Timing of Withdrawals

[sengsational]

Sure there are studies, charts, analysis etc. but none can predict your personal future needs for the coming year.

I was shocked at how accurately I can predict spending, without even trying very hard. Since I pay taxes directly out of investment accounts, I separate income tax expense from the rest of the net expenses for the prior year, divide by 12, and put that value in 12 columns. I model spending account balance by subtracting that "burn rate" from the projected balance. It shows an annual sawtooth pattern in the spending account balance graph. Spending might be "high here, but is often low there", so the drain turns out to ba a remarkably consistent rate. I don't bother trying to select assets that generate a specific amount of income to align with my actual spending, rebalancing takes care of that.

 

[big-papa]

I was shocked at how accurately I can predict spending, without even trying very hard. Since I pay taxes directly out of investment accounts, I separate income tax expense from the rest of the net expenses for the prior year, divide by 12, and put that value in 12 columns. I model spending account balance by subtracting that "burn rate" from the projected balance. It shows an annual sawtooth pattern in the spending account balance graph. Spending might be "high here, but is often low there", so the drain turns out to ba a remarkably consistent rate. I don't bother trying to select assets that generate a specific amount of income to align with my actual spending, rebalancing takes care of that.

I do track monthly spending - in terms of "how many dollars are going out" but I don't categorize anything but "regular" and "not-regular" spending with no finer details than that. Though I had a decent estimate from before retirement, my true baseline was the first full year's spending in retirement. The next year, I just used that, but increased it by the prior year's inflation for the current year's estimate. Then I track the current year against that. It's just for tracking purposes - we spent up to whatever it is we withdraw per our plan. We have a trigger point set that if our checking accounts grows too much by mid year, some of that is siphoned off and used to purchase more stock in our taxable account.

I have noticed that the cumulative spending trajectory does vary year on year, but it somehow ends up converging to just about the same place by year's end. That will change over time. I will be moving onto medicare, like my wife before me, which will result in a substantial reduction in premiums vs. my ACAplan. Wife starts SS in a few months which only 85% will be taxed. A few years away for me, but that will still happen. At some point we'll pay off the house or sell it/buy something else but this is our last mortgage.

 

[ShokWaveRider]

A Bit of both for us, I set up small annuity 10y period certain for extra monthly income, and annually to cover Fed taxes and then some. Works for us.

 

[Steelpony]

I was shocked at how accurately I can predict spending, without even trying very hard. Since I pay taxes directly out of investment accounts, I separate income tax expense from the rest of the net expenses for the prior year, divide by 12, and put that value in 12 columns. I model spending account balance by subtracting that "burn rate" from the projected balance. It shows an annual sawtooth pattern in the spending account balance graph. Spending might be "high here, but is often low there", so the drain turns out to ba a remarkably consistent rate. I don't bother trying to select assets that generate a specific amount of income to align with my actual spending, rebalancing takes care of that.

I think that poster is looking for a boilerplate answer for a personal unknown.

A version of your way would be my answer. I get an end of year monthly summary sheet from Merrill Lynch with our brokers statement each February. I check this against the new SS amount. Checking my own online statements during the year and I pretty much know what needs to be spent on our part

As an income investor I auto transfer cash each month with some slop. Between.that and SS we’re good for a while.

I’m going to up the monthly transfer amount in 2027 50% which should hold us for the next 4,5 years or more. Gives my wife more breathing room if I pass. This would be my 2nd adjustment in about 17 years mostly due to large SS raises. No spend down yet.

Spend down investors wrestle with all that other stuff tying themselves into knots, shuffling investments around based on what they “think”, market timing an unknown and dealing with their unknown future looking for an answer that doesn’t exist. I have no idea why. I just deal with my facts and the consequences of Mr. Market who doesn’t care 1 whit about me.

I think spending patterns obviously are widely variable depending on lifestyle, age and where you live. I know ours for now. Managindg my parents portfolio I saw their needs go from about 3k to 8k in one month. I learned I better be prepared for that.

 

[RetiredHappy]

I think that poster is looking for a boilerplate answer for a personal unknown.

A version of your way would be my answer. I get an end of year monthly summary sheet from Merrill Lynch with our brokers statement each February. I check this against the new SS amount. Checking my own online statements during the year and I pretty much know what needs to be spent on our part

As an income investor I auto transfer cash each month with some slop. Between.that and SS we’re good for a while.

I’m going to up the monthly transfer amount in 2027 50% which should hold us for the next 4,5 years or more. Gives my wife more breathing room if I pass. This would be my 2nd adjustment in about 17 years mostly due to large SS raises. No spend down yet.

