Where do you actually get your money in retirement?

[disneysteve]

I understand the big picture side of funding my retirement but I'd love if some of you could walk through the actual day to day nuts and bolts of how/when/where you draw your money from to pay your expenses in retirement. I realize it will vary person to person. It will depend on if you have a pension, if you're already taking SS, etc. So let's focus on a 57-year-old guy with no pension and not collecting SS yet. Wife is 58, also no pension or SS. We have cash accounts, taxable mutual funds, traditional and Roth IRAs, a small SEP IRA, a 401k, and an inherited traditional and Roth IRA. The inherited t-IRA has an annual RMD starting this year of so that piece is already handled. Assume that the portfolio is about 50% taxable, 50% retirement accounts.

How do we approach accessing our accounts beyond that? Do you start by drawing out income (interest, dividends, capital gains)? Or do you still reinvest all of that and just sell shares as needed? How do you draw from your cash accounts, if at all? What sort of schedule do you follow?

I hope my question makes sense. Basically, we have this 7-figure portfolio ready to go and I'm just trying to wrap my head around what happens when I actually retire and need to start spending from that portfolio. When the bills start coming in, where do I reach to get the money to pay them?

Thanks in advance.

 

[NgineER]

Not there yet - but I would assume that you would stop reinvesting in your taxable accounts as a first step. I'll let others add to more

 

[pb4uski]

As part of our "retirement portfolio" I hold abut a year of withdrawals + $15k in an online savings account that yields a paltry 0.4% (last time I looked). I have a monthly transfer from that online savings account to a local credit union checking account that we use to pay our bills... aka our monthly "paycheck".

I monitor the balance in the local credit union checking account, making sure it has enough to pay any outstanding bills. If we have any extraordinary spending and the checking account won't have enough then I do a special transfer. We have a few lumpy bills in November each year (property taxes and insurances) so I often need to do a special transfer in November, but I try to keep those special transfers to a minimum. I don't consider the checking account to be part of our retirement portfoio and it usually has a negligible balance ($5-10k).

Then toward the end of each year when I do our rebalancing I replenish the online savings account to next years spending + $15k.

 

[Bamaman]

I get a pension put into my checking account on the last working day of the month. My social security check is deposited on the second Wednesday. My wife's social security check is deposited on the third Wednesday.

If I run low of cash, I will write a check out of a Ford Credit money market savings account.

I've been fortunate in 13 years to not get into my IRA Rollover account, however RMD's are facing me this year. Now is when the tax man is my investment partner--wanting his share of the kitty.

I'll go online and move funds at Fidelity into a cash account and they will pay the Federal and State income tax withheld for me. And the rest will be wired into my checking account. Thankfully I have until the rest of this year to make the distributions.

 

[Souschef]

The answer is-it depends on an individual's circumstances. Some like us have the 3 legged stool: Social Security, pensions, investments.
Some people get dividends, some have RE income, some use their RMD's.
In our case, SS and pensions pay our expenses.
Right now our RMD is about 100K per year. That money goes to pay taxes, gifts to our 4 sons, and charitable donations (QCD).

 

[DawgMan]

Similar ages and no pensions. As can be seen on a current thread, I am wrestling with what cash position to initially hold. Right now, I'm thinking I will be fine with 1 - 1.5 years of cash with some occasional replenishing during the year IF markets are up. Otherwise, you probably want to start with what you know is going to be taxed annually... inherited IRA RMDs and naturally occurring dividends/CGs from your after tax accounts. Fill in the balance of your spend with your preferred strategy (i.e. scheduled rebalance, bucket strategy, Vegas winnings!)

 

[Which Roger]

Since needs and circumstances change each year, we don't do the same thing every year, but rather adjust to those changing needs and circumstances.
There are three main considerations for us, and we look at them together:
- How much spending money we need for the year,
- How much total income we want for the year,
- Annual rebalancing
As a simplified example, say we need 100k spending money but only want 50k income, and we need to sell stocks to rebalance. In this case, selling 100k of stock that has a 50k cost basis takes care of all 3 considerations.

 

[PaunchyPirate]

My situation is not all that different from the original poster. I am single, now 59, but retired at 56. No pension. No SS yet. I have no Roth IRA. I have a traditional IRA and a much larger taxable brokerage account. I'm not doing Roth conversions because I'm keeping my income low to get affordable health insurance.

I started retirement with about 2 years expenses in savings accounts. For the most part, I lived off that for the first 2 years. At that time, I reinvested all other income.

