I have a very simple withdrawal question

[Clone]

On this forum, "I have a very simple withdrawal question" is akin to "I have a very simple question about my relationship with my spouse."

OK, I'll play>

I have a very simple question about my relationship with my spouse. Will it get better or get worse if she decides to draw Social Security at age 62 rather than wait until FRA?

 

[tmm99]

I set aside my dividends and on occasion my CGs to a short bond fund at TR Price. I keep about 2 1/2 years expenses there. Deplete after tax first, then pre-tax.



I then W/D a large chunk two or three times a year -as needed- to a 'holding account' in the bank where my checking is.

That sounds like a great plan. Thank you, marko.

 

[LOL!]

I suppose one has to realize that these "rules" are simply easy ways for some authors to write spreadsheets and publish a paper. The reality is that very rarely, if at all, does any human being actually follow the rules to the letter.

After all, how could the authors "backtest" and report on what people have actually done since it would all be so variable.

So embrace your uniqueness and don't call them rules anymore. Instead call them "guidelines." The Early Retirement Now blog has nice reports of many guidelines and most of them work fine.

 

[Koolau]

OK, I'll play>

I have a very simple question about my relationship with my spouse. Will it get better or get worse if she decides to draw Social Security at age 62 rather than wait until FRA?

As with everything else it all depends upon YOUR reaction to her decision. If you are outwardly supportive (whether or not you are inwardly supportive) it WILL improve. Trust me on this one!

 

[TrophyWife]

Thanks to everyone!

 

[LakeRat1]

I have a more free-swinging approach to WD. We take whatever we want/need to enjoy the riches of life since our pensions and SS are more than enough to pay for the basics of life and our investment stash keeps growing.

Livin Life !!!!! The way it should be

 

[bingybear]

Do you take your same withdrawal each year from your total account at some arbitrary number that you decide is enough?

I think others have explained the 4% rule with inflation adjustment. There are other variable techniques.
But to answer your question quoted here, I just pay my bills and expenses and do Roth conversions that are easy on the taxes. I track medical expenses and tax info because I will need it later. But I'm quite lax on the total of what I am spending. I've done this all my life. Don't get me wrong, I have run FireCalc, RIP and others for 40 or more years out. So I have an idea of what is a reasonable budget amount. I don't have a specified amount that I take and I don't track my total spending. I've been conservative enough that I should be OK. But blindly following the 4% rule will likely leave you with a big pile of money as most of these rule use a 95% success rate or higher. In a normal market 4% is too low to spend down your assets. So some adjustment in WR may be needed if you don't want it all the go to your heirs.

 

[Independent]

Do you take your same withdrawal each year from your total account at some arbitrary number that you decide is enough?

So if you decide on 4% and your number is 1,000,000 you would take $40,000 every year.

.....or would you adjust your number every year based on the size of your portfolio?

So if your portfolio grows to 1.5 mil, that year you'd take $60,000.

And then if it dropped in value, you'd adjust down accordingly.

My understanding of the research is, take that same number each year knowing some years your portfolio will be up and some years down.

The Trinity research says that if you want a level (real) withdrawal amount, you shouldn't take more than 4% in the first year. (and even then, blindly withdrawing that amount in the following years will occasionally lead people over the cliff)

OTOH, if you're happy with an amount that fluctuates with your portfolio value, you can "safely" take a higher percent.

 

[audreyh1]

Do you reinvest the dividends or the dividends are part of the withdrawal in your case? Just curious. I retired a couple of years ago and I consider my dividends (from my after tax accounts) to be part of my withdrawal (No DRIP since I already paid taxes for them) but I wasn't sure if this was the best approach and I wanted to hear how you are doing yours if you don't mind sharing.

Dividends, if taken out, are always part of the withdrawal. The various withdrawal schemes use total return which includes dividends.

Most of our distributions (both dividends and cap gains) are paid out in December. For tax efficiency I never reinvest them in my taxable accounts, but also because I will withdraw the annual income in January. Once I withdraw in Jan, rebalancing takes care of any remaining distribution income.

 

[audreyh1]

Can I add a question? What are people using for inflation rates? Not sure what the best source is as every month the # changes and it varies widely if you used the BLS stats... ie April was 2.2 but Feb was 2.7

The studies are based on the CPI. So to be consistent, that is what should be used. It will be delayed by a month, because on Jan 1 you won't know what the full year CPI was - this info comes out about mid-month. So just use the most recent 12 month data available - should be close enough.

The Bureau of Labor Statistics releases this info monthly, and one of the things they always state is prior 12 months inflation. You can also go to inflationdata.com to get this info.

 

[tmm99]

Dividends, if taken out, are always part of the withdrawal. The various withdrawal schemes use total return which includes dividends.



