Operationalizing retirement finances

[SecondAttempt]

Now that I am just a couple of years out I am beginning to think about setting up the mechanisms for "operationalizing" my retirement finances. By this I mean figuring out how I will make withdrawals/sell investments, how much cash to keep on hand and where, and those kinds of things. I feel like I know a lot about the investing and savings side and virtually nothing about this aspect.

For example, I am assuming I should probably have several months of expenses in cash in a bank account (or money market). Should I make monthly sales/withdrawals to replentish that? Quarterly? Yearly? I'm leaning toward annually only because, at least early on, I may want to make tactical decisions for tax reasons on which year to sell in. But that could mean sacrificing some investing returns if I withdraw for an entire year and lose out on returns. Maybe I am overthinking this.

I also can't remember the last time I paid a fee to a bank (except credit card annual fees that I deem worthwhile for the benefits of the card) but that is largely because most banks waive fees with direct deposit. No job means no direct deposit.

I tend to keep most of my money at my main investment company (T. Rowe Price) but have healthy cash money market balances already. Years ago TRP had a monthly check program where they would automate withdrawals by sending you a monthly check. I don't know if they still do that but if so it is probably by ACH now.

The banks around here (Hawaii) all offer a bare bones free checking account (which might be fine for me) and then tiered "premium" checking accounts. Honestly I don't need most of the "premium" services they come with so those are not very attractive. But if I am keeping my cash in a local bank then they pretty much come free. I lean toward having a local bank simply because I like being able to walk into a branch when I have an issue and I tend to need to do so about once every year or two, usually for a cashier's check, Medallion guarantee, or similar. I also like having a safe deposit box. I am unhappy with my current local bank so, retirement considerations aside, I am looking to switch.

I do use a national bank (Ally) and consider it my main checking bank. I have no complaints about them. They just don't offer the branch services I seem to need at times.

So rambling seems to have drifted into "which bank is best." But the connection is, "what banking services should I expect to need to handle how I manage things in retiement?"

How have you all set up the process of getting your money from investments into a checking account so you can spend it or pay credit card bills?

 

[RobbieB]

I sell equities once a year and whittle it down as the year goes.

 

[WestUniversity]

I top up my cash once a year when I rebalance per my AA. Currently I keep about 18 -24 months expenses in cash. We also have an auto transfer set up from FIDO to our bank that occurs monthly for a fixed amount per our budget. We use Chase for our bank. Not a fan at all but they have locations everywhere which can be a plus. Aside from which our bank is mainly a pass through for our various retirement checks and spending. I do use a mileage credit card to pay all of our expenses and use the miles for air travel. All in all it’s pretty simple and has worked very well for almost 3 years now…

 

[donheff]

I don't follow a schedule. I keep a small buffer of cash covering 6-12 months of withdrawals. If it starts to get down under 6 months, I watch for a significant up period and then top off the cash fund, pushing it to 1 year. This is a bit of market timing but has seemed to work so far. I started portfolio withdrawals soon after the big 2008/2009 recession so I haven't been faced with a multiyear downturn. During dips I always had enough cash on hand to wait until we popped back up before selling equities.

I expect that one day, this will stop working and I will need to generate cash when everything is down. My TSP G Fund is my go to reservoir of safe "cash" for that eventuality.

 

[SecondCor521]

People do it all different ways.

I originally planned to replenish on some sort of set schedule - every six months I think. After I retired, I figured out I could just do it on an ad hoc basis as needed. So now I just watch my combined checking/savings account balance, and when they get low, I replenish with a few months' worth of expenses.

Really, how often you replenish is a tradeoff between how much of a hassle it is to do so, with how much cash you like to have on hand. I'm probably on the far end of the spectrum here, feeling pretty comfortable operating with very little cash on hand. I prefer to keep it in the market.

It's easy enough to find a bank with a basic free checking account. I use USAA for my main checking account but I also have a local account with USBank for things like depositing checks or signature guarantees or whatever. I do find that it is nice to have everything connected electronically, so USAA and USBank and Vanguard can all talk to each other and ACH back and forth as needed.

As far as the mechanics, I replenish from Vanguard taxable. The proceeds either ACH to my savings account or my USAA checking account. Occasional ACHs from savings to checking as needed. Credit card is set up to pay in full automatically from USAA checking. I use Quicken to project my account balances out into the future, so I can see when I'm going to need to refill and approximately how much.