At the start of year 3, I turned off reinvesting and started to pull out that income as it came in to add to my spending money. But then, shortly after, I sold a second home that netted me about 2 more years of income. I put 1/2 of that in the savings accounts to replenish them and I invested about 1/2 of it in my taxable brokerage. Since I now have a sizable amount in savings again, I've been reinvesting income again.

I see 2022 as being covered by my savings accounts. In 2023, I will likely turn off reinvestments and start pulling that out for spending money as I wind down my savings accounts. I may need to finally sell something in early 2023 as well. That will be the first time (other than the second home) since I retired at the end of 2018.

After that, I plan on selling selectively to minimize capital gains as best I can. I doubt I will take SS until at least age 67 unless I start to feel the need for more income coming in.

 

[Green Papaya]

Our main focus is the tax impact on income. In general we built up a cash reserve prior to FIRE, enough for 2-3 years of living budget forecast, and turned off reinvesting dividends. Our main income comes from IRA withdrawal semi-annually to supplement the cash reserve, and sold equities only for tax loss harvesting.

If there is any unexpected large cost item, we just bite the bullet and withdraw more from IRA. Our future RMD will be fairly large so got to spend down IRA.

We are few years from SS and managing our income for ACA reason. Your situation may vary.

 

[Midpack]

No pensions (ever), no SS, no TIRA distributions and no RMDs yet. Probably TMI, but you said nuts and bolts:

When I retired I stopped reinvesting dividends and they all appear in our checking account as distributions now. That covers over 60% of our normal spending.

For the remainder of spending money, because our estimated taxes are pretty large with Roth conversions, I do “quarterly” withdrawals about the first of Jan, Apr, Jun & Sept. About two weeks before estimated taxes are due, I figure out estimated Fed & State taxes for the quarter, add X months worth of spending to the next withdrawal date, add any unusual major spending/deposits (e.g buying a car, replacing a furnace), add $5K desired ending balance for checking, subtract actual checking balance, and subtract estimated dividends/CGs coming in - and that’s my quarterly withdrawal.

I note our checking account balance every two weeks when we do ATM withdrawals for “allowance” (pocket money) and if the balance gets lower than I’m comfortable with early, I just make the quarterly withdrawal a little early. If too much (checking balance higher than needed) it just reduces that quarterly withdrawal accordingly. I’m sitting on a lot of cash at the moment so withdrawals are easy, online bank to local bank in 1-2 days, all done in seconds online. But I don’t expect my routine will change when I sell holdings or start taking SS and IRA distributions/RMDs, I’ll just add them to my “quarterly” calculus.

[I keep a simple spreadsheet (may sound hard to some, it’s really not) to keep track of all our dividends, CGs, tax exempt income, interest, Roth conversions, etc. and it automatically calculates Fed and State estimated taxes for me. On my first run thru taxes this morning I was off $5 on Federal and $179 on State for 2021 so my spreadsheet is pretty accurate.]

 

[Gotadimple]

This is what I did before social security kicked in.

Set up a virtual cash account that sets aside the value of social security in each year before you can take it. This will create a somewhat conservative portfolio to assure you have access to liquid assets.

1. Determine your cash needs (including above), and reduce your current holdings by that amount.
2. Look at the impact of that reduction on your asset allocation.
3. Rebalance your holdings including generating the cash you need for the year.
4. Your broker can arrange for monthly deposits from cash on hold with them, or you can take a yearly distribution that goes into a high-yield savings account.
5. You determine if the monthly distribution goes into your checking account. If you choose an annual distribution, you can arrange for transfers to come to checking from the high yield savings account.

There are many options, but the first thing you need to know is how much cash in reserve, and whether you want to have it come to you like a paycheck or in a lump sum.

 

[MichaelB]

We have no pension and minimum Social Security. All our resources are in the portfolio. In December I build a budget and at year end I transfer that amount from the portfolio to our bank. Between distributions and allocations our portfolio has enough cash to cover this.

 

[cathy63]

We are 2 years ahead of you in age and have been retired for 5 years. Also living off savings until we are old enough for SS and my little $9K/year pension. No inheritance, though that may become a factor someday.

We move money from our taxable brokerage account to our credit union checking account quarterly. The mechanics are during the first week of the quarter I sell enough "stuff" in the brokerage account so the proceeds plus whatever dividends have collected will equal our planned withdrawal; and then in the second week I do an electronic transfer to the checking account. Which stuff I sell depends on how much cap gains I want and what needs rebalancing. We are on ACA, so I do pay attention to overall income. During the pandemic, we've spent less than we planned, so the quarterly schedule has stretched out to taking the previous quarterly amount about 3 times a year. We'll probably go on like that until international travel resumes or expenses increase.

