withdrawal strategy during retirement

Simplegirl and others:

The links provided by you and others were helpful. I'm planning a trip to the bookstore to browse :).

I'm aware of the Lucia "buckets".

Which Armstrong book(s) would you all recommend?

What other books would you recommend?

I already have several of the Slott books, but as you know, he deals with ira issues...I'm looking for strategies for withdrawl from combination of iras AND taxable accounts.



Thanks,

kd
 
kobydog,

Yes. I believe you're correct. Of course I tend to wait until the end to do and file taxes, a response to doing something I find unpleasant. Perhaps I can force myself to do it early this year.
 
kobydog said:
Simplegirl and others:

The links provided by you and others were helpful. I'm planning a trip to the bookstore to browse :).

I'm aware of the Lucia "buckets".

Which Armstrong book(s) would you all recommend?

What other books would you recommend?

I already have several of the Slott books, but as you know, he deals with ira issues...I'm looking for strategies for withdrawl from combination of iras AND taxable accounts.



Thanks,

kd
Click to expand...

So any decisions yet. One word of caution I think that when planning sometimes we try to find the "BEST" strategy for our money and I really don't think that one exists. You might try to maxzimize returns, minimize taxes and do it all presereving your captal. There are so many factors and variables involved that you can easily end up frustrated. I'd keep it fairly simple, decide on an allocation and use the after tax dollars early on in your retirement to minimize taxes and allow your tax deferred stuff to grow.
 
Nun,

I believe you are correct. The simpler, the better.

I found this reference from Vanguard site to be VERY helpful in setting the priorities straight:
Spending From a Portfolio: Implications of a Total-Return Approach Versus an Income Approach for Taxable Investors Spending From a Portfolio: Implications of a Total-Return Approach Versus an Income Approach for Taxable Investors

Basically,

1. I will max out my tax-deferred portfolio with tax-inefficient stuff (some FI, REIT's, etc). Since I have set my AA at 55/45 (equities/FI), and my taxable portfolio is 2X the size of my ira's this will necessitate having some FI in my taxable portfolio...and I will use the income from the FI portion of this portfolio to supplement my living expenses.

2. I'll "top off" the rest of my living expenses with dividends from equities and liquidated equity holdings in the taxable account.

3. I'll convert as much tira to roth each year as possible, staying within the 15% bracket (although this will increase my "expenses" , I think it is well worth the expense).

4. Rebalance to maintain AA as needed.


The downside to this approach is if we see a number of years of market underperformance...and I'll be liquidating equities (to maintain my spending needs) at the "wrong" time :(

What do you guys/gals think?

kd
 
kobydog,

Your point 4 is to "Rebalance to maintain AA as needed". Wouldn't you use withdrawals as the first step toward rebalancing, taking funds from whichever side of your AA did best in the prior year? That's just the inverse of what you probably did when you were accumulating, right? I.e., adding funds to the down assets.

That would also address your concluding concern -- "if we see a number of years of market underperformance...and I'll be liquidating equities (to maintain my spending needs) at the "wrong" time".

In up market years, you would WD from taxable. In down years, from tax deferred.
 
kobydog said:
Nun,

I believe you are correct. The simpler, the better.

I found this reference from Vanguard site to be VERY helpful in setting the priorities straight:
Spending From a Portfolio: Implications of a Total-Return Approach Versus an Income Approach for Taxable Investors Spending From a Portfolio: Implications of a Total-Return Approach Versus an Income Approach for Taxable Investors

Basically,

1. I will max out my tax-deferred portfolio with tax-inefficient stuff (some FI, REIT's, etc). Since I have set my AA at 55/45 (equities/FI), and my taxable portfolio is 2X the size of my ira's this will necessitate having some FI in my taxable portfolio...and I will use the income from the FI portion of this portfolio to supplement my living expenses.

2. I'll "top off" the rest of my living expenses with dividends from equities and liquidated equity holdings in the taxable account.

3. I'll convert as much tira to roth each year as possible, staying within the 15% bracket (although this will increase my "expenses" , I think it is well worth the expense).

