Withdrawal for Non-retirement Accounts

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mrsmith
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Joined: Sat Jul 22, 2017 2:09 pm

Withdrawal for Non-retirement Accounts

Post by mrsmith » Sat Aug 01, 2020 5:00 pm

Hi! Just wondering some of the best practices here around withdrawal for non retirement accounts.

I currently have around 82% of my total net worth saved up in a combination of my HSA, 401K, and a personal Vanguard account. However, the rest lies in a combination of cash and a Vanguard fund (leaving out things like my emergency account).

I put money in the Vanguard fund purely as a way to "save" since I don't really have plans for the money for perhaps 10 years or so but I'm not planning to save the money for retirement. I'm wondering what's the best strategy for withdrawing money in that fund. Say I plan to purchase a house by the 10 year mark, what's the strategy for withdrawing it so it's fairly liquid by the end of 10 years? Do I pull out some each year and stick it in my checkings account, similarly to how one withdraws money during retirement?

Thanks for the ideas!

livesoft
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Re: Withdrawal for Non-retirement Accounts

Post by livesoft » Sat Aug 01, 2020 5:04 pm

Such an account is fully liquid at any time because one can sell shares of anything when the market is open and get the cash out anytime.

Typically, we just have the quarterly dividends sent to our checking account and spend them or manually reinvest them. If we need to pay for a bigger purchase such as a new house, a car, a yacht or a jet airplane, then we sell shares a couple of days before we need the money and choose the shares that will cost us the least amount of taxes if sold. That is, we simply do not overthink this trivial process.
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bertilak
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Re: Withdrawal for Non-retirement Accounts

Post by bertilak » Sat Aug 01, 2020 5:10 pm

mrsmith wrote:
Sat Aug 01, 2020 5:00 pm
Hi! Just wondering some of the best practices here around withdrawal for non retirement accounts.

I currently have around 82% of my total net worth saved up in a combination of my HSA, 401K, and a personal Vanguard account. However, the rest lies in a combination of cash and a Vanguard fund (leaving out things like my emergency account).

I put money in the Vanguard fund purely as a way to "save" since I don't really have plans for the money for perhaps 10 years...
That money should be invested in stock and or bond funds, not just kept in cash (or cash equivalents).
... or so but I'm not planning to save the money for retirement.
So, what are you saving it for?
I'm wondering what's the best strategy for withdrawing money in that fund. Say I plan to purchase a house by the 10 year mark, what's the strategy for withdrawing it so it's fairly liquid by the end of 10 years? Do I pull out some each year and stick it in my checkings account, similarly to how one withdraws money during retirement?

Thanks for the ideas!
If and when you anticipate withdrawals from your investment account I suggest taking dividends to cash (i.e. to the settlement fund) and withdrawing from there. Don't sell anything unless you need more than the dividends provide.
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Topic Author
mrsmith
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Joined: Sat Jul 22, 2017 2:09 pm

Re: Withdrawal for Non-retirement Accounts

Post by mrsmith » Sat Aug 01, 2020 6:14 pm

Great questions.

The money in cash is purely spending money. The money in the Vanguard account is in a income fund (VWINX) purely because I wasn't sure what I wanted to do with it yet.

As for what I'm saving it for. The intent is to not have to ever pull from my index funds to buy a house or a car. While I'm not in a hurry to buy a new car or a new house etc., I do plan to do so within the next 10 years or so. I decided to save a portion into the VWINX account in the meanwhile.

I hear about the dividends to cash approach. That makes sense. Are you recommending that in addition to the money in Vanguard set aside as "retirement savings" I also invest any leftover cash I have in a similar portfolio set aside as "spending money"? And take dividends as cash if I need to use it or sell if I really need to? Practically speaking from an organizational perspective do you open a new Vanguard account for this? Seems overly complicated if I start mixing my retirement savings and my non retirement savings in the same account since they utilize the same funds.

Alternatively, one could just not have this split and put it all in "retirement" and, as you say, take dividends out as necessary. I'm just worried in doing so that I get confused what is the right amount set aside for retirement and what isn't when I decide to pull out some money for a house, say, 5 years down the line.

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GerryL
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Re: Withdrawal for Non-retirement Accounts

Post by GerryL » Sat Aug 01, 2020 6:32 pm

mrsmith, My "technique":
I have 3 accounts w/ Vanguard IRA, Roth IRA and taxable (i.e., not tax-advantaged for retirement). That last, which is in a balanced index fund, is where I put extra $$ for long-term growth.

For years, while I was working, I had dividends set to auto-reinvest and just let it continue to grow. When I stopped working, and before I started SS and RMDs, I had the dividends go to cash and used them for basic expenses. Now that I have regular income from SS and have to take RMDs, I still have the dividends go to cash but regularly reinvest whatever I don't expect to need. Some of my RMD ends up going into that taxable account as well.

If I have a large purchase come up, I can decide whether I want to sell some of that taxable fund to get extra cash, but will need to be aware of tax consequences of selling those shares. Having the dividends go to cash gives you the flexibility to decide whether to use them to build up cash or to reinvest.

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