Withdrawal Approach

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NearlyRetired
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Withdrawal Approach

Post by NearlyRetired » Wed Sep 18, 2019 12:00 pm

Hi All

I am after your thoughts on how best to proceed with withdrawals as I move into retirement.

Background
At the start of this year, I consolidated all my various pensions into 3 separate funds and left them alone - no further contributions or withdrawals or changes.
During the course of the year, I have been fortunate enough that the funds have grown to the extent that the gains currently made more than cover 12 months of planned expenses.
So, I have consolidated those gains by moving this value out of the investment area and into a cash area for future use. Whilst I appreciate that this has the potential for me to lose out on some gains in the future, it also gives me peace of mind, knowing I do not need to touch my investments for another 12 months and still enjoy my planned retirement, leaving the invested cash to (hopefully) grow over that period, before I revisit the investments.
I have taken this approach, because I do not expect the investments to always provide a return as good as this, but for each year that they do, it is one less year until SS kicks in, so it feels like a good strategy for me.

Question
I would welcome your thoughts on where to withdraw money as my investments start providing my retirement income.
Do I withdraw from the cash area on a monthly basis, thus leaving the investments for 12 months before I revisit them or
Do I withdraw from investments on a monthly basis as long as any withdrawal would not reduce investments below their original values (and take from the cash area where it would do to make up the difference) or
Some other strategy.

Any thoughts, insights from yourselves would be most welcome.
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JoinToday
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Re: Withdrawal Approach

Post by JoinToday » Wed Sep 18, 2019 1:14 pm

I think what you are doing is market timing (on a small scale). Taking money out of the market when it "appears" like the market has done well and you feel like the market is going to under perform in the future is market timing. If this helps you stay the course or lets you sleep well at night, it isn't a big deal in my opinion.

You are essentially selling equity (a year's worth of expenses) to slightly increase your fixed portion of your AA based on emotional expectation of the market. In the end, it probably won't help you much, and won't hurt you much.

My investments are 60% equity : 40% fixed. This is everything, including cash. Others do not include cash/emergency fund. This is just how I count my asset allocation

Included in the 40% fixed is my checking account, MMF, bond funds. (my cash + MMF is approx 0.2% of my assets) I just take money out of the piece that exceeds my asset allocation. So if the stock market drops, bonds will naturally have a higher portion of my AA. I then remove money from my bond portion. If equity is doing well, I withdraw money from my equity portion.
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Re: Withdrawal Approach

Post by Tyler Aspect » Wed Sep 18, 2019 1:49 pm

Some people withdraw once per year, while other people withdraw 2 times a year, and there are other people who withdraw 4 times a year. It all depends on personal preference.
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soccerrules
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Re: Withdrawal Approach

Post by soccerrules » Wed Sep 18, 2019 2:06 pm

Pensions ? or Investments ?-- a little confused.

I am 5-6 years away from pulling the plug on the monthly earned income. Here is my plan (could change)

I will likely have 2 years of living expenses in fixed income (CD ladder, TIPS and cash). The rest of my assets will be in a 3 fund portfolio with a likely AA of 55/45 to 65/35. I will then likely take monthly and/or quarterly withdrawals from the invested assets to fund our desired living expenses. if/when there is a market correction then we have the ability to use the fixed income "bucket" (and reduce discretionary spending) to replace the drawn down of our market invested assets, until the market recovers.

Expect to delay SS to age 70 with a low projection of our combined benefit at $45K, thus a reduction in need to withdraw from portfolio to fund expenses.

It appears you are choosing to create a fixed income "bucket" as you go from the market gains. That is one way to go, if it continues to play out for you-great.
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NotWhoYouThink
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Re: Withdrawal Approach

Post by NotWhoYouThink » Wed Sep 18, 2019 2:13 pm

You could stop re-investing dividends, and use the cash from the dividend and interest payments to fund your spending needs, then sell whatever you need to sell to get back to your desired AA.

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Re: Withdrawal Approach

Post by 3feetpete » Wed Sep 18, 2019 4:13 pm

I have been living off of my IRA's for the past two years and plan to for 2 1/2 more. I have been taking my dividends as cash and selling investments as needed and used the sales as an opportunity to rebalance. However, I haven't been strict in maintaining my AA. When stocks have hit highs I have sold stock funds even though it has caused my AA to be off by a couple of %. Some may call this market timing but to me it just makes sense. Especially since I have an aggressive AA to begin with (75/25). If I was 60/40 like a lot of Bh's I might favor selling bonds more.

