Withdrawal phase - Monthly vs Annually in Retirement?

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Gort
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Withdrawal phase - Monthly vs Annually in Retirement?

Post by Gort » Wed Dec 26, 2018 11:54 am

Friends,
Is their an advantage or benefit one way or the other concerning the method one chooses to withdraw from a 60/40 balanced portfolio in a traditional IRA in retirement? Specifically, is it better to make equal monthly withdrawals (based on the total annual amount desired) or make one annual withdrawal and put that in a cash account (and then withdraw equal monthly amounts from the cash account)? I'm thinking it probably doesn't matter much which method I use but your opinions are welcomed.
Thanks,
Gort

livesoft
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by livesoft » Wed Dec 26, 2018 11:58 am

I withdraw as needed, so that's not annually and that's not monthly. If one believes "time in the market", then withdrawing at the last possible second should on average give the best results, right?
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mpnret
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by mpnret » Wed Dec 26, 2018 12:20 pm

Gort wrote:
Wed Dec 26, 2018 11:54 am
Friends,
Is their an advantage or benefit one way or the other concerning the method one chooses to withdraw from a 60/40 balanced portfolio in a traditional IRA in retirement? Specifically, is it better to make equal monthly withdrawals (based on the total annual amount desired) or make one annual withdrawal and put that in a cash account (and then withdraw equal monthly amounts from the cash account)? I'm thinking it probably doesn't matter much which method I use but your opinions are welcomed.
Thanks,
Gort
For my RMD's I prefer once a year at the end of the year. That way your money stays invested tax deferred for the year. I also have my total tax (federal & state) deducted from that December withdrawal. That way no tax is deducted from any of my other income, no estimated tax payments are necessary, no penalties and you don't pay your tax till the end of the year. This only works if you don't need the money. Otherwise I would most likely take it out as needed or even monthly.

2015
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by 2015 » Wed Dec 26, 2018 2:36 pm

I'm in the "it doesn't matter" camp and based on that I chose a system I was both familiar and comfortable with. I place a year's expenses in high yield savings and transfer monthly expenses to checking. Simplicity allows me to focus on more important things.

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Gort
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by Gort » Wed Dec 26, 2018 3:00 pm

2015 wrote:
Wed Dec 26, 2018 2:36 pm
I'm in the "it doesn't matter" camp and based on that I chose a system I was both familiar and comfortable with. I place a year's expenses in high yield savings and transfer monthly expenses to checking. Simplicity allows me to focus on more important things.
Yes, that's what I did last year (my first year of withdrawls). I used Ally Bank. Worked well. Was just wondering if the grass was greener another way. Doesn't seem to be. Thanks.

CRTR
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by CRTR » Wed Dec 26, 2018 5:31 pm

As I am not taking RMDs yet, what makes the most sense is that I collect all ETF/Fund distributions into my money market fund as the year progresses (all in taxable account). I make up the short fall by either rebalancing or making the most tax-efficient withdrawals I can after the first of the year.
mpnret wrote:
Wed Dec 26, 2018 12:20 pm

For my RMD's I prefer once a year at the end of the year. That way your money stays invested tax deferred for the year. I also have my total tax (federal & state) deducted from that December withdrawal. That way no tax is deducted from any of my other income, no estimated tax payments are necessary, no penalties and you don't pay your tax till the end of the year. This only works if you don't need the money. Otherwise I would most likely take it out as needed or even monthly.
This is my plan in about ~12 years, when I start taking RMDs. It makes the most sense to me mathematically.

quantAndHold
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by quantAndHold » Wed Dec 26, 2018 6:22 pm

I'm in the "take it when we need it" camp. The first withdrawal of the year is usually the RMD, since we have to take that no matter what.

The Wizard
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by The Wizard » Wed Dec 26, 2018 6:33 pm

The bulk of my portfolio is in tax deferred, so I withdraw a fixed amount each month based on tax planning. Some of the monthly withdrawal is actually Roth conversion, but let's not make it complicated.

I keep nothing in a MM fund or savings account. If my checking account gets over $10k, then I tend to move the excess into my taxable investment account (VTSAX presently).

When I start RMDs in 2020, I shall continue this process except that the monthly amount will be RMD/12 and Roth conversions will cease...
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Nowizard
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by Nowizard » Wed Dec 26, 2018 6:34 pm

As usual, Livesoft makes a good point, but some of us have a more compressed time frame, having to withdraw annually due to being in the MRD stage. We make different choices based on spending needs and rebalancing decisions.

