Sell annually, or use gains and dividends

[bizlady]

We will begin drawing on our IRA's late next year in 2015. Our VG financial planner suggests continuing to reinvest cap gains and dividends, and just sell annually to meet needs. Yet part of me thinks setting those aside and using those at least in years that the market is down might make more sense.

All money is pretax so taxes will be due. DH hits 59.5 late next year, and I follow mid 2016. Dividends and cap gains alone will not meet all our needs, so we will still need to sell at least a portion annually, and have the savings to do so long term. (planned til age 97). Insurance and taxes planned for, but no long term care.

Non-cola- Pension and earnings would cover about 28% of desired income initially. DH will draw SS at 62, and I will wait until 70 since my SS will be higher than his at any age, and that preserves highest "guaranteed income" if needed later, though I will take spousal benefit at FRA. His SS will cover another 24% of income. We may start converting some to Roth beginning 2016, but need to minimize income yet in 2015 for medical subsidies (living off post tax savings for now).

So, based on my situation, what would you do?

 

[brewer12345]

I would just take the cap gains and income distributions from the funds and then sell as needed to add to that amount for what you need to live on.

 

[GrayHare]

There's a good Morningstar video about this topic. I agree with their math that says you have more $ (to save or spend) by reinvesting and selling annually, but the difference is small.

 

[ejman]

12 years into retirement, I take all dividends and cap gains from my taxable account and sell with an eye to rebalance if additional funds needed. I haven't touched my IRA's so far and don't intend to until RMD's start in 6 years. At that time I'll decide on the RMD strategy. My guesstimate at this point is to reinvest all IRA div and cap gains and take RMD's from accounts as needed to rebalance.

 

[mickeyd]

12 years retired also but have yet to tap my investments. I turn 70 soon so in 2015 I will tap my tax advantaged funds for the first time. I plan on taking RMD distributions as part of my rebalancing process late in 2015. I think reinvesting my dividends is part of my overall nontaxable (IRA) Plan. I take quarterly cash dividends that my taxable account spins off.

 

[Animorph]

I leave my distributions as cash, but that can leave you with a bunch of cash sitting around for part of the year until you can spend it. Automatic reinvesting ensures no loss (or gain) in converting distributions back into shares, which is nice and easy.

If you also have a taxable account, automatic reinvestment can be slightly dangerous if you sell for a taxable loss and automatically reinvest in the same shares within 30 days, a wash sale condition. That's the main reason I avoid automatic reinvestments. When my taxable account shrinks enough I may start doing it again.

 

[Bestwifeever]

Here is a recent thread related to this question: http://www.early-retirement.org/forums/f28/cash-distributions-versus-periodic-redemption-73372.html

We take all distributions when they are paid from our IRA. In addition, we "sell" from our Vanguard money market fund as needed, since it generates minute distributions (we don't want to sell the funds that are profitable either in appreciating value or providing distributions). That MMF should still have plenty of $$ til we start SS.

 

[OAG]

Little different. We are starting in 2015 at ages 74/77 to withdraw the entire T-IRA in 12 years. It will be $0 when we are 86/89 (if we live that long). Better to pay 10 to 15% taxes on the money rather than leaving it to the heirs to pay 39% taxes on it. So this will be a 8.33% withdrawal rate for those 12 years. We have a ROTH, Pension, SS and subsidized Medicare & VA for MC which will remain after that.

 

[MBAustin]

I just realized I answered wrong in the poll - I take cap gains & dividends only from the taxable part of our portfolio. I plan to continue to reinvest them in our tax-deferred accounts even when we start withdrawing (we haven't yet).

 

[grasshopper]

With both of us over 59.5 we never do anything with tIRA or Roths except conversions below the 15% bracket

In our taxable account we take dividends and distributions as they come, and sent to our MMF for expenses.

We also sell some LTCG up to the 15% bracket, and raise our cost basis to protect our gains. My patting my own back mid-October was short lived by Oct 31.

 

[Katsmeow]

With pretax money, we take all cap gains and dividends and put them in a short term bond fund. I transfer money from that short term bond fund on a roughly monthly basis. I rebalance as needed. Between rebalancing and the cap gains and dividends I have rarely needed to sell anything else to meet withdrawals but would do so as needed.

 

[eta2020]

With pretax spend dividends ONLY.

With 401ks and IRAs withdraw 2% or minimum required by IRS.

 

[pb4uski]

I take all dividends and CG distributions for my taxable accounts and sell taxable funds as needed to bring my cash to target. I reinvest all dividends and CG distributions in tax-deferred and tax-free accounts.

 

[jebmke]

I'm not a big fan of cash, in taxable or deferred. I only sell when I need money. Monthly to pay bills.

 

[donheff]

I would just take the cap gains and income distributions from the funds and then sell as needed to add to that amount for what you need to live on.

Sounds like what I do. In taxable all the distributions go into a MMF for expenses. I liquidate whatever else I need during the year. In the IRAs/401Ks (which are the bulk of our portfolio) distributions are reinvested.

 

[fritz]

63/61, retired 5 years now - take dividends/capital gains from taxable accounts for income. Take dividends only, from Roth accounts (keeping income within ACA subsidy scenario, and completes covering our annual income needs). IRA accounts' dividends and capital gains are reinvested (accounts not touched) - most likely until RMD kicks in, or we are both on Medicare. On SS now and wife will go on SS next year - will change withdrawals to reinvest with some accounts to allow for growth when she does. Haven't had to sell to date for shortfalls, fortunately.