As I get closer to receiving SS at 70 I'll probably favor selling bonds and let my AA drift towards 80/20.

So far I am happy with the results. My IRA's have more than when i started and my AA is as of today only 1% off of my 75/25.

Regarding having a year in cash; I think 6 months is plenty but many Bh's would recomment a year.

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Re: Withdrawal Approach

Post by NearlyRetired » Thu Sep 19, 2019 1:27 pm

JoinToday wrote:
Wed Sep 18, 2019 1:14 pm
I think what you are doing is market timing (on a small scale). Taking money out of the market when it "appears" like the market has done well and you feel like the market is going to under perform in the future is market timing. If this helps you stay the course or lets you sleep well at night, it isn't a big deal in my opinion.
Thanks for your feedback JoinToday, however I don't think this is market timing. For me market timing would be (trying) to sell high and buy low. That is not what I am doing. I am "locking in" gains. The markets will ebb and flow and sometimes I expect to get great gains, and other times I expect to have poor (even negative) gains. What I am doing is where I have a guaranteed gain (in this case where the gain is more than I need for a period of time), I am moving it to a more stable area. I have no intention of re-investing it - even if the markets crashed (actually if they did that then I would be using this locked in gain to keep me going whilst the investments had a chance to recover). My dilemma is whether I should then use this gain to fund me for 12 months, leaving the investments to (hopefully) grow, or if the investments are still growing to use that growth to fund monthly expenses, whilst leaving the locked in cash for a rainy day.
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Re: Withdrawal Approach

Post by megabad » Thu Sep 19, 2019 4:56 pm

NearlyRetired wrote:
Thu Sep 19, 2019 1:27 pm
Thanks for your feedback JoinToday, however I don't think this is market timing. For me market timing would be (trying) to sell high and buy low. That is not what I am doing. I am "locking in" gains.
I am afraid I agree with the JoinToday. If the only reason you are changing your asset allocation is short term market performance (ie. to "lock in gains"), this is essentially the definition of market timing in my mind. If you simply desire to take less risk and intend to change your allocation long term because of your lower risk tolerance, then this would be different and understandable. If you have a consistent asset allocation and IPS, "where" you spend the money from is likely not overly relevant excluding tax impacts.

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Re: Withdrawal Approach

Post by jebmke » Thu Sep 19, 2019 4:59 pm

Tyler Aspect wrote:
Wed Sep 18, 2019 1:49 pm
Some people withdraw once per year, while other people withdraw 2 times a year, and there are other people who withdraw 4 times a year. It all depends on personal preference.
And there are a quite a few people who withdraw when they need the money to pay bills and not before.
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Re: Withdrawal Approach

Post by tennisplyr » Fri Sep 20, 2019 8:01 am

Been retired 8 years, I withdraw whenever I need to. Over the long haul, my guess it doesn't matter appreciably.
Last edited by tennisplyr on Fri Sep 20, 2019 2:04 pm, edited 1 time in total.
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Re: Withdrawal Approach

Post by livesoft » Fri Sep 20, 2019 8:27 am

I've been retired quite a while. I don't like nor use the approach described. I have a portfolio (no pension, no SS) that is about 60/40 in equity/bond funds and zero cash. When I see the words "peace of mind" (or worse "piece of mind"), then I know that a behavioral mistake is being made.

On average, cash is the lowest return asset class, so there is no reason for a retiree to have cash.

I pay most expenses with a credit card that I pay off monthly and thus carry no debt. I get the money to pay off the credit card from quarterly dividends or selling shares of equity funds in my taxable account. I don't care if the equity funds have gone up, down, or sideways when I sell them because if I need to rebalance, then I do so in a tax-deferred account.

Many people on this forum hate to sell things low partly because they think they are losing money, but they don't realize that they can exchange from a bond fund into the similar "low" equity fund in another account. That's what I would do. Once one divorces the idea of "selling at a loss" or "selling low" from the actual truth, then one becomes enlightened, has a lot of freedom, and doesn't make behavioral finance mistakes. That's true peace of mind.