4. Rebalance to maintain AA as needed.


The downside to this approach is if we see a number of years of market underperformance...and I'll be liquidating equities (to maintain my spending needs) at the "wrong" time :(

What do you guys/gals think?

kd
Click to expand...

KD, thanks for posting that link. Great article. We too have concerns about when you have to liquidate equities during down year(s); however, since you'd be buying similar equities in your non-taxable accounts (via selling bonds/other investments that are doing better) to keep your AA, wouldn't it all come out essentially the same?? I did read in the article that you have to be careful of "wash sales", so does this mean you have to wait 61 days to buy similar equities within your non-taxable account?

Hope this makes sense. Thanks for getting my brain thinking on this.
 
simple girl asked:

"I did read in the article that you have to be careful of "wash sales", so does this mean you have to wait 61 days to buy similar equities within your non-taxable account?"

That is correct...you can't purchase "similar" equities 30 days before, day of or 30 days after sale of equity (30+1+30=61).

baldeagle:

I agree ...I'll use withdrawals as much as possible to maintain AA

In up years I would liquidate equities in taxable (since most of my equities will be in taxable)...in down years I would liquidate FI (in taxable as my 1st choice, then tax deferred portfolios)...all in the spirit of maintaining appropriate AA.
...all the while trying to maintain my slice and dice allocations for FI and equity assets!!

kd
 
wash sales are trivial to avoid as has been discussed here from time to time. "Similar" investments are allowed, but not "substantially identical". So I've never had a problem avoiding wash sales. For example, sell DLS and buy GWX. Sell EEM and buy VWO. They are similar, but not substantially identical.
 
LOL!,

What's a good one for VTI (Total US market?)...maybe Spy (S%P500), then after wash sale time has elapsed, sell SPY and repurchase VTI?? (I hate the multiple transactions, but I'm serious.)

kd
 
How about IWV, the Russell 3000 index?
 
I would say that withdrawal strategy after retirement should be similar to before retirement- just be sure to get it out in time!

Ha
 
Although VTI is a larger US market sampling (MSCI US TSM) than Russell 3000, I really don't know if you can get away with it.

I've read that the rules are somewhat vague about what's similar and what's not.

I guess you could argue that the 2 indices are different. It sounds quite reasonable to me ^-^, but might not sound as reasonable to our pals at the IRS :bat:.

kd
 
Wash sales and TIRA -> Roth conversions

A couple of quick points about which there may be some confusion earlier in this thread.

TIRA to Roth conversions must be made in the same calendar year the resulting taxable income is recognized. If you make a conversion between Jan. 1, 2007 and April 15, 2008, the conversion amount will be reported to the IRS as income for the 2008 tax year.

Wash Sale rules have no effect unless you are selling at a loss. If you have a capital gain on a sale, the IRS wants its capital gains tax and does not care at all what else you buy or when you buy it. Wash Sale rules only effect the deductibility of losses.
 
We have a mismash of pre-tax accounts that will be used to fund our living expenses and (toys) until we start withdrawls from our IRAs. We also have a variety of MM funds and Index funds where cash is stockpiled for the next 3-5 years of expenses before I have to start selling off the after tax portfolio. After that, we should be pretty near SS age and will see how things are going on if one or both of us starts SS at age 62.

If we can meet expenses with SS and cash from after tax sales we may not have to touch all the IRAs until required. More likely we will start drining the biggest ones prior to RMDs to keep them more tax efficient. What we don't spend goes back into aftertax portfolios again and more toys.

My projections show we should have a 6 figure income during most of our retirement and still have a pile to give to kids and charity.

Asset allocation various by account. My major IRA is about 60/30/10 with the 60 divided up over several sectors. The 20 are real bonds and not funds and the 10 is cash in either CDs or MM accounts.
My after tax portfolio began as a learning experience and somehow actually increased in valve to the point that I am looking as some major LT tax amounts when I do sell some of the winners. The assets from these sales will keep us in high cotton for over 10 years. This leaves the IRAs intact to continue to grow for 10 more years if we need them to. Our expenses will be down 30% by then so we may just be OK on SS and our other cash assets.
 
