your average spending at the right level, even as the monthly spending swings up and down.

My expenses are always quite lumpy. So, I withdraw as needed. It may be 2 months between transfers, or it can be 1 month. I rely on Quicken to keep track of my spending YTD, and also over a 12-month rolling period. I try to detect lifestyle creep that can be hazardous to my portfolio health.

 

[pb4uski]

I have all my routine income and expenses set up as bill reminders in Quicken and use the Projected Balances chart on the Home page to plot out my checking account balance for the next 90 days to manage my cash flow... this gives me a heads up when I need to do any non-scheduled withdrawals.

 

[scrabbler1]

Most of my income comes from the monthly dividends in my main bond fund. Most of my expenses are predictable, non-lumpy monthly ones. But I have some lumpy expenses such as auto insurance and taxes, estimated and April ones. I use the smaller, quarterly dividends from a stock mutual fund to cover those.


Even with these 2 cash inflows, I still have to plan my cash flows to make sure I carry forward any surpluses from some months into the ones which have higher expenses. I do end up with some leftover cash but I can't simply reinvest it in case I need it a few months later for one of those lumpier expenses.

 

[OldShooter]

... Is there any benefits on when or how you do this?

Well, if the market goes up during the year, don't withdraw anything until the last possible moment. If it goes down, be sure to withdraw everything on January 2.

We just withdraw as we need money. Property & income taxes, trips, etc. & some day-to-day spending. We never end up drawing as much as 4% so we have the luxury of being fairly casual about it. We are headed into RMD-land next year, so I expect that we will do some direct charitables during the year and then check in November to see how much more we are required to take. Generally I am an optimist so I prefer to delay my distributions where possible.

 

[audreyh1]

I take all my withdrawal for the year in Jan, and have a rough budget I track our spending against.

Because our withdrawal is taken from taxable accounts, and the withdrawal is from cash, we don't owe taxes on it so taking it all at once makes no difference.

But we do owe taxes on distributions from our taxable accounts that occur a various times throughout the year.

Usually by Jan I have a rough estimate of what we will owe for the prior year, and I can set aside the funds we will need to pay estimated taxes during the year and prior year taxes still owed.

If I were drawing from a tax deferred account for living expenses, I would probably calculate the annual amount in Dec or Jan, set that aside in a stable type fund within the tax deferred account, then transfer equal amounts out quarterly, using Federal Income Tax withholding to pay the estimated taxes.

For our IRAs we will withdraw only due to RMDs, so we'll stick to the minimums, withdraw as late in the year as possible, and use withholding to pay taxes. Once withdrawn the funds will probably be reinvested.

 

[Bamaman]

If was making withdrawals, I would have projected income taxes withdrawn by Fidelity. It simplifies record keeping.

 

[FIREd]

That's an easy way to handle it if your spending is level, but what if it is lumpy? What about the case where you buy a new car? Or if you decide to take a round-the-world cruise? How do you handle a one-off expense that amounts to 4-6 times your normal monthly "income"?
On the flip side, what do you do if you have a couple of months where your expenses are extraordinarily low?


Seems to me that somehow or another you need to track these things so you can keep your average spending at the right level, even as the monthly spending swings up and down.

I handle lumpy expenses by putting a portion of my monthly withdrawal into a sinking fund.

Say that I withdraw $5,000 a month from investments. I might put $1,200 in the sinking fund (savings account) for future expenses like car and home repairs, property taxes, cat vet bills, car replacement, etc... So far I have never had to make unscheduled withdrawals.

 

[FiveDriver]

I won't be starting my RMD's for 2 years, but I have been thinking about this recently. Like others have stated, I like the idea of a regular "paycheck" so I think I will tell FIDO to transfer 1/12th of my RMD each month to local checking.

As I think about it, we'll probably keep about 2 years worth of RMD's in a stable-type Fund and ACH the monthly paycheck entirely out of that. I pay our Fed Tax out of my Pension check, and my Medicare out of SS.

Since most of our expenses are covered by SS and Pension, the excess RMD amount goes into a Slush Fund that smooths out lumpy expenses.

 

[Independent]

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

 

[Cobra9777]

I just withdraw from taxable accounts as needed, usually in conjunction with some large non-routine expenditure like property tax, insurance renewal, international travel, home improvement, etc. All the smaller, routine stuff is covered with ongoing dividends and pension payments, with SS still to come (presumably).

If all goes according to plan, we won't touch tax-deferred until RMD time and we'll just take the minimum late in the year, reinvest in taxable, and follow the same routine. Hopefully, we'll convert a good chunk to Roth in the meantime to minimize the tax hit.

 

[youbet]

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

That's the route I've been following. I try to be opportunistic in the timing of liquidations so they support "selling high" and rebalancing. Through our first eleven years of FIRE, it's worked OK but does require some diligence and interest in keeping an eye on your portfolio and the markets.

This year is our first year of RMD's, so that's changing things a bit with our annual withdrawal(s) now being tied into the RMD.

 

[NW-Bound]

Although I am in the camp of withdrawing as needed, I do not have to sell anything when I do. It's because I always have a lot of cash sloshing in my accounts. It's quite a few years of expenses.

I do try to [-]sell high/buy low[/-] rebalance, and having a large cash buffer frees me to take advantage of opportunities when available. People trade between stock and bond. I trade between stock and cash.

Yes, having that large cash affects the total return, hence I always compute total return including down to the last dollar of cash in all accounts, including my checking. Not doing so is fooling myself.

 

[gayl]

Not @ RMDs yet but did roll the 457 to an IRA to increase my control over it. More options. I recently discovered how my taxable liability will drastically increase when I do have to take out RMD so I started rolling out the dividends each quarter with taxes withheld from each rollout. (I'm at 25% marginal rate now, will go up at 70)