We do have a checking account attached to the brokerage account, but I prefer to use the credit union account for paying bills. I set all our regular bills on auto-pay and they pull from the checking account, so I want that completely separate from the majority of our savings, even though there's never been a problem. This way the maximum that's at risk is one quarter's expenses.

We will both be 59 1/2 by later this year, so we might rethink things and start pulling from the IRAs next year. I suppose the mechanism will be the same. Maybe move money from the IRA to the taxable brokerage cash account and then the same steps to get it to the credit union checking account.

 

[audreyh1]

I understand the big picture side of funding my retirement but I'd love if some of you could walk through the actual day to day nuts and bolts of how/when/where you draw your money from to pay your expenses in retirement. I realize it will vary person to person. It will depend on if you have a pension, if you're already taking SS, etc. So let's focus on a 57-year-old guy with no pension and not collecting SS yet. Wife is 58, also no pension or SS. We have cash accounts, taxable mutual funds, traditional and Roth IRAs, a small SEP IRA, a 401k, and an inherited traditional and Roth IRA. The inherited t-IRA has an annual RMD starting this year of so that piece is already handled. Assume that the portfolio is about 50% taxable, 50% retirement accounts.

How do we approach accessing our accounts beyond that? Do you start by drawing out income (interest, dividends, capital gains)? Or do you still reinvest all of that and just sell shares as needed? How do you draw from your cash accounts, if at all? What sort of schedule do you follow?

I hope my question makes sense. Basically, we have this 7-figure portfolio ready to go and I'm just trying to wrap my head around what happens when I actually retire and need to start spending from that portfolio. When the bills start coming in, where do I reach to get the money to pay them?

Thanks in advance.

We have no pensions, SS or IRA income yet.

I don’t automatically invest dividend/distributions, so that builds up some cash in the taxable brokerage account during the year, most of it in Dec.

In early January I withdraw a predetermined amount from the portfolio. If I have to sell some assets to cover it, I do so. Then I rebalance the remaining portfolio if needed.

The withdrawn cash goes into a high yield savings account. Every month a good chunk to cover regular expenses is automatically deposited in a checking account. I also set aside an amount to cover estimated taxes to be paid during the year.

Been operating this way for over 20 years. Works for me!

 

[ocean view]

Since we are living off our taxable account funds all dividends/distributions in that account are not reinvested. We keep 2-yrs of expenses in cash in the taxable account. Automatic transfers are in place to move an amount equal to 1/12 of expenses (excluding property taxes) from VG to our checking account on the 1st of each month (payday). For property taxes I make discrete transfers twice a year. Occasionally, if spending dictates, I make an extra transfer or skip a transfer depending on the balance in checking.

At the start of the year I rebalance and refill my cash bucket. I also analyze my spending in detail at the end of each year to determine if my annual needs have changed.

In December 2021 I increased my paycheck by $500/mo, after cutting it a little too close for a few months. Part of the increased spending was for inflation, part was for college expenses not covered by 529s.

We are also 57 and retired 7 years.

 

[W2R]

The first money I spend is the cash that gets deposited automatically into my checking account every month. I regard these deposits as rock solid since all three come from the federal government (and if that fails, all else is up for grabs):

(1.) Social Security
(2.) mini-pension, and
(3.) equal monthly withdrawals from my TSP (=401K). I arranged these withdrawals to be big enough to cover my RMDs.

Anything over that (maybe $100/months) is paid for out of my taxable dividends.

I am older with very established habits, so even though I spend whatever I want for a happy life, usually that is about what I always spent and not too extravagant. The rest of my taxable dividends are reinvested.

I like doing this for several reasons. One is that when people talk about various end-of-the-world-as-we-know-it scenarios, generally I don't feel any need to worry because I can easily live on my three rock solid monthly deposits if I need to, without cutting back very much. My house and car are paid off and so is everything else, and I don't have a whole lot of big expenses.

To answer your original question, to bridge the time period between retirement and when my SS and so on were to kick in, I saved a lump sum in the bank to "pay myself" amounts equal what I expected from them. I didn't regard this lump sum as part of my portfolio. The time period which you will have to bridge this way will SPEED by faster than you can possibly imagine, or did so for me anyway.

 

[Ronstar]

I get a ss deposit and annuity deposit into my checking once a month. If I need more money to pay bills, I take some out of money market. I’ve never taken $ out of my IRA.

