Help with first retirement withdrawal

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
tyjy
Posts: 87
Joined: Thu Mar 09, 2017 11:37 am

Help with first retirement withdrawal

Post by tyjy »

I am having a hard time knowing what to do. Read so much my head is spinning. Any advice, even for the short term to buy me some time, I will greatly appreciate!

So, this is the first days of full retirement. I've got money in my checking account to pay expenses for a month or so. I didn't realize withdrawing would be this overwhelming and I don't understand what to do. Here is an approx roundup of our portfolio, can anybody tell me where to withdraw from, how much at a time and where to store it?

Want to withdraw (at most) $100k/yr for 3 years till age 70 (when Social Security), then only about $40-45k/yr
Currently 60/40 asset allocation and probably maintain that

$1,442k total

Taxable
$462k ($45k savings; $130 VG Total Stock & Total Internl Stock; $332k individual stocks/all capital gains)

Tax Deferred
$722k ($508k bonds; $214k VG Total Stock & Total Internl Stock)

Roths
$197k (all Total stocks, little Wellington)

HSA
$16k (all Fidelity 500)

(Edited to add investment types)
Last edited by tyjy on Wed Jan 13, 2021 11:28 am, edited 2 times in total.
User avatar
willthrill81
Posts: 22726
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Help with first retirement withdrawal

Post by willthrill81 »

tyjy wrote: Wed Jan 13, 2021 10:56 am I am having a hard time knowing what to do. Read so much my head is spinning. Any advice, even for the short term to buy me some time, I will greatly appreciate!

So, this is the first days of full retirement. I've got money in my checking account to pay expenses for a month or so. I didn't realize withdrawing would be this overwhelming and I don't understand what to do. Here is an approx roundup of our portfolio, can anybody tell me where to withdraw from, how much at a time and where to store it?

Want to withdraw (at most) $100k/yr for 3 years till age 70 (when Social Security), then only about $40-45k/yr
Currently 60/40 asset allocation and probably maintain that

$1,442k total

Taxable
$462k ($45k savings; $130 VG Total Stock & Total Internl Stock; $332k individual stocks/all capital gains)

Tax Deferred
$722 ($508k bonds; $214k VG Total Stock & Total Internl Stock)

Roths
$197k

HSA
$16k
The general recommendation is to take enough withdrawals from tax-deferred accounts to 'fill up' at least the standard deduction (meaning that that money is not taxed at all) and usually the 10% bracket as well. After that, you have some options. As long as you will be in the 12% bracket, your long-term capital gains tax rate will be 0%, so it makes sense to take a good portion of your withdrawals from that. If you still have room in the 12% bracket, I would suggest that you convert enough of your tax-deferred assets to Roth to take you up to the top of the 12% bracket.

If you have some stock in your taxable account that has a lot of capital gains, you may want to consider eventually donating those shares if you are charitably inclined.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
Lalamimi
Posts: 652
Joined: Mon Jun 24, 2019 4:22 pm
Location: Texas

Re: Help with first retirement withdrawal

Post by Lalamimi »

First off, watch out for IRMMA! Are you MFJ?
Topic Author
tyjy
Posts: 87
Joined: Thu Mar 09, 2017 11:37 am

Re: Help with first retirement withdrawal

Post by tyjy »

Willthrill: Thanks so much for that sequence! I thought reducing the tax deferred 1st was probably first from what I've read about future RMD's but also read first out of taxable, which is where my confusion is from : /

Lalamimi: Thanks for that reminder (so many angles to this!)

Yes we are Married filing jointly (so the standard deduction is $28,400 right?)

Do most people withdraw a big chunk at a time (6 mo or whole year?) and deposit in an interest bearing savings account? Or month to month?
HomeStretch
Posts: 5411
Joined: Thu Dec 27, 2018 3:06 pm

Re: Help with first retirement withdrawal

Post by HomeStretch »

2021 standard deduction for MFJ both 1 age 65+ is $26,450 $27,800 ( = $25,100 + $1,350 age 65+).
Edit - based on your subsequent post, spouse is < age 65 so your standard deduction is lower than what I initially posted.

You can take tax-deferred distributions and sell stock whenever it makes the most sense. You can deposit the proceeds in your brokerage Taxable settlement fund.