Spend down investors wrestle with all that other stuff tying themselves into knots, shuffling investments around based on what they “think”, market timing an unknown and dealing with their unknown future looking for an answer that doesn’t exist. I have no idea why.

I am not sure why you would differentiate between an income investor vs. a spend down investor. We are not income investors but certainly are not spending down our stash. Money is fungible. I just finished doing our taxes a couple of weeks ago. Our IRA withdrawals were $210k, including $23k in Roth conversion in the amount. The IRA generates about 1.5% in dividends annually. After withdrawals, the IRA continues to grow larger than before. There is certainly no spend down.

 

[Steelpony]

I am not sure why you would differentiate between an income investor vs. a spend down investor. We are not income investors but certainly are not spending down our stash. Money is fungible. I just finished doing our taxes a couple of weeks ago. Our IRA withdrawals were $210k, including $23k in Roth conversion in the amount. The IRA generates about 1.5% in dividends annually. After withdrawals, the IRA continues to grow larger than before. There is certainly no spend down.

Well the original poster was talking about the 4% “rule”. As far as I know that’s a boilerplate spend down tool. Some retirees are more careful because of portfolio size and depth of knowledge.

Both of us are on the same page with similar results. I should of said I live on generated income only for now. Like you I spend whatever I need to within limits due to personal goals and needs, my actual facts as they unfold and don’t have to try to game an unknown year after year. Much easier.

 

[DJRR]

Well the original poster was talking about the 4% “rule”. As far as I know that’s a boilerplate spend down tool. Some retirees are more careful because of portfolio size and depth of knowledge.

Not a rule, just a sample to facilitate discussion. Thanks to everyone who replied, it gave me a lot to think about.

Right now I think I value the flexibility and will follow my original plan of a monthly "paycheck" coming into my spending account. That will give me a chance to test drive things and not lock in a certain amount of taxable income unless I want to. I have a tendency to obsess about optimizing, but I am trying to simplify things and it does not seem that this will make a meaningful difference either way so best to KISS.
I assume this is just normal jitters. I have been 100% stock my entire career so am comfortable being 65/35 going into retirement. I have done what I can to manage SORR. Also, my investments have increased another $200k since I finalized my 100% firecalc plan last year. It is just the finality that seems scary. I will never have a job at this income level again and can't easily undo the decision if something worse than the historical worst happens. Intellectually I am confident that I have a solid plan and have done the best I can to build in flexibility, but emotionally I still feel like I am stepping off a cliff if that makes sense.

 

[audreyh1]

I have a monthly amount coming into checking, but it’s being fed from a high yield savings account which is replenished annually, not directly from long-term investments. The two don’t have to be linked, they can be independent.

 

[RobLJ]

I normally withdraw enough for the year in mid January, early February, selling from the winners to fund the year, then selling more to achieve rebalancing. I also have at least 5% cash but ideally at least 10% cash, which can fund at least 2&1/2 years of spend.
However when the market goes to the moon, I often do early sales to build cash; the most was about 18 or 19%. In COVID and 2022, the extra cash allowed some purchases at nice low prices, including PDI, PRU, CMI, and mutual funds. I did a bit of early extra selling last year, diverting mostly to income but also to cash.
Cash is not trash, particularly when markets are looking stretched. Booking gains before they can disappear (in the blink of an eye) is a form of risk protection, particularly early in retirement or before early retirement, when most of our highest % withdrawals will occur, before SS and/or pensions kick in.
Of course, as some will tell you, you probably will not maximize portfolio gains,--stretched markets can continue to stretch, for years.....until the rubber band breaks and those wonderful awesome gains disappear, often quite suddenly.

 

[Winemaker]

I try to keep about 3 years of partial expenses in cash in my 401k; I take out my annual 6 figure draw in early January, not an RMD. I gradually sell to replenish that bucket during the year. While this is year 12, the portfolio cash has not hurt overall preformance. It was once about 14% of our total, but now it is about 8.5%. When SS rolls in in 3 years, I will reduce, but will ramp back up at 73.

 

[NeilDH]

"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." — In my first two full years of FIRE (2024 and 2025), I did this. In 2026, I decided to sell a lot from my taxable account to stockpile more cash in fear of a worse or at least wilder market — about a half year's expenses excluding big lumpies I know we'll have, and that was selling TSLA stock at a high. So far this is working. (And I still have kept that cash in a high-yield MM fund, then pulled from it each month.)