 

[Time2]

For tax planning purposes, (MFJ) I have been withdrawing my next years spending out in the last couple months of the current year. By then I have a pretty good estimate of any dividends we will be receiving so I can pick where I get additional funds and how much.
I just put it in my checking account and let it dwindle down over the year. This may may or may not be the best use of the money (in a checking account) but it is just like having 2% of your money in cash, so not really a big deal.
I have used DinkyTown to help me plan for minimum taxes. My first year retired, I maxed dividends and LTCGs and paid $0 tax on around $104,000 of income. I did not spend that much, so in the process I reset the cost basis on about $50k. (Reinvested it)

I have started doing Roth conversions up to the top of the 12% bracket. So now, I find the best way to get my next years spending and maximize the amount I can Roth convert, while minimizing taxes.
I used Turbo tax last year, so there may be some planning utility in that for the future, other readers can let me know about that.

 

[RetireAge50]

We have it set up so the money gets transferred to our checking account as we need it.
So we have an automatic monthly amount transferred to cover the normal recurring bills like food, utilities, and misc. For non-monthly stuff like vacation, car maintenance, etc. we just do a manual transfer.
This system seems to work well as it keeps the everyday spending in check as it must be less than the automatic transfer. Then when we want to blow some dough or have a major expense we have to consciously make a specific transfer for that purpose.

 

[SecondCor521]

^ Taxes, IMHO, are an area where there is a lot of room to optimize. They're also challenging and can be complex to optimize.

I've been FIREd about six years now, and I'm still figuring stuff out and dialing stuff in tax-wise. I didn't make any major mistakes, but there are still a few things I could have done a bit better.

In my case I've had three kids in college off and on, so that adds complexity. The ACA adds complexity. Roth conversions add complexity.

Probably the two biggest areas to look at for most people are their Social Security claiming strategy and their Roth conversion plans. Especially if a married couple. Getting those two items in the ballpark of optimal will go a long way.

 

[FANOFJESUS]

I have 5 years of cash the rest in the market. I pull from the market when it is up. If it is down I pull from the cash. I pull once a year. I like using a local credit union. It is a lot of cash but I have no pension and a small social security. What do others think of my plan?

 

[RunningBum]

I have a lot of my money in taxable, so I transfer the dividends thrown off by those funds to my bank account quarterly, as they happen. Same thing as my CDs mature. I've got some other "high" interest savings accounts and short-term TIPs funds that I sell off or transfer to my checking account as needed. After those run out I'll start pulling from my HSA, and eventually I'll have to choose between taxable with large gains, Roth, or tIRA.

 

[Cobra9777]

We use a Fidelity CMA as our checking account. Dividends from our taxable brokerage account automatically transfer to the CMA when paid, mostly quarterly. DW and I each have small pensions which are direct-deposited to the CMA monthly.

Those sources generally cover everything except annual property tax, federal tax on Roth conversion, and any large one-shots like a new car, home improvement, or travel. To pay for those, I either withdraw from a small cash reserve or sell some equities in the taxable brokerage account (or both), after weighing tax and market considerations at that moment.

We still reinvest in our IRAs and Roths, and I contribute the max to an HSA. We convert to the top of the 22% bracket. I hope to have everything in Roth/HSA by 70 when we'll start SS. At that point, pensions+SS will cover basic spending. Roth+HSA will cover fun stuff. That's the plan, anyway.

All expenses, including bills, are auto-paid via three cash-back credit cards. The credit cards are auto-paid in full from the CMA. I track everything using the Fidelity Full-View tool, which functions a lot like Quicken.

I know I wrote a lot. But it's actually extremely simple and almost entirely automated.

 

[marinauser]

On Jan. 1, we want about 1 year of expenses in cash and an additiional year of cash in an IRA. We have never had to touch the IRA cash but since 2015, we really haven't had a bad market year that impacted any decision to take a capital gain. We turned off auto reinvest in the taxable account when we retired. Between Jan 1 and Oct. 1, dividends and very small pensions replenish about 25% of a year's spend. The dividends and mutual fund capital gains at the end of the year typically replenish back up to one full year of cash. If not, in late December or early January we make decisions about where to take sales capital gains or a withdrawal from an IRA - taking a withdrawal all depends on the tax rates we are facing for the year.