Tim

dbr
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by dbr » Wed Dec 26, 2018 6:56 pm

I don't spend exactly the same amount of money every month so I would not be moving around the same amount of money every month.

Also {same sentence with month replaced by year}.

hulburt1
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by hulburt1 » Wed Dec 26, 2018 7:19 pm

Every 7th,15,21I have money from my MM to my checking. If I don't need it I put in savings. If took out more then need I'll just stop the aromatics withdrew. I like having in a weekly pay check. I did not have any money taken out in Dec.

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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by The Wizard » Wed Dec 26, 2018 7:52 pm

dbr wrote:
Wed Dec 26, 2018 6:56 pm
I don't spend exactly the same amount of money every month so I would not be moving around the same amount of money every month.

Also {same sentence with month replaced by year}.
Well sure, all of us are like that, working or retired.
So the real question is, what do you do with excess income?

Now if you're retired with all or most of your portfolio in your taxable account, then the question is almost moot.
You can withdraw as needed from taxable similar to a checking or savings account.
Sadly, I'm not in that position...
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Broken Man 1999
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by Broken Man 1999 » Wed Dec 26, 2018 8:00 pm

I have started withdrawing on a monthly basis, sometimes a little, sometimes a lot. Works for us. I like having our portfolio contents working as long as possible before they are withdrawn.

Broken Man 1999
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DrGoogle2017
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by DrGoogle2017 » Wed Dec 26, 2018 8:16 pm

I usually withdraw about 2 times a year because I can see big expenses about 6 months ahead. After the New Year and around before year end. The exact time varies and the amount varies. Some year I have more international travel, I withdraw just before my trip. I would hate to be stranded in Europe without money in my checking account. But I don’t think it matters, not worth stressing about. I rather be flexible though and not too frequent about my withdrawal.

2015
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by 2015 » Wed Dec 26, 2018 9:29 pm

Gort wrote:
Wed Dec 26, 2018 3:00 pm
2015 wrote:
Wed Dec 26, 2018 2:36 pm
I'm in the "it doesn't matter" camp and based on that I chose a system I was both familiar and comfortable with. I place a year's expenses in high yield savings and transfer monthly expenses to checking. Simplicity allows me to focus on more important things.
Yes, that's what I did last year (my first year of withdrawls). I used Ally Bank. Worked well. Was just wondering if the grass was greener another way. Doesn't seem to be. Thanks.
I use Ally as well. The withdrawal grass of others isn't greener for me and I've chosen to do what I deem are much better things with my time on earth than reach for yield. Others feel differently of course and the only "right" way depends on each person's situation. I can afford to forego maximization for optimized simplicity.

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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by ruralavalon » Wed Dec 26, 2018 9:39 pm

Gort wrote:
Wed Dec 26, 2018 11:54 am
Friends,
Is their an advantage or benefit one way or the other concerning the method one chooses to withdraw from a 60/40 balanced portfolio in a traditional IRA in retirement? Specifically, is it better to make equal monthly withdrawals (based on the total annual amount desired) or make one annual withdrawal and put that in a cash account (and then withdraw equal monthly amounts from the cash account)? I'm thinking it probably doesn't matter much which method I use but your opinions are welcomed.
Thanks,
Gort
We take Required Minimum Distributions from my rollover IRA monthly, just as a matter of convenience. We have the RMD deposited in our joint checking account, at branch bank near our home.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

sawdust60
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by sawdust60 » Wed Dec 26, 2018 10:06 pm

A somewhat similar thread: viewtopic.php?f=2&t=266333#p4259556
-- perhaps RMD in January unless QCD plans.

MnD
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by MnD » Wed Dec 26, 2018 10:19 pm

Mix and match.........
Retired 3 weeks ago mid-50's.
My pension and my 401-K will be monthly draws starting January and February respectively.
My IRA, her rollover IRA and my taxable will be one annual draw per account, each staggered by 4 months.

retiredflyboy
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by retiredflyboy » Wed Dec 26, 2018 10:35 pm

I have the interest dividends and capital gains deposited monthly, quarterly, and yearly from vanguard bond and stock funds into b&m checking. This usually gives me my 3% withdraw, but can sell a few shares if needed in January of the next year. I think what is most important is to settle in on what is simplist and works best for you. Not yet taking RMD’s so that may change things a bit, not sure.
Facts are stubborn things. Everything works until it doesn’t.

