Timing of Withdrawals

[DJRR]

How are people handling the timing of withdrawals? I assumed that I would just have a regular monthly withdrawal to meet my needs, like reverse dollar cost averaging but now that I am getting close I am rethinking.

Current case is that I already have a 4%+ gain after two months. which represents my full needed annual withdrawal. I am tempted to pull my full amount for the year now and call it done. I guess this is market timing. I lock in a years requirement if the market falls and lose out if the market continues to go up. Does taking something off the table make sense?

Does anyone know of any studies about how this effects the withdrawal stage? I assume it lowers return since the market is biased upwards, but it should also lower risk a little? I am currently getting started on SORR, so a little worried about it. Not sure if Bengen, et al use a consistent withdrawal or some other method or if it is not a big enough difference to worry about.

 

[sengsational]

I segregate spending accounts from investment accounts, but my asset allocation is across all accounts. I've got more than one year of spending in the cash or cash like category. So it doesn't really matter what the market is doing...all that happens when I hit a rebalance trigger.

It sounds like you're selling equities to fund spending. How long would your cash allocation last at your typical burn rate?

 

[COcheesehead]

I sell nothing for expenses and live off cashflow from a muni bond ladder in a taxable account.

 

[DJRR]

I've got more than one year of spending in the cash or cash like category. So it doesn't really matter what the market is doing...all that happens when I hit a rebalance trigger.

It sounds like you're selling equities to fund spending. How long would your cash allocation last at your typical burn rate?

I have 2 years cash for SORR, but plan to sell equities unless the market drops 10%+, in which case I will draw on the cash to reduce stress on the portfolio.

So I will be selling while the market is positive, which is why I am thinking about selling now vs. later. I guess there is also the dynamic of getting whipsawed if we bomb Iran and they retaliate and the market drops 15% and then comes back up over the next few months. Is a bird in the hand worth it since the market is volatile over the course of the year before finishing up (usually)?

 

[skipro33]

A lot of people do exactly what you’re describing: pull a year of spending at once and park it in cash. It’s not harmful market timing — it’s just building a spending buffer so you’re not forced to sell after a drop.

The research on sequence‑of‑returns risk shows that avoiding withdrawals right after a downturn matters far more than whether you withdraw monthly or annually. Bengen and others assume annual withdrawals anyway.

If you already have your full year’s withdrawal in gains after two months, taking it now actually reduces risk, especially early in retirement. The “lost upside” over the next 10 months is usually trivial compared to the benefit of having a stable cash bucket. Key word here is USUALLY. the S&P 500 return for the last 3 years was 26.3%, 25% and 18%. Drawing in December of each of those years instead of January is a pretty big difference.

 

[audreyh1]

I prefer to make one annual withdrawal at the start of Jan, store it in a high yield savings account and maybe some short-term CDs for later in the year. Then I don’t have to worry about anything till the following year. For me this keeps things simple and I don’t have to worry about cash flow.

The major SWR models assume the annual withdrawal is pulled out at the beginning of the year for spending and the remainder of the portfolio remains invested after rebalancing. They don’t speculate as to what happens to the withdrawal, it’s simply gone from the model and the AA.

 

[GrayHare]

I lock in gains by selling some to raise cash when prices are high. Yes, the prices may go higher, but like Yogi said about market timing, predictions is hard, especially about the future.

 

[OldShooter]

We just take money out of the portfolio when we need it. House improvements, property taxes, December withholding for taxes, etc. Also other expenses when SS isn't enough. We will withdraw from the equity side or the fixed income side depending on which will move us more towards our desired AA.

Given that the trend on investments is slowly upward, we try to leave funds invested for as long as possible.

 

[surprising]

I figure out expenses every month, subtract off rental income, and then withdraw from my after tax accounts as needed to cover the expenses for that month. I also take 1/12 of expected property taxes for my primary and all my rentals and deposit to high yield savings account. For every other lumpy, I just deal with it as part of monthly expenses. Like that water heater that broke in my rental right before I listed it for sale

 

[Al18]

I would move 6 months of your cash into a savings account. Sell 6 months of investments and transfer it to your savings account. Setup automatic monthly transfers to your checking account. Repeat next year.