I also have a lot of cash remaining in IRAs after receiving rollovers from an ESOP plan (former workplace). I can't use that directly for expenses now. I have used such cash in the past to buy into the market at maybe a lower point when I had to sell from the taxable at the same lower point for expenses. Now I'm waiting for that market low point — which, of course, we'll never know for certain (are we heading that way now or not?). I did recently make a couple of purchases into the market with that IRA cash, seeing good values.

Anyway, I'm content with going month-by-month if and when the market stabilizes, but I'll also likely keep stockpiling more cash quickly if I see a volatile market. Maybe someday I'll get tired of making cash monthly ever again, as others have suggested above, and always do it once a quarter or every six months.

 

[BruinBones]

Since I FIRE’d, I’ve been mostly selling from my taxable brokerage whenever my monthly pension didn’t cover what was needed.
Now that I am 60, I’m trying it a bit different this year. I took half of my projected annual need from taxable and placed in HYSA. I now transfer 1/12 from that HYSA to my checking once a month. I also withdraw and transfer that same monthly amount from my tIRA each month.
In effect, I get 3 “paychecks” a month: pension, HYSA transfer, and tIRA withdrawal. I’m hoping this helps smooth out my lumpy expenses throughout the year.

 

[indiajust]

I take it all on my birthday. If you are worried about sequence of returns, the recommended approach is to use a bond tent that rapidly scales up and down over about 8 years.

When I get around to inheriting, the IRA will roll the same way, just faster as I want it all done in about 10 years.

 

[Cobra9777]

I retired at 52 and DW at 56. Our withdrawal mechanics have evolved over the years as various income streams have come and gone. But here's where we are at 65:

The Baseline: Two pensions, one SS check (I'm still deferring mine), and taxable dividends. Those four sources cover 100% of our recurring monthly expenses.

The Lumpy Stuff: We don't keep a large cash reserve. We keep just enough in checking to handle the inevitable monthly lumpiness. So no extra transfers are needed for things like annual insurance renewals. ("checking" in our case is a MMF inside our CMA at Fidelity).

One-Offs & Taxes: For large expenses that don't hit every month, like property tax in January or a new car, I simply sell assets as needed to generate cash. Then rebalance if needed.

Our large, non-recurring expenses aren't really predictable enough to warrant a big withdrawal at the start of the year. I’d rather keep that capital in the market until I'm sure... unless I’m seeing a particularly bleak scenario in the tea leaves.

 

[orbops]

I just turned 59 1/2, so I took my first IRA distribution last month. My plan is to take out about 2 months of spending as needed. That way later in the year, I can decide which bucket to take my distributions: my Rollover IRA, or my Roth IRA, or my brokerage account depending on which tax bracket I want to be in.

 

[PointBreeze]

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?

This is exactly what we do. Most if not all of the spending $$ needed comes from a CD and Treasury ladder, so we never have to sell when we don't want to.

 

[Markola]

I used to believe in staying fully invested. However, the Fed’s response to the government’s COVID printed helicopter money-induced “transitory” inflation crashed my fixed income sleeve in 2022, which I was naive could even happen to my “ballast”. Then the government’s optional “Liberation Day” crashed my equities sleeve in 2025. Now we have an optional war and skyrocketing oil, and who knows what the swamp’s magic wand will conjure out of the hat next? Whatever it is, it probably won’t be good for my portfolio, so I’ve recently discovered the “Joy of One Year’s Cash as Washington, DC Insurance.” I’ve been trimming quarterly or so to maintain that full year’s cash cushion and its optionality, which is mathematically inefficient but emotionally fabulous for my ability to sleep. I obviously can’t predict the next moves of the DC crazy train we’re all strapped into. What I have learned is that everything will surely be different one year from now, at which time I still won’t be forced to do something I don’t want to if, whenever the next shoe drops, I still have one full year’s cash in front of me.

 

[srblanco7]

As a first year (really first quarter) retiree, this thread has been a great read. Certainly not a “one size fits all” approach - as one would expect when discussing personal finance.

We started with a quarterly funding plan - selling assets from my 401k (under the rule of 55) - noting that any sale is proportionate (that is, I can not choose specific funds to sell). Given that we’re now in negative territory on YTD returns, I was having a moment of regret that I didn’t do a larger withdrawal and just park it in a HYSA.

All that being said, this thread has reminded me that we’re in a good place, our proposed withdrawal rate is about 3%, good enough is ok, and “this too shall pass”. So I’m going to take the dog for a walk on the beach and chill out. Thanks all.

 

[kingfisher]

I plan to take all the money that I need at beginning of the year unless it's already sitting in an account that won't have much fluctuation

 

[jmb1855]

Backtesting or Studies on Withdrawal Strategies versus DCA-out

I had similar questions recently and did some analysis via AI