Portfolio Draws

[doneat54]

Looking for comments/insights on others who manages finances in retirement like we do. I am 63, DW 66, we have both been retired for 2+ years. I manage our portfolio, 85%of it is at Fidelity. DW is drawing SS as of last year. We have no pensions or annuities. I past years, I have opportunistically done draws from our portfolio, usually 3-4 times a year, at my discretion/timing. I sell holdings (if needed), take the tax hit, then direct some good sized 5 figure chunks into our home bank's saving account where auto "paycheck" transfers from there to checking happen every 2 weeks, DWs SS compliments with a once a month payment. It has worked really well so far.

When the savings account starts to run low, I go back to Fido and start to gather another pull. We are pretty conservatively invested and like it that way. AA is probably around 40/30/30 (mutuals/bonds/cash). So my question to others who manage/process draws this way is this: What do you consider when deciding what to sell/draw from? Cash is my SWAN (sleep well at night) and when markets are dodgy and stressed, I tend to lean harder on that. When the markets are doing well, I am inclined to sell more mutual holdings than take cash. No real formula, just gut sense.

We recently (few months ago), let go of some cash and bought a good chunk or semiconductor and energy mutuals (2 different holdings). They are doing well, but so fresh in our portfolio, I consider them off limits for now. Next up is to look at other mutuals and see what has a long history with us, and done well, and then go scrape off a chunk of that, probably less than 5% at a time. After that is cash which, if the markets/mutuals are doing well, II tend to want to leave alone and save for when things are not doing so well. BTW, we have modest Dividend income, and all of it is re-invested in the holding when it pays out. Also, 95% of the portfolio is in IRAs and other accounts all behind the tax wall. We have literally no post tax investments in the portfolio any more. So assume for the sake of this post that all pulls are subject to Federal income tax.

In any case, my actions are always a mix of some kind across all asset classes. Never a whole draw from just one. Which brings me to today, time for the first draw for 2026, markets are doing really well (I know, in the VERY short term past). I'm inclined to go mutual heavy, followed by some bond fund selling, then a bit of cash.

What do others do? If you do this 3-4 times a year "manual" draw, what are your criteria considerations and actions?

 

[NW-Bound]

Same as you, I draw from my investable accounts throughout the year to replenish my bank account. This is done on the as-needed basis. As my spending has lots of irregular non-recurring expenses, the withdrawal is non-periodic.

At this point, my tax-deferred accounts are still 70% of all accounts, the Roths are 24%, and the after-tax accounts are the least at 6%. I am trying to draw down the tax-deferred accounts before RMD hits. This is mostly done by Roth conversion, and also the withdrawal to spend.

What to sell to get the cash? This is never a problem with me, as I keep lots of cash or rather short-term Treasury in the tax-deferred accounts relative to my expenses. This saves me the consternation of what stocks to sell to get the cash. The large cash buffer also allows the market timer in me to buy stocks that dip and I think I should buy, without having to sell something first. For me, separating the buy/sell makes the decisions easier.

 

[Dash man]

You don’t mention your portfolio size or spending requirements or withdrawal rate, so it’s hard to get a picture of your needs. But my concern is your low equity exposure when you still have a hopefully long retirement ahead of you. A conservative portfolio leaves you exposed to inflation risk if your nest egg isn’t large enough.
I move dividends from our taxable brokerage to our checking account and dividends in our Roth and tIRA accounts are reinvested. We’re about 40% Roth, 15% tIRA and 40% taxable. We also sell some equities for cash if needed. This may be the first year we touch our Roth accounts since we want to keep our income reasonable since we’re tired of paying IRMAA.

 

[marinauser]

For us, dividends and interest go to operating cash throughout the year. At the end of the year, if capital gain distributions do not yield sufficient cash to make it through the next year, i take capital gains using rebalancing to put sufficient cash into the operating account to get through the next year when coupled with the dividends and interest anticipated for that upcoming year. We also have two very small pensions and social security has now kicked in. I do maintain 8-12 months in a very short term bond fund in a deferred account in case some significant need for cash would arise such as a major purchase that can't be (or i don't want to have) supported by the operating cash or a sale of equities - such as a car purchase.

 

[GrayHare]

To raise cash, I sell some of whatever asset class has had a nice run up. I'll also sell things that no longer meet my investment goals, which can include underperformers. When needed, I will sell a loser to negate some capital gain, except few losers remain. The riding tide of recent years has lifted all boats such that now just about all my holdings have a capital gain pending.

 

[COcheesehead]

We live off the cashflow from mostly muni bonds in our taxable account and rarely sell anything for regular expenses, but if I had to sell in a taxable account, I would first tax loss harvest i.e, pulling the weeds. I would let the winners run - letting the flowers grow.

 

[NW-Bound]

We live off the cashflow from mostly muni bonds in our taxable account and rarely sell anything for regular expenses, but if I had to sell in a taxable account, I would first tax loss harvest i.e, pulling the weeds. I would let the winners run - letting the flowers grow.

