Statch wrote:I think I get this for the accumulation phase, but for some reason I'm still having trouble with the idea of using it as a method for making regular (monthly) withdrawals in retirement. Don't people normally maintain their AA by disciplined rebalancing based on what happens to their asset allocation because of what's happening in the market, not because they want to take money out of a particular type of account (based on tax privileges or not)? I see that it's more tax efficient to have things the way I've had them, and that those tax savings are real money and have compounded for me over the years, but it seems like I might have been better off to hold both stocks/bonds in each type of account, to have the flexibility to choose whether to take stocks or bonds in any particular month as I work my way through taxable first, then tax-advantaged.
Maybe it would be helpful to work this out on a piece of paper to make it more palpable to yourself. Start with a suitable AA across accounts; sell stocks here; convert bonds to stocks there; end with a suitable AA across accounts. AA maintenance is controlling your risk regardless of where the risk comes from: market movements, changes in your life, tax complications. If at the end of the operations you have your investments they way they should be, you're good.
However, there's a deeper subject here. Dollar cost averaging during accumulation is beneficial because you buy more shares when the market is down and fewer when it's up. During withdrawal it's the other way around, so DCA is harmful. I've been thinking about a reasonable strategy for that, and so far the best I've come up with is that I will maintain a cash buffer (maybe 1-2 years of expenses) and sell an equal portion of the portfolio each year regardless of valuation (the way that works is: sell 1/40 in year 1, 1/39 in year 2 and so on). If the buffer goes below 1 year of expenses, adjust lifestyle.