Time to practice being a spender

 

[FLSUnFIRE]

I just started a monthly SEPP but it won't cover all my expenses. As I've done in years past, in Nov/Dec I'll figure out my withdrawals to optimize taxes and liquidate enough cash to last me throughout the coming year (now considering estimated SEPP payments that will fluctuate with the market). I don't try to time the market but your thought has merit and if it makes you sleep well, do it. However, locking in taxable income this early in the year could impact taxes if you have unexpected income/cash-flow later in the year for whatever reason. If I need more money mid-year, I just sell what I need for that cash-flow and try to keep income realization late in the year.

 

[Dalton]

I do roughly quarterly distributions. I don't lock myself into a particular date...have some buffer in my account, if the markets not down the day I decide to do the deal, I take the distribution. If it's a down day, I'll wait to see if it goes back up over the next couple/few days. Monthly seems like I have to think about it too often (and gives me too many opportunities to be foolish), and annually seems like I'm leaving too much on the table for no good reason.

 

[skipro33]

The only real reason I take money out right now is to reduce my RMD and the taxes at that time. I think I roll it right into my ROTH and since my ROTH is more than 5 years old, there's no wait time to pull and use any of it. So once a year, around $30K or so is drawn, $5K or so from my checking account for the taxes on it, and it's put in the ROTH. I suppose I'll need a new roof, car, a mistress or two (right....) and draw some, but not for now.

 

[Koolau]

We take most of our yearly withdrawal near the first of the year. If we need more later, we take more. We worry very little about the effect on overall performance.

 

[SecondCor521]

How are people handling the timing of withdrawals? I assumed that I would just have a regular monthly withdrawal to meet my needs, like reverse dollar cost averaging but now that I am getting close I am rethinking.

As you can see, people do it all different ways.

My method is to pay everything either with my credit card or from my checking account. I refill my checking account monthly by selling from my taxable account.

Current case is that I already have a 4%+ gain after two months. which represents my full needed annual withdrawal. I am tempted to pull my full amount for the year now and call it done. I guess this is market timing.

Yes, it is market timing, but small both in extent and timing. IMHO it doesn't matter much.

I lock in a years requirement if the market falls and lose out if the market continues to go up. Does taking something off the table make sense?

You're probably feeling like your overall AA is too risky, so you're preferring to take risk off the table. You're also taking return off the table, but that might be the right tradeoff for you.

Personally I try to find a long term AA that works for my psychological makeup and personality, then mechanistically rebalance to that AA. For me that is 100% stocks and just-in-time sales to cash. But my Dad's accounts I rebalance to 75/25 monthly.

Does anyone know of any studies about how this effects the withdrawal stage? I assume it lowers return since the market is biased upwards, but it should also lower risk a little?

I use FIREcalc and its Investigate tab to evaluate the effect of AA on portfolio safety. With shorter time horizons, a higher bond/cash allocation improves safety. With longer time horizons, a higher bond/cash allocation actually decreases safety because of the longer term eroding impact of inflation.

I am currently getting started on SORR, so a little worried about it. Not sure if Bengen, et al use a consistent withdrawal or some other method or if it is not a big enough difference to worry about.

The studies have been done both yearly and monthly. What you're talking about is one of the minor contributors to your result. Asset allocation, savings rate, withdrawal rate, and tax strategy all matter far more.

 

[RetiredHappy]

Doesn't matter when you do it, po-tae-to - po-ta-to. Take it early in the year if you think the portfolio value may go down, sell/pull 1/12 out every month, take lumpy depending on lumpy expenses i.e., pull as when needed.

 

[Montecfo]

I do not plan to sell equities to fund current spending. I sell equities that have reached price objectives and then use the proceeds to go into my bond ladder.

The bonds mature quarterly and I transfer those proceeds to fund spending. I have a few years in the ladder.

I have a low withdrawal rate so I do not worry about SORR. I am also aware that the 4% rule properly applied already contemplates SORR.

 

[DEC-1982]

How are people handling the timing of withdrawals?

We do quarterly withdrawals - Jan 1, Apr 1, Jul 1, Oct 1, or very close to these dates

No harm, or not too much, by straying off a strict withdrawal schedule. Occasionally we are away from home, and we want to do these withdrawals when we are at home.

 

[Dtail]

We withdraw a fixed amount on a monthly basis. If there are very large lumpy expenses, it comes from a different taxable account.

 

[big-papa]

Ours is a layered approach.
Working backwards, we make monthly transfers to checking from the money market we hold in our taxable brokerage account.