Now that I've given you a piece of my mind, what do you think?
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Re: Withdrawal Approach

Post by sixtyforty » Fri Sep 20, 2019 9:21 am

I have recently switched from a cash bucket to fully invested about 50/50. I do auto sell monthly which deposits into my bank account. I came to the realization that I don't think the cash buckets whether 1 year, 2 or 3 years really makes any sense. My reasoning is... If I have 1 year of cash and I'm withdrawing from it and the market continues up, I've gained nothing. Or, another scenario is I'm withdrawing from my cash bucket and then one month prior to when I need to sell another 1 year's worth of cash, the market tanks 20%. I'm now stuck selling 1 years worth of investments at a depressed prices. The only time cash buckets, IMO work is when you can sell 1 or two years worth of cash just prior to a bear market. Good luck in timing that. I might be missing something but it just doesn't make sense to me.
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Re: Withdrawal Approach

Post by dbr » Fri Sep 20, 2019 9:22 am

I pretty much follow the same scheme as @livesoft with the further advantage of having some non-portfolio income. On average cash as it comes and goes stays at a level of about 2% of assets. I don't work at making it less or at making it more.

I take RMDs at the end of the year so tax withholding can cover for estimated tax payments.

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Re: Withdrawal Approach

Post by vineviz » Fri Sep 20, 2019 9:30 am

megabad wrote:
Thu Sep 19, 2019 4:56 pm
NearlyRetired wrote:
Thu Sep 19, 2019 1:27 pm
Thanks for your feedback JoinToday, however I don't think this is market timing. For me market timing would be (trying) to sell high and buy low. That is not what I am doing. I am "locking in" gains.
I am afraid I agree with the JoinToday. If the only reason you are changing your asset allocation is short term market performance (ie. to "lock in gains"), this is essentially the definition of market timing in my mind. If you simply desire to take less risk and intend to change your allocation long term because of your lower risk tolerance, then this would be different and understandable. If you have a consistent asset allocation and IPS, "where" you spend the money from is likely not overly relevant excluding tax impacts.
I'm not afraid to say that both JoinToday and megabad have it right.
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Re: Withdrawal Approach

Post by midareff » Fri Sep 20, 2019 9:34 am

NearlyRetired wrote:
Wed Sep 18, 2019 12:00 pm
Hi All

I am after your thoughts on how best to proceed with withdrawals as I move into retirement.


Question
I would welcome your thoughts on where to withdraw money as my investments start providing my retirement income.
Do I withdraw from the cash area on a monthly basis, thus leaving the investments for 12 months before I revisit them or
Do I withdraw from investments on a monthly basis as long as any withdrawal would not reduce investments below their original values (and take from the cash area where it would do to make up the difference) or
Some other strategy.

Any thoughts, insights from yourselves would be most welcome.
Much of what turns out to be a successful strategy depends on factors beyond your control. By this I mean... if the market continues to go up as fast or faster than your withdrawals it would seem beneficial to withdraw monthly so as to leave the greatest amount in the market at all times. If the market was going down steadily it might work differently. FWIW, I draw monthly from bond funds in both my taxable account and IRA as I am into the RMD part of retired life. I keep multiple years funding in those bond funds and look at AA bands for a potential rebalance every six months.

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Re: Withdrawal Approach

Post by JoinToday » Fri Sep 20, 2019 11:37 am

livesoft wrote:
Fri Sep 20, 2019 8:27 am
.....
On average, cash is the lowest return asset class, so there is no reason for a retiree to have cash.

I pay most expenses with a credit card that I pay off monthly and thus carry no debt. I get the money to pay off the credit card from quarterly dividends or selling shares of equity funds in my taxable account. I don't care if the equity funds have gone up, down, or sideways when I sell them because if I need to rebalance, then I do so in a tax-deferred account.

Many people on this forum hate to sell things low partly because they think they are losing money, but they don't realize that they can exchange from a bond fund into the similar "low" equity fund in another account. That's what I would do. Once one divorces the idea of "selling at a loss" or "selling low" from the actual truth, then one becomes enlightened, has a lot of freedom, and doesn't make behavioral finance mistakes. That's true peace of mind.