Most of our distributions (both dividends and cap gains) are paid out in December. For tax efficiency I never reinvest them in my taxable accounts, but also because I will withdraw the annual income in January. Once I withdraw in Jan, rebalancing takes care of any remaining distribution income.

Thank you, Audrey .


Sent from my iPhone using Early Retirement Forum

 

[rayvt]

Can I add a question? What are people using for inflation rates? Not sure what the best source is as every month the # changes and it varies widely if you used the BLS stats... ie April was 2.2 but Feb was 2.7

I use what the SSA says. IIRC, it is the BLS figure from September.

 

[bingybear]

Most of our distributions (both dividends and cap gains) are paid out in December. For tax efficiency I never reinvest them in my taxable accounts, but also because I will withdraw the annual income in January. Once I withdraw in Jan, rebalancing takes care of any remaining distribution income.

I'm at a loss as to what makes reinvesting dividends makes it less tax efficient in general. That said, I too don't reinvest many of my dividends in taxable accounts and reinvest very few in other accounts. I reinvest dividends in holdings that I'm trying to increase holdings.
I would think if your portfolio was balanced before the distribution, then reinvesting them would keep the portfolio balanced as the holding would drop by the amount of the distribution.
I can see that you would not want to reinvest shares if you have or plan to sell shares in such a way to create a wash sale. This is even more true if you might repurchase shares in an IRA and loose the the capital loss. I do not have holdings in IRAs and taxable accounts that are significantly identical for this reason.
I would agree in not reinvesting if you are going to use pull the $ for spending or harvesting losses which could create a wash sale. I could see not reinvesting if you are going to need to sell more when rebalancing. The only headache I see is having more purchases to track. However, rebalancing causes similar book keeping.

I feel I must be missing something. Note that I don't make a yearly separation of spending $ if that has any effect. I'd like to know what I'm missing... maybe I can improve.

 

[misanman]

Monthly withdrawal = Yearly withdrawal/12
Yearly withdrawal = max(RMD,dividends)

 

[Eagle43]

RMD.
Whatever Uncle tells me to withdraw, I take out. I'm assuming if I live to 95 there'll still be some left. I could be wrong, but at 95 I won't care.

 

[sanfanciscotreat]

We take what we want to spend and know what 4% would be; always spending way less than that. Also paying taxes on more dividends and capital gains that we are spending.

 

[audreyh1]

I'm at a loss as to what makes reinvesting dividends makes it less tax efficient in general. That said, I too don't reinvest many of my dividends in taxable accounts and reinvest very few in other accounts. I reinvest dividends in holdings that I'm trying to increase holdings.
I would think if your portfolio was balanced before the distribution, then reinvesting them would keep the portfolio balanced as the holding would drop by the amount of the distribution.
I can see that you would not want to reinvest shares if you have or plan to sell shares in such a way to create a wash sale. This is even more true if you might repurchase shares in an IRA and loose the the capital loss. I do not have holdings in IRAs and taxable accounts that are significantly identical for this reason.
I would agree in not reinvesting if you are going to use pull the $ for spending or harvesting losses which could create a wash sale. I could see not reinvesting if you are going to need to sell more when rebalancing. The only headache I see is having more purchases to track. However, rebalancing causes similar book keeping.

I feel I must be missing something. Note that I don't make a yearly separation of spending $ if that has any effect. I'd like to know what I'm missing... maybe I can improve.

It simply that if you reinvest distributions, and later need to sell from the same fund for rebalancing and/or withdrawal, you create two taxable events, not just one. The first taxable event is the paid distribution. The second is the sale which may generate capital gains. If you reinvest the distribution just to turn around sell some of the mutual fund to fund your withdrawal, you will likely pay extra cap gains taxes, or if it turns out to be a capital loss, you also have to be careful about timing to avoid a wash sale.

It's pretty typical (but not a given) that mutual funds that gain the most during a given year pay out the most in cap gains distributions. So taking distributions in cash, for which I will already owe taxes anyway, helps take care of a big part of the rebalancing. After the dust settles - receiving distributions from all funds, taking my annual withdrawal - I can see if any additional trimming/rebalancing is required. Usually very little.

 

[audreyh1]

Can I add a question? What are people using for inflation rates? Not sure what the best source is as every month the # changes and it varies widely if you used the BLS stats... ie April was 2.2 but Feb was 2.7

I just wanted to link folks to today's CPI (CPI-U) from the BLS. Last 12 months as always mentioned in the first paragraph, inflation was 1.9%. I always ignore the month to month comparisons which are way too noisy, and look at prior 12 months for a sense of the trend. https://www.bls.gov/news.release/pdf/

In term of what to use for a withdrawal method that increases using the CPI: you just have to pick which month you use each year and be consistent. Probably most recent month available is best. On Jan 1, that would be the Dec report, which would give you Nov to Nov of the prior year, unless you wanted to wait until mid-Jan for the rate for the entire prior year. It averages out over the long term, so it's not super critical.