Withdrawal Rate Mechanics

[unclemick]

Quote:

Originally Posted by davemartin88 Thanks- why use 2015 as the target date and not, say, 2020? Is that how you keep the AA where you want it to be? Also sounds like you're taking 3-5% of your current portfolio each year rather than using a set rate as a starting point and varying from there based on inflation or other factors? Maybe that was one of your method changes along the way, lol. BTW, I grew up in Raytown/Indepencence, Mo., still have family there but don't get back too often.

Well - tongue in cheek - I fib about my age - 65. Vanguard suggests a more conservative 2010 or 2005 even. Or a conservative Target Income.

However my quirky lefhanded thinking goes as follows - now 65, if I take my SS plus non cola pension times 25 and call it a fixed phantom bond - my 65/35 stock/bond becomes 35/65 or age in bonds fitting one Boglehead guideline.

Two 4% SWR seems to fall in the range of my apples to oranges made up in my own head - SEC yield/ 5% variable(taken from Vanguard's website) bookends.

Offense is 5% variable in a really up market.

Defense is:
1. 4% of portfolio - perhaps not adjusted for inflation if I feel chicken.
2. SEC yield of portfolio - 3% or higher(I will adjust if yield drops too low).
4. Live off SS plus pension only - cut 60% of expenses in my super cheap mode - toss some Norwegian widow div.'s for lagniappe.

heh heh heh - instinctively first line of defense is to cut expenses. Up markets are bon temps rolliere.

[Moemg]

Quote:

Originally Posted by unclemick However my quirky lefhanded thinking goes as follows - now 65, if I take my SS plus non cola pension times 25 and call it a fixed phantom bond - my 65/35 stock/bond becomes 35/65 or age in bonds fitting one Boglehead guideline. .

Good point ! I thought my 65% stock was too aggressive but considering my pension and SS it may be too conservative .

[audreyh1]

Quote:

Originally Posted by utrecht Why do you have to do your entire "draw" for the year in Jan? Cant you do it monthly? Or do most people find that too much trouble?

That's the scenario that is used by the studies.

Audrey

[samclem]

Quote:

Originally Posted by audreyh1 Some people let their dividends and distributions accumulate in cash, withdraw from that, sell any additional assets needed to cover their withdrawal and then rebalance.

Just to explain a little: One reason people do what Audrey describes here is to reduce their taxes. Since these dividends (and any interest) will be subject to tax anyway (unless they are in a tax-deferred account) it is usually best to use this money forst to support your withdrawals/spending before selling anything else (and incurring cap gains taxes).

[unclemick]

Quote:

Originally Posted by samclem Just to explain a little: One reason people do what Audrey describes here is to reduce their taxes. Since these dividends (and any interest) will be subject to tax anyway (unless they are in a tax-deferred account) it is usually best to use this money forst to support your withdrawals/spending before selling anything else (and incurring cap gains taxes).

Yes.

heh heh heh -

[ejman]

Quote:

Originally Posted by samclem Just to explain a little: One reason people do what Audrey describes here is to reduce their taxes. Since these dividends (and any interest) will be subject to tax anyway (unless they are in a tax-deferred account) it is usually best to use this money forst to support your withdrawals/spending before selling anything else (and incurring cap gains taxes).

My approach as well although I amplify the cash side to 4 years expenses since I don't want to sell equities in a down market and I'm not yet eligible for SS and don't have a pension. Of course, if the current nonsense continues for another three years or so I'll have to start selling equities.

[clifp]

Quote:

Originally Posted by samclem (and incurring cap gains taxes).

Are capital gain taxes an oxymoron, or more like a unicorn?

[Rambler]

I'm still working on getting my AA set up to support my cash flow, but I am targeting (and very close to) a 50/45/5. Equities are throwing off about 3% (15k per million of portfolio with this AA). I like long muni bonds, and that is where most of my bond allocation is. Mine is throwing of 5.7% fed/state/amt tax free. Using a more conservative 5% muni interest rate, in a one million port, this would throw off 22.5k. Then there's the 5% in cash in a state tax-free MM, throwing off about 1% or 0.5k per million of port. That's 38k total, 3.8% WR. And, there is not likely to be much fed or state tax on that dividend income unless you have zero deductions.