I dunno. When a vegetable develops flowers and goes to pod (bolting), it's over.

 

[audreyh1]

We draw our annual amount at the beginning of the year and send it to high yield savings or MMFs. An amount gets transferred every month to checking to cover bills. We let investment interest, dividends etc. accumulate in the portfolio during the year. Most of our investment income is received in Dec, just in time for the next Jan withdrawal.

 

[imjustawarrior]

Our taxable account has VTI and VXUS. I sell whichever will bring us closer to our desired AA. I sell the shares that have the highest cost basis. All shares are long term. We are living off our taxable. We hold only 1-2 months in cash.

 

[Al18]

Check your asset allocation first, and withdraw to bring your allocation back to your desired level. Most years, this likely means selling from your stock mutual funds and maybe some of your bonds.

I do something similar, but just two withdrawals per year.

 

[RobLJ]

I am always interested in posts on this topic (withdrawals) since my procedure has been pretty post hoc, and I'm not convinced by any method's superiority.
I have been doing, for the last 3 years, pretty much GreyHare, pulling a lot from gains. But we have been using these for withdrawals and to build up income assets, which after the last 2 years of pulls now is at the point that my SS plus dividends are about 25% over our bare minimum payment of everything (including a food allowance, etc).
The goal is close to marinauser, where we draw dividends and then maybe scrape into capital gains, which is where we are now this year. After DW draw SS in 4 years, then we are in a place where SS + dividends funds cover more than our spending in any year the last 5 years. Which when I realized this, is why I have scraped all my gains in stock funds in my accounts to bond funds and half of DW's gains.
I think we have achieved what Bernstein called winning the game. Admittedly, quite a bit is in high yield/international bonds, which probably will go down in a stock slaughter, but essentially we will fund all expenses, plus large unplanned (including travel, etc) , just from dividends and SS in 4 years.
I am continuing to sell stock gains for the next 3-6 months from DW's accounts, if those gains occur, half into bond funds/CEFS and half into cash. The latter can fund either stock fund assets if a crash occurs or just fund withdrawals. Cash is not trash, even if the Fed is lowering rates. I think another 1% is the limit but I could (probably) be wrong.
Using rebalancing to fund withdrawals is, however, I think the one winning strategery.
I realize the above is very specialized and I would not recommend it for most. However, it should work for us, quite well. And most importantly, we are not maximizing portfolio, instead using it for reliable income/distributions to avoid drawing down. If things go well, after 7-10 years we may well not have to worry about that (and increase stock fund investments once the risk is pretty much gone). There is a term for this, but I forget it (basically decreasing stock investments at high SOR risk age and then increasing stock allocations once the risk is pretty much gone as you age).

 

[imjustawarrior]

instead using it for reliable income/distributions to avoid drawing down

If it works for you, great.

Taking any money from your portfolio is drawing it down.

 

[pb4uski]

I do it a little differently. Since I project that when we start RMDs in a few years that our RMDs will be taxed at a combination of 12% and 22%, I do Roth conversions to the top of 0% preferenced income tax bracket ($500 below the top of the 12% ordinary tax bracket).

I usually do about 75% of what I expect to convert in January and the rest in late December.

Also, in early January I do HSA withdrawals for our prior year qualified medical expenses that go into an online high-yield savings account.

As our spending needs exceed our SS and my pension, I transfer money from the HYSA to checking. If the HYSA is running low then Roth withdrawals.

I realize that to the extent that some of my Roth withdrawals are effectively Roth conversions in the same year that they are functionally no different that a tIRA withdrawal, but I'm ok with that. I find it easier to do it that way and to the extent that I don't need the money for spending it stays in the Roth.

So the only tIRA withdrawal that I do is in December to pay my estimated taxes for the year.

 

[Koolau]

Here, of late, I've been taking my entire draw from my 401(k). I have to take my only RMD from that fund. It is the last of my taxable, qualified money.

I can choose between my old Megacorp stock in the 401(k) or a good sized Guaranteed Income Fund in the 401(k). Sometimes I take from one, next I might take from the other or I might take from both.

I usually take more than my RMD - and for several years now, the final result is that my total in the 401(k) is LARGER than the year before (I can't seem to get ahead of it, either from the ever-increasing RMD OR the extra money I withdraw for spending for the year. I guess that's a good thing, right?

I make between one and three withdrawals per year, depending on how much cash I need within the year. So far, I've taken at least the RMD at the first of the year.

One might ask, why not spread the RMD withdrawals to allow for more growth. Good question. At years end (say, end of 2025) my "cash on hand" - essentially what's in the two check books - is relatively exhausted. AND beginning immediately in January, our cash out-flow is at its maximum.

We pay two life-insurance policies (long story). We pay for 4 kids' insurance policies (another long story). Our LTCi policy is due as well (talk about a long story). One of our major charities is due in January. On it goes. January is an "expensive" month for us.

 

[RobLJ]

Hee.
Using bond fund dividends rather than selling stock funds, I should have written. But great point, warriordude.