.....
1. I do exactly what livesoft does (and dbr also). Sell equity in after tax, compensate/rebalance in pre-tax account
2. I currently have less than 0.2% cash (MMF + checking acct, I just checked. Typical number is 0.25%). MMF yields have gone up from where they were 5 years ago, approaching intermediate term bond yields. I sometimes think about increasing my cash, but don't really see the point, especially in after tax accounts due to tax efficiency -- even though the tax drag would be relatively small.
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Re: Withdrawal Approach

Post by JoinToday » Fri Sep 20, 2019 12:49 pm

NearlyRetired wrote:
Thu Sep 19, 2019 1:27 pm
JoinToday wrote:
Wed Sep 18, 2019 1:14 pm
I think what you are doing is market timing (on a small scale). Taking money out of the market when it "appears" like the market has done well and you feel like the market is going to under perform in the future is market timing. If this helps you stay the course or lets you sleep well at night, it isn't a big deal in my opinion.
Thanks for your feedback JoinToday, however I don't think this is market timing. For me market timing would be (trying) to sell high and buy low. That is not what I am doing. I am "locking in" gains. The markets will ebb and flow and sometimes I expect to get great gains, and other times I expect to have poor (even negative) gains. What I am doing is where I have a guaranteed gain (in this case where the gain is more than I need for a period of time), I am moving it to a more stable area. I have no intention of re-investing it - even if the markets crashed (actually if they did that then I would be using this locked in gain to keep me going whilst the investments had a chance to recover). My dilemma is whether I should then use this gain to fund me for 12 months, leaving the investments to (hopefully) grow, or if the investments are still growing to use that growth to fund monthly expenses, whilst leaving the locked in cash for a rainy day.
I think if you were to model your plan in excel (taking money/gains off the table vs just taking money when needed) you would probably find very little difference in the end result. Like less than 0.1% for a given year, probably a lot less than 0.1%. You are probably dealing with a small percentage of your portfolio (one year = 3% or 4%), and the gains are also relatively small (10% ?). Won't change the overall portfolio return, not worth the effort.

I was surprised when I looked at the small benefits of rebalancing. (from memory): If I rebalance after a 20% drop in equity, and then rebalance after equity recovers to it's original level, this improves the yearly return of my portfolio by only 1%. Even more surprising to me was the effect of rebalancing after a drop, with no recovery. It doesn't increase portfolio failure rates much (as opposed to never rebalancing after a drop). My portfolio is 60% : 40%.

If you are selling 3% or 4% of your portfolio when equities increases by 10%, the benefit hardly seems worth the effort in my opinion.
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Re: Withdrawal Approach

Post by NearlyRetired » Fri Sep 20, 2019 1:07 pm

livesoft wrote:
Fri Sep 20, 2019 8:27 am
I've been retired quite a while. I don't like nor use the approach described. I have a portfolio (no pension, no SS) that is about 60/40 in equity/bond funds and zero cash. When I see the words "peace of mind" (or worse "piece of mind"), then I know that a behavioral mistake is being made.

On average, cash is the lowest return asset class, so there is no reason for a retiree to have cash.

I pay most expenses with a credit card that I pay off monthly and thus carry no debt. I get the money to pay off the credit card from quarterly dividends or selling shares of equity funds in my taxable account. I don't care if the equity funds have gone up, down, or sideways when I sell them because if I need to rebalance, then I do so in a tax-deferred account.

Many people on this forum hate to sell things low partly because they think they are losing money, but they don't realize that they can exchange from a bond fund into the similar "low" equity fund in another account. That's what I would do. Once one divorces the idea of "selling at a loss" or "selling low" from the actual truth, then one becomes enlightened, has a lot of freedom, and doesn't make behavioral finance mistakes. That's true peace of mind.

Now that I've given you a piece of my mind, what do you think?
And this is why I come to this forum for advice! I am new to retirement (not quite there yet, but months away :happy ) and it is great to get feedback on my approaches, especially when others have been living this for a period of time and have practical experience to share.
If I understand you correctly - please correct me if wrong, you are suggesting the approach is wrong, if using a cash bucket (zero risk/negative real return). Does moving funds from say an equity account to a bond account make more sense (i.e. less volatility, but still invested), or are you saying, just take money out of equities as and when you need them (seems to be a theme others here are using) as in the long term it really doesn't matter?
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Re: Withdrawal Approach