Money in the money market in our taxable brokerage account comes from two places:
- Dividends paid quarterly (end of each quarter) from the stock fund in our taxable account
- Money transferred quarterly from our TIRAs and HSAs (reimbursing Medicare Part B premiums)

Money transferred out of the HSA quarterly comes from the sale of stock in the HSA

Money coming from the TIRA quarterly comes from sales of shares in an ultrashort TIPS fund

Money in the TIRA in the ultrashort TIPS fund comes from TIPS that mature at the beginning of the year and from coupon payments from the prior year. The ultrashort TIPS fund is used to help mitigate loss of purchasing power over the course of a single year.

The transfers from the money market are set up to zero out once a quarter before it's refilled. In month 1 of a quarter, 1/3 is transferred to checking. In the second month, 1/2 of the remainder is transferred to checking, and in the final month, all of the remainder is transferred. We have a threshold set that if what's in our checking account builds up beyond a certain dollar amount by mid-year, it's transferred back into our taxable brokerage account to buy more stock.

A similar method is used to determine how much to transfer from sales of shares of the ultrashort TIPS fund once per quarter, ending with the fund being zeroed out at the beginning of Q4.

Then it all starts over again in the new year.
All in a fairly easy to use spreadsheet.

I also have a simpler, "Plan B" version documented for my mostly disinterested spouse, which removes the quarterly transfers, and just does a single annual transfer from TIRAs/HSAs at the beginning of the year to the taxable brokerage account. Monthly withdrawals are then made from there. I also do Roth conversions at year's end, but those would stop if I'm unavailable.


Cheers.

 

[sengsational]

We will withdraw from the equity side or the fixed income side depending on which will move us more towards our desired AA.

Same, but didn't mention it in my earlier post.

I don't have the patience to fiddle around with it monthly, or even quarterly. I have a spreadsheet (people who know me would say "of course you do" ) that calculates current overall asset allocation, has a section for planned transfers, and the result being the projected resulting allocation. I run whatever transfers, including from investment accounts to spending accounts, and I'm done until next December.

 

[jazz4cash]

I use ladders for my fixed income allocation and spending needs. Ladders eliminate decisions on timing asset sales.

 

[jfn111]

We usually make two withdrawals per year. We keep a fair amount in the checking account and when we feel it's lower than our comfort level we top it off.
I try to keep both withdrawals under 4% total.

 

[disneysteve]

I'm still early in retirement (May 2024) but so far I've just been taking money out as needed, drawing from our cash settlement account. That account gets replenished by investment income (interest, dividends, capital gains). I am also taking RMDs from an inherited traditional IRA and an inherited Roth. I do that in late November or early December so that I can use withholding to pay our taxes for the year. Then there are year-end distributions from a couple of taxable accounts, stock dividends, and such. And I've sold some stocks and mutual fund shares, not because we needed the cash but to simplify and consolidate some of our holdings. All of that, along with my side gig, has given us plenty to live on. Oh, and tax refunds, too.

 

[Steelpony]

How are people handling the timing of withdrawals? I assumed that I would just have a regular monthly withdrawal to meet my needs, like reverse dollar cost averaging but now that I am getting close I am rethinking.

Current case is that I already have a 4%+ gain after two months. which represents my full needed annual withdrawal. I am tempted to pull my full amount for the year now and call it done. I guess this is market timing. I lock in a years requirement if the market falls and lose out if the market continues to go up. Does taking something off the table make sense?

Does anyone know of any studies about how this effects the withdrawal stage? I assume it lowers return since the market is biased upwards, but it should also lower risk a little? I am currently getting started on SORR, so a little worried about it. Not sure if Bengen, et al use a consistent withdrawal or some other method or if it is not a big enough difference to worry about.

I’m primarily an income investor while you seem to be a spend down investor..

So if I was in your situation every time I gained what I thought was sufficient to cover my yearly needs it’s a gifted horse bird in hand situation. I’d cash that in with some siop. If a then portfolio goes up more I’d cash more in and on and on.

You can always redeploy slop somewhere when markets tank, get a jump on next year where you might take out less or use the extra in bad market years when you don’t hit the 4% or whatever you’re doing then.

Don’t overthink a complete unknown random occurrence by getting sucked into what is market timing. Allocation falls into this category also unless your set plan changes.
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Sure there are studies, charts, analysis etc. but none can predict your personal future needs for the coming year. A professional money manager would put you on an allowance where you get more some years (and you don’t have to spend it all) and less other years but you don’t have to slip into skinflint mode either. It’s that easy to manage.


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