TIRA to Roth conversions must be made in the same calendar year the resulting taxable income is recognized. If you make a conversion between Jan. 1, 2007 and April 15, 2008, the conversion amount will be reported to the IRS as income for the 2008 tax year.
Click to expand...
Agreed, except that I think ExHermit meant to say "between Jan 1, 2008 and April 15, 2008". And would be in the 2008 tax year for any date in 2008.

In the case of the OP, I recommend modelling your situation with a spreadsheet, accounting for taxation of SS benefits and capital gains taxes. With the model, you could decide whether it's to your advantage to delay SS while you convert. Also to determine how much of your tax-deferred funds you want to leave that way.

Without knowing the specifics of your situation, would suggest that its possibly to your advantage to:
  • Leave some tax-deferred funds that way, since some income is not taxed due to deductions and exemptions. (I've seen where some people think they should convert every penny to Roth IRA before retirement, and no mention of a pension of other taxable income.)
  • Delay SS benefits until you're done converting.
  • Consider performing more conversion as soon as possible, as income tax rates are likely to go up.
When looking at current marginal tax brackets to decide how much to convert, don't forget about effective marginal tax brackets if SS benefits are taxed. If you're in the 15% bracket but 85 cents of SS benefits are taxed for every dollar of other income, you're really in the 1.85 x 15 % bracket or 27.25% bracket. So if that will be your situation it would be to your advantage to convert now even in to the 25% bracket.
 
Think about longevity

Take the conversion opportunities when you can to limit your tax exposure.

60/40 mix for a 60-year old probably will probably work if you plan to live for 15-20 years. Medical science is doing a pretty good job of making retirements longer. Inflation could be a bear to keep up. Go to the Monte Carlo simulation link and run the scenarios with a 60/40, 70/30, and 75/25 mixes with the money lasting until age 90. Pick the one you're comfortable living with.

Run those simulations a number of times. The risk to consider here is the sequence of returns -- what happens if you have low or negative returns early in the plan window vs. sometime late in life -- retire in 2001 after the bubble broke or retire this past summer.

Your other option is to put that part of portfolio with higher risk in a product that guarantees return and/or distribution benefit.
 
busted!

My "wahoo" is because my wife is a UVa grad.

I saw the life/LTC post from a Google alert on another topic this morning. I apologize if talking about life insurance or annuities (where appropriate) is considered selling here, because that wasn't my intent or what I thought that I had done.

Turning retirement assets into retirement income is a process that inherently has a lot of moving parts. Taking some of the uncertainty off the table should be a part of the process -- however you do it.
 
Is that what I keep hearing referred to as "the good old days" at Reunions?:)
 
Engineering,

What type of a spreadsheet are you thinking of? I'm truly DUMB :confused: when it comes to stuff like spreadsheets (I'm not an engineer!) Your advice would be appreciated. I scanned your website, but couldn't find that info. Perhaps I missed it.

ExHermit,

Thanks for the correction (obviously you a lot more about conversions than I do)...can you comment on the "recharacterization" of converted funds back to tira? Is it difficult? I thought that it could be done between Jan 1, '08 and April 15, '08 for conversions done in '07. Is that correct?

Thanks,

kd
 
wahoo_tiger said:
Is that what I keep hearing referred to as "the good old days" at Reunions?:)
Click to expand...
  • 80 mile hitchhiking trips to Randolph-Macon, Sweetbriar and others.
  • Most rides offered by Daryl and his brother Daryl in the bed of their truck.
  • Most such rides included empty beer bottles tossed by abovementioned Daryl into the bed of the truck.
  • Often such rides failed to stop at the requested destination, so you had to jump out at a red light, then run like hell. This was OK because our state of sobriety allowed us to do so with minimal physical pain.
  • Women liked UVa men for the most part, but their mothers didn't.
  • Hormones ran amuck.
  • However, I met my wife of 37 years on such a trip so it was worth it.
Yup, the good old days. :D
 
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