Post by NearlyRetired » Fri Sep 20, 2019 1:18 pm

sixtyforty wrote:
Fri Sep 20, 2019 9:21 am
I have recently switched from a cash bucket to fully invested about 50/50. I do auto sell monthly which deposits into my bank account. I came to the realization that I don't think the cash buckets whether 1 year, 2 or 3 years really makes any sense. My reasoning is... If I have 1 year of cash and I'm withdrawing from it and the market continues up, I've gained nothing. Or, another scenario is I'm withdrawing from my cash bucket and then one month prior to when I need to sell another 1 year's worth of cash, the market tanks 20%. I'm now stuck selling 1 years worth of investments at a depressed prices. The only time cash buckets, IMO work is when you can sell 1 or two years worth of cash just prior to a bear market. Good luck in timing that. I might be missing something but it just doesn't make sense to me.
Yeah, I'm not into timing the market (although it sounds like it might be) All I am trying to do is to leave as much initial capital untouched for as long as possible (each year that I don't, is one less year before SS kicks in and then the capital requirements drop through the floor). That at least is my thinking behind this approach. But if I look at my original query , if markets are rising, then perhaps I should consider taking money out of investments (whilst I can do that without going below the original starting investment position), and then should the markets tank, look to withdraw some (or all) needs from this cash area (some because I could potentially live of natural yield on the reduced investment and supplement with the cash to make up the need - before having to adjust my lifestyle). What do you think
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Re: Withdrawal Approach

Post by NearlyRetired » Fri Sep 20, 2019 1:31 pm

megabad wrote:
Thu Sep 19, 2019 4:56 pm
NearlyRetired wrote:
Thu Sep 19, 2019 1:27 pm
Thanks for your feedback JoinToday, however I don't think this is market timing. For me market timing would be (trying) to sell high and buy low. That is not what I am doing. I am "locking in" gains.
I am afraid I agree with the JoinToday. If the only reason you are changing your asset allocation is short term market performance (ie. to "lock in gains"), this is essentially the definition of market timing in my mind. If you simply desire to take less risk and intend to change your allocation long term because of your lower risk tolerance, then this would be different and understandable. If you have a consistent asset allocation and IPS, "where" you spend the money from is likely not overly relevant excluding tax impacts.
It might be my misunderstanding of market timing, but I am not trying to sell high/buy low. I am trying to reduce (significantly) the risk that the gains I have made to date (which would mean I can live comfortably for the next 12 months and leave the investments to "do their thing" over that period), but I am not sure that is long term, it is more geared towards reducing the number of years between "now" and when SS kicks in whilst trying to protect the original capital as much as possible.
What would you suggest as an alternative approach to meet these requirements?
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Re: Withdrawal Approach

Post by NearlyRetired » Fri Sep 20, 2019 1:34 pm

midareff wrote:
Fri Sep 20, 2019 9:34 am
NearlyRetired wrote:
Wed Sep 18, 2019 12:00 pm
Hi All

I am after your thoughts on how best to proceed with withdrawals as I move into retirement.


Question
I would welcome your thoughts on where to withdraw money as my investments start providing my retirement income.
Do I withdraw from the cash area on a monthly basis, thus leaving the investments for 12 months before I revisit them or
Do I withdraw from investments on a monthly basis as long as any withdrawal would not reduce investments below their original values (and take from the cash area where it would do to make up the difference) or
Some other strategy.

Any thoughts, insights from yourselves would be most welcome.
Much of what turns out to be a successful strategy depends on factors beyond your control. By this I mean... if the market continues to go up as fast or faster than your withdrawals it would seem beneficial to withdraw monthly so as to leave the greatest amount in the market at all times. If the market was going down steadily it might work differently. FWIW, I draw monthly from bond funds in both my taxable account and IRA as I am into the RMD part of retired life. I keep multiple years funding in those bond funds and look at AA bands for a potential rebalance every six months.
And this is interesting for me, following some of the comments in this thread, because I am wondering if rather than moving out of equities and into cash, I should really be looking at moving out of equities and into Bonds (or some equally less volatile investment)
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Re: Withdrawal Approach

Post by NearlyRetired » Fri Sep 20, 2019 1:38 pm

JoinToday wrote:
Fri Sep 20, 2019 11:37 am
livesoft wrote:
Fri Sep 20, 2019 8:27 am
.....
On average, cash is the lowest return asset class, so there is no reason for a retiree to have cash.

I pay most expenses with a credit card that I pay off monthly and thus carry no debt. I get the money to pay off the credit card from quarterly dividends or selling shares of equity funds in my taxable account. I don't care if the equity funds have gone up, down, or sideways when I sell them because if I need to rebalance, then I do so in a tax-deferred account.