 

[Major Tom]

I'm in a similar position to you, disneysteve. I'm 58 with no pension, and a few years away from SS. My portfolio is all mutual funds. About 2/3 of them are in a taxable account, and the other 1/3 in an IRA and Roth IRA. Because of my age, I am not yet receiving SS, or accessing either of the IRA's. I have enough in the taxable account that I do not need to do a 72t to access the IRA's early.

All the dividends in my taxable account are set to automatically deposit into a (relatively) high interest savings account. At the end of every year, I sell enough funds from my taxable account to make up the difference between the dividends from my taxable account, and what I need in order to live for the coming year. Every month, I transfer monthly living expenses from savings to checking.

It's a simple system, that has worked out well over the last 10 years or so.

 

[COcheesehead]

I am 59 and have a muni bond ladder in my taxable account. It throws off in interest and maturing bonds an amount which is about 10%-25% - tax free - more than my retirement budget. The funds are deposited into my taxable account almost monthly where I pay all my bills from. Anything extra is reinvested. All my deferred accounts and equity ETF’s in my taxable account are left to ride longer term.
The ladder extends into our full social security benefit years.

 

[rodi]

My situation is as follows.

Me: age 60, Hubby age 70.

Cash sources that hit every month:
- Rent from our ADU/Granny flat
- Hubby's SS
- my small pensions (I'm talking really small - less than $500/month total)

We need a bit more than these provide, and like the OP, I have an inherited t-IRA that has RMDs

I pull 1/4 of the annual RMD every quarter, having taxes withheld. I actually withhold a bit extra because we have the rental income coming in that has not had taxes withheld. This seems to work so I don't have to file quarterly taxes.

That 1/4 RMD then gets transferred to my checking account in 1/3 increments (so 1/12 of the annual RMD) each month.

I am in the Roth conversion mode now - so I'm only touching my t-IRAs to do Roth conversions. Taxable savings covers anything extra.

For me, I like having the money hit my checking or savings cash accounts every month. Some months I have extra... but other months I need to dip into that extra (hello property taxes and insurance bills.) It works for me.

 

[sengsational]

Maybe it's my training as an industrial engineer and all of the "stock replenishment" models I worked through, but I just wait for the level to drop to a trigger level, then do a transfer. My asset allocation is also controlled by level triggers rather than by time triggers. I do have an annual Roth conversion in December, which I often use an excuse to rebalance to asset allocation targets, but my approach is mainly "event driven".

 

[RobbieB]

I collect a small SS survivor bene and dividends through the year. In January I hit the TIRA and the after tax equity accounts hard.

 

[marinauser]

We have a small pension income and no SS yet. Other than that, we have turned off all revinvestment of dividends and capital gains in our taxable Schwab account. Our goal is to have about 1.2 times our estimated expenses for the year in cash on Jan 1 in that Schwab account. If dividends and capital gain distributions do not get us there, then I would sell assets to get us to that amount and maintain our asset allocation. If distributions exceed that amount, then the excess is reinvested to maintain the desired allocation. During the year, any interest or dividends become case in the taxable account and help keep a buffer in that account. If I have low income in a year, I may take a small amount out of an IRA to take advantage of a low marginal rate. Since 2015, this has worked well for us. To keep an additional margin of protection to a down market, we keep a year's expenses in an IRA in a cash equivalent. We use a credit card for almost all expenses and pay that and utilities and other recurring bills through the Schwab bill pay. We only use a bank account for ATM cash needs or to cash a check and can transfer money to that account directly from Schwab electronically. Charitable gifts are now made through a Schwab Charitable fund that we established and fund with transfers of our most apprciated assets in the taxable account when needed.

 

[CyclingInvestor]

63, retired 15 years, divorced, started SS at 62, no pension
96% in trad IRA, 4% in Roth (100% stocks), taxable acct spent out

Each quarter I convert accumulated dividends from tIRA to Roth, buy stocks in Roth with excess, move $$ Roth to checking acct as needed. Taxes withheld directly from Roth conversion.

In December, sell enough stock to meet my Roth conversion goal for the year, and rebuy the stocks in my Roth.

 

[Montecfo]

No pension. No SS yet.

I only draw from taxable account-so far. I do not reinvest dividends (but then never have in taxable as it is too messy).

I maintain 1.5 - 2 years of cash in a saving account yielding 1 percent. I have automatic withdrawals from that account twice monthly tied to a generous estimate of my expected spending. That funds my checking account.

I replenish the cash account via stock sales (taxable account is 100 pct dividend paying stocks). As an active stock investor, I may at any given time be selling something and use some of those proceeds to replenish cash.

I do not balance once annually. I do it more tactically since I am active.

All seems to work so far.