 

[Original Wally]

DW Molly and I will both turn 72 in a few months. So no RMDs YET.

We live off our Pensions and SS. We have only gone to the well a couple of times in the past 15 years (retired in 2009 @ 55 1/2) for some lumpy things.
Right now, I am using my tIRA to make QCDs to our Church. We will see what happens in 2027 when RMDs start.

 

[bada bing]

Once a year, in Dec, I do a Roth conversion with tax withholding, and sell enough from taxable to pay the tax and refill the top rung on a 3 year spending ladder. Then rebalance the remainder. That's the extent of my hands on portfolio moves for the year.

I've maintained a 3 year spending ladder with distributions from it into checking twice a year since retirement. It's going to get even simpler for me when SS and pension start in 3 years (or sooner). This past Dec was my last planned refill of my 3 year spending ladder, I'll wind that down to be replaced with pension and SS checks. I'll continue Roth conversions for an additional 3 years until RMD age, when they will no longer pencil out, tax wise. After RMDs start I'll probably stop rebalancing allocations as well, just let the allocation drift, hopefully more stock-centric over time. Or I might just put everything in Wellington or Fidelity. Balanced, let the brokerage automate RMD's and be done with it.

 

[OldShooter]

If it works for you, great.

Taking any money from your portfolio is drawing it down.

Including taking of dividends generated from the portfolio. ... and so what?

 

[MarieIG]

I have a monthly base amount transferred from my taxable brokerage into my checking account. The base amount comes from dividends. Once that amount hits the checking account I have 1/2 of those funds transferred to another brokerage account (i.e. my "tax" account) linked to my checking account so that it gets a higher interest rate until I am ready to withdraw to pay taxes. I do have additional cash / funds in a municipal money market fund for easy access if necessary.

DH has a pension and an annuity which he uses for base expenses. He taps his IRA for "fun money."

 

[Flieger]

I have a monthly base amount transferred from my taxable brokerage into my checking account. The base amount comes from dividends. Once that amount hits the checking account I have 1/2 of those funds transferred to another brokerage account (i.e. my "tax" account) linked to my checking account so that it gets a higher interest rate until I am ready to withdraw to pay taxes. I do have additional cash / funds in a municipal money market fund for easy access if necessary.

DH has a pension and an annuity which he uses for base expenses. He taps his IRA for "fun money."

This is exactly what I do (like a monthly "paycheck"), but I pay Fed and State tax with each withdrawal (also monthly). @MarieIG, when do you pay taxes? End of year? I was assuming that would create some kind of penalty... I do have a small amount of pay from a p/t job that also has withholding, and DW has SS that we do not have withholding as of yet.

Flieger

 

[SnowballCamper]

I think the prudent thing is to rebalance in conjunction with withdrawals.

 

[Koolau]

I think the prudent thing is to rebalance in conjunction with withdrawals.

Yep. Just partially rebalanced by taking my RMD from my 401(k). Done for the year on that j*b. I was a bit surprised at how much larger my RMD was this year vs last. I'm only a year older. Guess the growth was pretty good last year.

 

[MarieIG]

This is exactly what I do (like a monthly "paycheck"), but I pay Fed and State tax with each withdrawal (also monthly). @MarieIG, when do you pay taxes? End of year? I was assuming that would create some kind of penalty... I do have a small amount of pay from a p/t job that also has withholding, and DW has SS that we do not have withholding as of yet.

Flieger

I have money withheld from DH's pension and annuity, pay estimated taxes quarterly, and "top off" as necessary via withholding from an IRA combined with a 60 day rollover. When my annuity starts later this year, I have it scheduled to withhold federal and state taxes.

I also check to see if the safe harbor has been satisfied.

I haven't been assessed penalties thus far - fingers crossed.

When I was working I did have additional tax withheld both from my and DH's pay to help cover investment tax.

 

[RetireBy90]

An approach from several posts above, you may think about changing any capital gains or dividends so they are not reinvested. This will give some or perhaps all you need to draw. I would start with that approach and then draw from asset group that is out of balance. When stocks are over 40% sell some to get back to your 40%.

 

[Dalton]

I have taxable dividends and interest that I use to spend for one quarter (since I'm paying the taxes on them anyway), and I have an RMD I have to take from an IRA that I usually increase the amount and use for the other 3 quarters.

What do I sell in the IRA to transfer to my spending account? Well, thus far I've normally been in the position that I need to sell equity funds to make AA adjustments to keep at 70/30, because the equity side has been growing much faster than the fixed side. I was planning to sell equities for 2nd qtr spending last year, but decided to pull a month's worth of brokerage MM cash for April due to the tariff fiasco having the markets be down (it was either that MM or IRA bonds), knowing that the brokerage MM would get refilled by dividends (dollars are fungible), and if the market recovered before I would need more $ in May, I could then just take the usual 3 month's worth of equities, or sell some bonds if equities hadn't recovered. It worked out fine.

(TLDR: I sell whatever works best with the current market, to keep my AA from getting more out of whack)