Many people on this forum hate to sell things low partly because they think they are losing money, but they don't realize that they can exchange from a bond fund into the similar "low" equity fund in another account. That's what I would do. Once one divorces the idea of "selling at a loss" or "selling low" from the actual truth, then one becomes enlightened, has a lot of freedom, and doesn't make behavioral finance mistakes. That's true peace of mind.

.....
1. I do exactly what livesoft does (and dbr also). Sell equity in after tax, compensate/rebalance in pre-tax account
2. I currently have less than 0.2% cash (MMF + checking acct, I just checked. Typical number is 0.25%). MMF yields have gone up from where they were 5 years ago, approaching intermediate term bond yields. I sometimes think about increasing my cash, but don't really see the point, especially in after tax accounts due to tax efficiency -- even though the tax drag would be relatively small.
So are you suggesting rather than cash, other low risk/volatility investments would be a better dumping ground in this situation? How about the withdrawal part, would you stay with the equities whilst markets are going up and look to the "safer" investments when not, or something else?
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Re: Withdrawal Approach

Post by NearlyRetired » Fri Sep 20, 2019 1:49 pm

JoinToday wrote:
Fri Sep 20, 2019 12:49 pm
NearlyRetired wrote:
Thu Sep 19, 2019 1:27 pm
JoinToday wrote:
Wed Sep 18, 2019 1:14 pm
I think what you are doing is market timing (on a small scale). Taking money out of the market when it "appears" like the market has done well and you feel like the market is going to under perform in the future is market timing. If this helps you stay the course or lets you sleep well at night, it isn't a big deal in my opinion.
Thanks for your feedback JoinToday, however I don't think this is market timing. For me market timing would be (trying) to sell high and buy low. That is not what I am doing. I am "locking in" gains. The markets will ebb and flow and sometimes I expect to get great gains, and other times I expect to have poor (even negative) gains. What I am doing is where I have a guaranteed gain (in this case where the gain is more than I need for a period of time), I am moving it to a more stable area. I have no intention of re-investing it - even if the markets crashed (actually if they did that then I would be using this locked in gain to keep me going whilst the investments had a chance to recover). My dilemma is whether I should then use this gain to fund me for 12 months, leaving the investments to (hopefully) grow, or if the investments are still growing to use that growth to fund monthly expenses, whilst leaving the locked in cash for a rainy day.
I think if you were to model your plan in excel (taking money/gains off the table vs just taking money when needed) you would probably find very little difference in the end result. Like less than 0.1% for a given year, probably a lot less than 0.1%. You are probably dealing with a small percentage of your portfolio (one year = 3% or 4%), and the gains are also relatively small (10% ?). Won't change the overall portfolio return, not worth the effort.

I was surprised when I looked at the small benefits of rebalancing. (from memory): If I rebalance after a 20% drop in equity, and then rebalance after equity recovers to it's original level, this improves the yearly return of my portfolio by only 1%. Even more surprising to me was the effect of rebalancing after a drop, with no recovery. It doesn't increase portfolio failure rates much (as opposed to never rebalancing after a drop). My portfolio is 60% : 40%.

If you are selling 3% or 4% of your portfolio when equities increases by 10%, the benefit hardly seems worth the effort in my opinion.
Interesting. I am not sophisticated enough to be able to model this in a spreadsheet, but I did look to Firecalc for some calculations.

When I input my current portfolio value and started drawing down now (with some planned massive market drops in the next 2 years for good measure :D ) - using historical returns, and then compared that with my "current portfolio value - 12 months money" and then deferred by 12 months before draw down, the likelihood of success went up fair bit (both still good, but the latter better still 93% vs 97% success rates), and this is what is moving me in this direction. I know the past doesn't mean the future will do the same, but what do you think - am I over relying on these tools?
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livesoft
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Re: Withdrawal Approach

Post by livesoft » Fri Sep 20, 2019 2:32 pm

NearlyRetired wrote:
Fri Sep 20, 2019 1:07 pm
Does moving funds from say an equity account to a bond account make more sense (i.e. less volatility, but still invested), or are you saying, just take money out of equities as and when you need them (seems to be a theme others here are using) as in the long term it really doesn't matter?
Just choose an Equities/Bonds asset allocation that you can live with such as 60/40 for the rest of your life. Withdraw in a tax-efficient manner and rebalance in a tax-efficient manner.
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catalina355
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Re: Withdrawal Approach

Post by catalina355 » Fri Sep 20, 2019 4:24 pm

dbr wrote:
Fri Sep 20, 2019 9:22 am
I pretty much follow the same scheme as @livesoft with the further advantage of having some non-portfolio income. On average cash as it comes and goes stays at a level of about 2% of assets. I don't work at making it less or at making it more.