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tuningfork
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by tuningfork » Thu Dec 27, 2018 12:30 am

I prefer simplicity over squeezing out every possible penny of return. Dividends and capital gains distributions from my taxable accounts are deposited directly to a high yield savings account. In December I sell some taxable shares to top off the savings account with next year's predicted expenses. A monthly automatic transfer from savings to checking gives me my monthly paycheck.

So far this has worked fine for me. December is the only time I have to look at my accounts to decide what and how much to sell, and I do that along with end of year tax planning and rebalancing. The rest of the year is mostly on autopilot, although a few times during the year I may have to manually transfer from savings to checking if there are larger than normal expenses. But it's a simple transfer, no decisions what to sell, no temptation for market timing.

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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by willthrill81 » Thu Dec 27, 2018 12:49 am

I plan to make annual withdrawals so we know precisely how much we have to spend for the next year. If you're withdrawing monthly, it's harder to do things like vacation planning because you don't know how much you'll have to spend.
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by SpaceCowboy » Thu Dec 27, 2018 4:21 am

I calculate the annual withdrawal amount in January using VPW and McClung’s method and decide on it. Then I take half in January and half in July and move it to a high yield account. Move monthly and as needed for big ticket items from high yield to checking. I also scrape the dividend and interest distributions in taxable as they occur into the high yield account and adjust the semi-annual withdrawal accordingly. No pension, no RMDs, no social security in my case as I retired early.

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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by Sheepdog » Thu Dec 27, 2018 4:30 am

I take out as needed thru out the year with a maximum goal. Some years I may take out more than that goal (usually for some large purchases or expenses) but always make that up in later years. Some years I take out less than that goal. VPW. you know.
It's not what you gather, but what you scatter which tells what kind of life you have lived---Helen Walton

dbr
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by dbr » Thu Dec 27, 2018 10:12 am

The Wizard wrote:
Wed Dec 26, 2018 7:52 pm
dbr wrote:
Wed Dec 26, 2018 6:56 pm
I don't spend exactly the same amount of money every month so I would not be moving around the same amount of money every month.

Also {same sentence with month replaced by year}.
Well sure, all of us are like that, working or retired.
So the real question is, what do you do with excess income?

Now if you're retired with all or most of your portfolio in your taxable account, then the question is almost moot.
You can withdraw as needed from taxable similar to a checking or savings account.
Sadly, I'm not in that position...
By excess income do you mean you don't spend all of the RMD from tax deferred accounts? In that case the answer is that you invest it in a taxable account. Technically just dumping it in a checking account and leaving it there is an investment in cash.

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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by Artsdoctor » Thu Dec 27, 2018 10:27 am

Gort wrote:
Wed Dec 26, 2018 11:54 am
Friends,
Is their an advantage or benefit one way or the other concerning the method one chooses to withdraw from a 60/40 balanced portfolio in a traditional IRA in retirement? Specifically, is it better to make equal monthly withdrawals (based on the total annual amount desired) or make one annual withdrawal and put that in a cash account (and then withdraw equal monthly amounts from the cash account)? I'm thinking it probably doesn't matter much which method I use but your opinions are welcomed.
Thanks,
Gort
Great question, and I think this thread should be bookmarked and watched over the next couple of years.

Over the past decade, it almost didn't matter how you took money out because we've had such a steady increase in assets. A total return approach was easy to follow because assets generally had only one direction--up.

Over the past month, I think you've had people finally realize that assets can go down as well, and the feeling is very different when you're in retirement. There's nothing wrong with maintaining a total return approach, but I suspect you're going to have a lot more discussions centered around a modified bucket approach.

Kitces describes multiple ways to extract money from retirement assets, and they're all very different. Take a look and see if one might fit your needs:

https://www.kitces.com/blog/retirement- ... statement/

dbr
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by dbr » Thu Dec 27, 2018 10:40 am

Artsdoctor wrote:
Thu Dec 27, 2018 10:27 am
Gort wrote:
Wed Dec 26, 2018 11:54 am
Friends,
Is their an advantage or benefit one way or the other concerning the method one chooses to withdraw from a 60/40 balanced portfolio in a traditional IRA in retirement? Specifically, is it better to make equal monthly withdrawals (based on the total annual amount desired) or make one annual withdrawal and put that in a cash account (and then withdraw equal monthly amounts from the cash account)? I'm thinking it probably doesn't matter much which method I use but your opinions are welcomed.
Thanks,
Gort
Great question, and I think this thread should be bookmarked and watched over the next couple of years.