For me and DW, the 5% cash will represent 2 solid years of spending, 3 years of more conservative spending, or almost 4 years on the barebones plan. For us, it is looking like we will have a spend/WR rate of about 3.2-3.4% so the rest (considering a 3.8% cash throw-off rate) will go back into rebalancing. We also have sufficient deductions (estimated - including personal exemptions, charitable giving, healthcare, and property tax) that fed, state, and AMT will be tiny if any.

All of this said, almost all of my retirement funds are in taxable accounts because I was only eligible to participate in megacorps 401k for a few years for various reasons. This plan may not be the most appropriate for someone organizing cash flow from tax advantaged accounts.

My two cents, FWIW.

R

[charlie]

I have been "retired" for 20 years and have been flying by the seat of
my pants for most of that time. I went the 72t route immediately after
retiring and started drawing SS at 62. My wife is drawing SS now as well. These sources of income along with some income from my laundromat and inherited money from Lyn's folks and mine have kept
us afloat all this time. All of this plus having remarkable good fortune
in the stock market for 20 years has seen us through to this point.

My strategy has evolved and simplified over the years (like Uncle). I
have to replace the laundromat income when I sell so I have settled
on using Vanguard's 5% managed payout fund in my taxable port to
provide an income stream. I think I will have enough in that fund after
selling to do the trick. I like this fund because it is highly diversified
and it does the rebalancing for you without creating "taxable events".
The 5% payout on a trailing 3 year average seems like a good strategy
to me. My IRA in pretty conservative and I keep close to 2 years of
RMD in a MM. I am using Wellesley, Intermediate Term Investment
Grade , more 5% Managed Payout and several individual bonds
paying CPI + 2% (these suck right now, but wait....), in proportion
to generate enough to cover RMD. Lynda's IRA is at PenFed drawing
6.25% in a long term CD. She does not need to do RMD until 2011.

That's how we are muddeling through.

Cheers,

charlie

[Ed_The_Gypsy]

caveat: I am not retired yet. And all of my assets are in tax-protected accounts.

Galeno once described his approach. See this thread: http://www.early-retirement.org/foru...tml#post527616

I send all my dividends to a MM account and once a year decide what to do with them. I have begun to set up a CD ladder by taking 4% of my pot every year and putting it into a 5-year CD. Normally I would take what is left and rebalance the pot. What I do this year depends on my employment status.

[Ed_The_Gypsy]

http://www.early-retirement.org/foru...eno-13957.html

[deserat]

Please post in Best of or FAQ threads - this has awesome information.

[davemartin88]

Thanks to all who have replied so far, a lot of interesting information and perspectives. Turns out we may be operating more closely to the prevailing thought than I first suspected. We have a money market account with about 18 months of cash and will look at replenishing it in early 2010 as I'll be "officially" retired then. Some really good information on some specific investments as well, one of the things we need to do this year is to simplify our holdings- over the earning years, we've had a lot of different accounts and savings vehicles and sometimes hard to actually tell just what our AA is at a given point- want to get more in to index type funds for the equities.

We'll also be working to sell 2 houses we have now and build our retirement home with the hope that we'll have zero or a mortgage less than $100K- the annual income needed in my notes above expect a mortgage, if we can come in without one, that will be some great news. If SS is there in 9 years, even better!

One thing I was struggling with was thinking that I needed to shift my holdings in to those that would produce an income and hard to figure out how to keep within my AA and do that as well. Establishing your spending account from your cash or bonds once per year and rebalancing on a regular basis seems doable. Keeping your spending account at a point where you can weather some shorter term hits to the market also seems like a good idea. Also brings up the interesting topic of keeping the cash out of the market for safety when the market is down but staying on the sidelines too long and missing the up ticks, there will be up ticks again won't there?

Thanks again and always interested to hear more perspectives so please keep posting your thoughts and ideas.

[walkinwood]

Quote:

Originally Posted by charlie My IRA in pretty conservative and I keep close to 2 years of RMD in a MM.

What a great point to avoid having to sell equities in your IRA at the wrong time! I don't recall reading about that anywhere before.

I hope I remember that when the time comes.