I take RMDs at the end of the year so tax withholding can cover for estimated tax payments.
So does the 2% cash cover several months of spending?

jebmke
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Re: Withdrawal Approach

Post by jebmke » Fri Sep 20, 2019 4:37 pm

livesoft wrote:
Fri Sep 20, 2019 2:32 pm
NearlyRetired wrote:
Fri Sep 20, 2019 1:07 pm
Does moving funds from say an equity account to a bond account make more sense (i.e. less volatility, but still invested), or are you saying, just take money out of equities as and when you need them (seems to be a theme others here are using) as in the long term it really doesn't matter?
Just choose an Equities/Bonds asset allocation that you can live with such as 60/40 for the rest of your life. Withdraw in a tax-efficient manner and rebalance in a tax-efficient manner.
I agree with this. We chose 40/60 for reasons we understood at the time (12 years ago). Our situation 12 years later is different -- my pension started last year -- so, while we are still at 40/60 today, I am not planning to re-balance on the upside (sell equity). Partly because I have blown all my TLH reserves and we don't have the same risk facing us today. So I may never sell equity again.
When you discover that you are riding a dead horse, the best strategy is to dismount.

dbr
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Re: Withdrawal Approach

Post by dbr » Fri Sep 20, 2019 4:40 pm

catalina355 wrote:
Fri Sep 20, 2019 4:24 pm
dbr wrote:
Fri Sep 20, 2019 9:22 am
I pretty much follow the same scheme as @livesoft with the further advantage of having some non-portfolio income. On average cash as it comes and goes stays at a level of about 2% of assets. I don't work at making it less or at making it more.

I take RMDs at the end of the year so tax withholding can cover for estimated tax payments.
So does the 2% cash cover several months of spending?
It doesn't cover anything. It is just a variable amount of money that oscillates up and down as income is received and paid out from all the various transactions of investments, income sources, credit card bills, etc. It includes everything in checking accounts, money market funds, settlement accounts, etc. I do a month end tally. I could even go through our wallets and add that in, but I can see the checking account at the computer and wouldn't walk around looking in trouser pockets. Also I do not do accrual accounting of credit cards so balance on credit cards is not a debit to the cash account. A person could just as well draw the line called investments a little farther away from daily transactions. That would reduce the percent a little.

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midareff
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Re: Withdrawal Approach

Post by midareff » Fri Sep 20, 2019 5:07 pm

NearlyRetired wrote:
Fri Sep 20, 2019 1:34 pm
midareff wrote:
Fri Sep 20, 2019 9:34 am
NearlyRetired wrote:
Wed Sep 18, 2019 12:00 pm
Hi All

I am after your thoughts on how best to proceed with withdrawals as I move into retirement.


Question
I would welcome your thoughts on where to withdraw money as my investments start providing my retirement income.
Do I withdraw from the cash area on a monthly basis, thus leaving the investments for 12 months before I revisit them or
Do I withdraw from investments on a monthly basis as long as any withdrawal would not reduce investments below their original values (and take from the cash area where it would do to make up the difference) or
Some other strategy.

Any thoughts, insights from yourselves would be most welcome.
Much of what turns out to be a successful strategy depends on factors beyond your control. By this I mean... if the market continues to go up as fast or faster than your withdrawals it would seem beneficial to withdraw monthly so as to leave the greatest amount in the market at all times. If the market was going down steadily it might work differently. FWIW, I draw monthly from bond funds in both my taxable account and IRA as I am into the RMD part of retired life. I keep multiple years funding in those bond funds and look at AA bands for a potential rebalance every six months.
And this is interesting for me, following some of the comments in this thread, because I am wondering if rather than moving out of equities and into cash, I should really be looking at moving out of equities and into Bonds (or some equally less volatile investment)
FWIW, overall my portfolio is roughly 48% equities, 48% bonds and 4% bank cash. The bond fund I draw from in my IRA is the Vanguard Short Term Corporate Index. It's balance bands revolve around 6% of total portfolio, which represents about 3+ years of draw. In taxable it is the Intermediate Term Tax-Exempt Adm. I can't tell you it's the thing to do, but it is what I do and I sleep real well at night.