Over the past decade, it almost didn't matter how you took money out because we've had such a steady increase in assets. A total return approach was easy to follow because assets generally had only one direction--up.

Over the past month, I think you've had people finally realize that assets can go down as well, and the feeling is very different when you're in retirement. There's nothing wrong with maintaining a total return approach, but I suspect you're going to have a lot more discussions centered around a modified bucket approach.

Kitces describes multiple ways to extract money from retirement assets, and they're all very different. Take a look and see if one might fit your needs:

https://www.kitces.com/blog/retirement- ... statement/
It has been discussed before: https://www.google.com/search?sitesearc ... al+methods

The idea that market prices go up and down all the time by varying degrees is pretty much step one in the whole discussion. Dealing with that goes back decades to Bengen, the Trinity Study, FireCalc, etc. Current students of the problem include Kitces, Pfau, the VPW scheme, and before that Milevsky, Reichenstein, and others. Swedroe is releasing a book on the subject soon and there is a precursor in Otar's book. A person can read all the stuff on buckets if they want, but I don't think there is any blinding insight there.

I don't know what this has to do with total return per se.

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Artsdoctor
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by Artsdoctor » Thu Dec 27, 2018 10:44 am

A total return method is one of many methods to withdraw money from your retirement portfolio. Some people are 100% in with the total return method, others eschew it altogether, and many use it in combination with other methods. Vanguard spelled this out in detail with one of their sentinel papers:

https://personal.vanguard.com/pdf/s557.pdf

dbr
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by dbr » Thu Dec 27, 2018 11:04 am

Artsdoctor wrote:
Thu Dec 27, 2018 10:44 am
A total return method is one of many methods to withdraw money from your retirement portfolio. Some people are 100% in with the total return method, others eschew it altogether, and many use it in combination with other methods. Vanguard spelled this out in detail with one of their sentinel papers:

https://personal.vanguard.com/pdf/s557.pdf
I disagree with that presentation because the term "total return" is already established as a method by which one accounts for the behavior of one's investments, namely by considering the primary role of the total of dividends and capital gains in understanding how one's investments will evolve in time. Using the same term in separating out withdrawal methods confuses people. To start with income investors still have to account for total return if they really want to know what is going on with their assets. As far as that goes, use of the term income is also off base for purposes of that particular discussion, resulting in additional confusion for those trying do financial planning. I think the paper pretty much ends up acknowledging both by points.
Last edited by dbr on Thu Dec 27, 2018 11:07 am, edited 1 time in total.

MnD
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Re: Withdrawal phase - Monthly vs Annually in Retirement?

Post by MnD » Thu Dec 27, 2018 11:05 am

Artsdoctor wrote:
Thu Dec 27, 2018 10:27 am
Gort wrote:
Wed Dec 26, 2018 11:54 am
Friends,
Is their an advantage or benefit one way or the other concerning the method one chooses to withdraw from a 60/40 balanced portfolio in a traditional IRA in retirement? Specifically, is it better to make equal monthly withdrawals (based on the total annual amount desired) or make one annual withdrawal and put that in a cash account (and then withdraw equal monthly amounts from the cash account)? I'm thinking it probably doesn't matter much which method I use but your opinions are welcomed.
Thanks,
Gort
Great question, and I think this thread should be bookmarked and watched over the next couple of years.

Over the past decade, it almost didn't matter how you took money out because we've had such a steady increase in assets. A total return approach was easy to follow because assets generally had only one direction--up.

Over the past month, I think you've had people finally realize that assets can go down as well, and the feeling is very different when you're in retirement. There's nothing wrong with maintaining a total return approach, but I suspect you're going to have a lot more discussions centered around a modified bucket approach.

Kitces describes multiple ways to extract money from retirement assets, and they're all very different. Take a look and see if one might fit your needs:

https://www.kitces.com/blog/retirement- ... statement/
I'm fine just withdrawing proportionally to maintain my AA. In the event of major market moves, rebalancing to maintain a given AA will effectively result in spending from fixed income when stocks are in the dumps and vice-versa. Buckets are either just mental accounting or require shifting your AA on the basis of short-term market performance and I have little interest in either of those. I also have access to the TSP G fund which is our primary fixed income holding so any other cash buckets other than a relatively small amount we keep in savings is suboptimal. I'm also a percentage of annual portfolio spender which is a far more effective mechanism for regulating over or underspending from ones portfolio than dipping out of various buckets. Been investing since 1986 so am very aware asset values go up and down. Do you think there are lots of retiree-aged persons who are unaware of that?

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