Question about drawing retirement income from IRA

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Question about drawing retirement income from IRA

Postby rixer » Sun Dec 30, 2012 12:21 pm

Hi, I can't seem to find the info I'm looking for. I'm just beginning to prepare on how I will receive my income from my retirement funds.
Let's just say I want to use the 4% rule for retirement income. Are there any systems somebody can refer to me on how best to draw down? Would you take it all once a year and rebalance or would you have dividends/interest sent to another account as they are paid and sell what additional you need to make up next years income?

Any help is greatly appreciated!
Thank you.
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Re: Question about drawing retirement income from IRA

Postby livesoft » Sun Dec 30, 2012 12:36 pm

There is no best way to draw down, so if you are looking for that, I hope you don't find it because it might be a scam.

I would do the latter thing you mentioned: Have dividends and distributions (if less than 4%) sent as they occur in a cash account like a money market fund or checking account. I would spend or reinvest as needed and occasionally sell whatever was "high" in order to effect rebalancing and withdrawal at the same time.

Some folks don't like to work this way. They like to work in "paycheck mode" where they have an amount automatically sold every month or quarter and deposited into their cash account with some occasional one-time withdrawal for cars, property taxes, vacations, donations to charity, conversions to Roth IRA, etc.

Or perhaps a mix of various methods with an eye to minimizing taxes.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Question about drawing retirement income from IRA

Postby Copper John » Sun Dec 30, 2012 10:33 pm

I have been retired a year and am doing your second option. I have an online savings account earning just under 1% interest and that is my account I use for daily expenses. I have a balance in that account equal to approximately year and 1/2 of expenses. I do not reinvest dividends, interest and capital gains from my taxable brokerage account and instead transfer those funds to my savings account.

When my savings account drops to approximately 6 months of expenses I will replenish it by selling stocks/bonds in my taxable account. I will continue this until my taxable account is depleted and then will go to my tax deferred account. I am also withdrawing a lump sum that still keeps me within the 15% tax bracket from my tax deferred account annually. These funds are not spent immediately and go into a Roth account.
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Re: Question about drawing retirement income from IRA

Postby FinancialDave » Sun Dec 30, 2012 11:14 pm

It really depends on whether you have a taxable account or are drawing from some other tax advantaged accounts and also how the income is generated.

It is of course useful to have a year or so in cash as a cushion, but in my case the income comes totally from stock dividends so I don't have to sell anything. I just pull out my monthly allocation from the IRA and send it to my checking account. The dividends of course are not reinvested so they just fill up the cash buffer. Because the dividends are not leveled completely month to month there is also a cash buffer in the IRA as well.

I am sure there are many different ideas buried in this forum on different "bucket plans" (I basically have 2 main buckets, one for the income, and another totally for growth.) Morningstar also has had a number of articles on this subject, but as mentioned, there is not one plan that works for everyone.

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Re: Question about drawing retirement income from IRA

Postby rixer » Mon Dec 31, 2012 11:49 am

Thank you all for the replies.
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Re: Question about drawing retirement income from IRA

Postby ourbrooks » Mon Dec 31, 2012 12:02 pm

You mean the 3% rule, don't you? The 4% number only applies if stock returns are close to historical averages and if you think you will need money for less than 30 years. For a couple, both age 65, there is a 90% probability that at least one member of the couple will live 35 years.

The 4% rule also assumes a fixed stock/bond allocation of somewhere between 80/20 and 30/70 stocks/bonds. If you're doing "age in bonds" the rule doesn't apply.
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Re: Question about drawing retirement income from IRA

Postby mickeyd » Mon Dec 31, 2012 3:22 pm

I assume that OP is refering to to IRA-type funds.

I have pondered this situation for myself and plan on making withdrawals at RMD time in a couple of years on a quarterly basis (as opposed to annual or monthly), but I don't need the money to live on, so I may actually reinvest all or part of it into my taxable joint TSM account which generates cash dividends quarterly and sends them to my checking account so I can blow it on whatever...
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Re: Question about drawing retirement income from IRA

Postby Peter Foley » Mon Dec 31, 2012 3:42 pm

There is a planner at http://www.i-orp.com that you might wish to consult. I believe it will help you to decide from which accounts to withdraw (taxable or tax deferred). I've not checked it out myself because I have access to a similar planner through my brokerage account.

Edit: I tried out the planner I mentioned above - it does not have the flexibility to provide different returns based on alternative withdrawal strategies. The software available to Schwab clients allows one to set up a sequence of withdrawals (taxable then tax deferred then Roth) and gives you an estimated balance at the end of X number of years. You can then change the sequence, for example tax deferred before taxable, and it will then provide a new estimated balance.

I think this type of sequencing is more important than when you take withdrawals during the year.
Last edited by Peter Foley on Mon Dec 31, 2012 6:39 pm, edited 1 time in total.
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Re: Question about drawing retirement income from IRA

Postby Cut-Throat » Mon Dec 31, 2012 6:19 pm

ourbrooks wrote:You mean the 3% rule, don't you? The 4% number only applies if stock returns are close to historical averages and if you think you will need money for less than 30 years. For a couple, both age 65, there is a 90% probability that at least one member of the couple will live 35 years.

The 4% rule also assumes a fixed stock/bond allocation of somewhere between 80/20 and 30/70 stocks/bonds. If you're doing "age in bonds" the rule doesn't apply.


No it Doesn't !.......The 4% rule was a 'Worst Case' Rule......Not by any means made up of 'Historical Averages'......It is Historical Worst Case Situations....Like 1929 or 1966 for a 30 year retirement.....
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Re: Question about drawing retirement income from IRA

Postby rixer » Mon Dec 31, 2012 7:34 pm

ourbrooks wrote:You mean the 3% rule, don't you? The 4% number only applies if stock returns are close to historical averages and if you think you will need money for less than 30 years. For a couple, both age 65, there is a 90% probability that at least one member of the couple will live 35 years.

The 4% rule also assumes a fixed stock/bond allocation of somewhere between 80/20 and 30/70 stocks/bonds. If you're doing "age in bonds" the rule doesn't apply.


I know what you're saying but I am interested in the method of drawing out, the 4% is just a number.
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