JoinToday
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Re: Withdrawal Approach

Post by JoinToday » Sat Sep 21, 2019 12:59 am

livesoft wrote:
Fri Sep 20, 2019 2:32 pm
.....
Just choose an Equities/Bonds asset allocation that you can live with such as 60/40 for the rest of your life. Withdraw in a tax-efficient manner and rebalance in a tax-efficient manner.
What livesoft posted is the essence of what you need to do. Not a lot of words, but the message speaks volumes, and what I strive to do. Once you set your asset allocation, the only knobs to turn are expense ratio and tax efficiency. I am certain you understand the ER part. There are a lot of subtleties with respect to tax efficiency, including limited cash/MMF in after tax accounts.
I wish I had learned about index funds 25 years ago

JoinToday
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Re: Withdrawal Approach

Post by JoinToday » Sat Sep 21, 2019 1:03 am

NearlyRetired wrote:
Fri Sep 20, 2019 1:49 pm
JoinToday wrote:
Fri Sep 20, 2019 12:49 pm
NearlyRetired wrote:
Thu Sep 19, 2019 1:27 pm
JoinToday wrote:
Wed Sep 18, 2019 1:14 pm
I think what you are doing is market timing (on a small scale). Taking money out of the market when it "appears" like the market has done well and you feel like the market is going to under perform in the future is market timing. If this helps you stay the course or lets you sleep well at night, it isn't a big deal in my opinion.
Thanks for your feedback JoinToday, however I don't think this is market timing. For me market timing would be (trying) to sell high and buy low. That is not what I am doing. I am "locking in" gains. The markets will ebb and flow and sometimes I expect to get great gains, and other times I expect to have poor (even negative) gains. What I am doing is where I have a guaranteed gain (in this case where the gain is more than I need for a period of time), I am moving it to a more stable area. I have no intention of re-investing it - even if the markets crashed (actually if they did that then I would be using this locked in gain to keep me going whilst the investments had a chance to recover). My dilemma is whether I should then use this gain to fund me for 12 months, leaving the investments to (hopefully) grow, or if the investments are still growing to use that growth to fund monthly expenses, whilst leaving the locked in cash for a rainy day.
I think if you were to model your plan in excel (taking money/gains off the table vs just taking money when needed) you would probably find very little difference in the end result. Like less than 0.1% for a given year, probably a lot less than 0.1%. You are probably dealing with a small percentage of your portfolio (one year = 3% or 4%), and the gains are also relatively small (10% ?). Won't change the overall portfolio return, not worth the effort.

I was surprised when I looked at the small benefits of rebalancing. (from memory): If I rebalance after a 20% drop in equity, and then rebalance after equity recovers to it's original level, this improves the yearly return of my portfolio by only 1%. Even more surprising to me was the effect of rebalancing after a drop, with no recovery. It doesn't increase portfolio failure rates much (as opposed to never rebalancing after a drop). My portfolio is 60% : 40%.

If you are selling 3% or 4% of your portfolio when equities increases by 10%, the benefit hardly seems worth the effort in my opinion.
Interesting. I am not sophisticated enough to be able to model this in a spreadsheet, but I did look to Firecalc for some calculations.

When I input my current portfolio value and started drawing down now (with some planned massive market drops in the next 2 years for good measure :D ) - using historical returns, and then compared that with my "current portfolio value - 12 months money" and then deferred by 12 months before draw down, the likelihood of success went up fair bit (both still good, but the latter better still 93% vs 97% success rates), and this is what is moving me in this direction. I know the past doesn't mean the future will do the same, but what do you think - am I over relying on these tools?
It is hard to say why the likelihood of success went up from 93% to 97%. Seems like a big jump, unless you have a really high equity allocation. And since you live in GB, I am not sure how much the tax laws there correspond to the tax laws in the US. You mentioned SS I believe; are you getting SS from the US, live in the UK, and are subject to US or GB taxes? Some clarification might be of benefit here, along with AA and asset placement.
I wish I had learned about index funds 25 years ago

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