Your brokerage may offer automatic transfers. If so, you can set up an automatic monthly transfer of $xx from your Taxable settlement fund to your bank checking account. $xx = 1/12 of your net cash requirements. Check whether your brokerage and bank have fees for ACH or wire transfers.
Last edited by HomeStretch on Wed Jan 13, 2021 12:58 pm, edited 2 times in total.
Topic Author
tyjy
Posts: 87
Joined: Thu Mar 09, 2017 11:37 am

Re: Help with first retirement withdrawal

Post by tyjy »

HomeStretch wrote: Wed Jan 13, 2021 11:29 am 2021 standard deduction for MFJ both age 65+ is $27,800 ( = $25,100 + $1,350x2).

You can take tax-deferred distributions and sell stock whenever it makes the most sense. You can deposit the proceeds in your brokerage Taxable settlement fund.

Your brokerage may offer automatic transfers. If so, you can set up an automatic monthly transfer of $xx from your Taxable settlement fund to your bank checking account. $xx = 1/12 of your net cash requirements. Check whether your brokerage and bank have fees for ACH or wire transfers.
Thanks for that Homestretch! I do not want to trip up anywhere.
How do I know "whenever that makes the most sense"?
Current ages are 66 and 63 if that makes a difference?
User avatar
willthrill81
Posts: 22726
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Help with first retirement withdrawal

Post by willthrill81 »

tyjy wrote: Wed Jan 13, 2021 11:23 am Willthrill: Thanks so much for that sequence! I thought reducing the tax deferred 1st was probably first from what I've read about future RMD's but also read first out of taxable, which is where my confusion is from : /
Don't worry about RMDs. When you turn 72, they will start at under 4% of your tax-deferred balance and slowly go up each year from there. Even with your current tax-deferred balance, which you should be able to bring down between withdrawals and Roth conversions, that would be under $28k, and you will need $40-$45k anyway.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
Topic Author
tyjy
Posts: 87
Joined: Thu Mar 09, 2017 11:37 am

Re: Help with first retirement withdrawal

Post by tyjy »

willthrill81 wrote: Wed Jan 13, 2021 11:48 am
tyjy wrote: Wed Jan 13, 2021 11:23 am Willthrill: Thanks so much for that sequence! I thought reducing the tax deferred 1st was probably first from what I've read about future RMD's but also read first out of taxable, which is where my confusion is from : /
Don't worry about RMDs. When you turn 72, they will start at under 4% of your tax-deferred balance and slowly go up each year from there. Even with your current tax-deferred balance, which you should be able to bring down between withdrawals and Roth conversions, that would be under $28k, and you will need $40-$45k anyway.
Thank you so much!
HomeStretch
Posts: 5411
Joined: Thu Dec 27, 2018 3:06 pm

Re: Help with first retirement withdrawal

Post by HomeStretch »

You need $100k to cover 2021 expenses. You have $45k in cash now. You need $55k more cash for 2021.

“Where to get the $55k cash from?”:
1. $10k - your Taxable equity holdings will likely give you dividends of at least 2% which is ~$10k. Turn of auto reinvestment of dividends and capital gains distribution so the cash dividends go to your Taxable settlement account.
2. $? - will you receive cash from anywhere else in 2021 - stimulus payments, former employer payouts, part time work, etc.
3. $45k (or less) - distributions as suggested by willthrill81

When I do this for my parents (I won’t start my portfolio withdrawals until next year), my preference is to do some or all of #3 at year end after I run a tax projection. The projection helps decide where to take the money from (IRA distributions, sell stock) while being mindful of SS taxation, Medicare IRMAA surcharges, using up the standard deduction, etc.

Your current cash will only take you to mid-year so you’ll need to at least make a partial withdrawal mid-year. Try to build a bit of a cash cushion to give you flexibility on future withdrawal timing.

Everyone handles this differently. My way may not be your way. Find which way works best for you. Once you do it it will get easier. Automate what you can like auto transfers to checking, bill pay, etc.

As suggested in your previous thread, once you figure out 2021 cash flow plan, put together a plan by year for at least the next 10 years (through spouse age 72) to help you plan cash flow and your income subject to taxation. It will help you see the impact of RMDs, SS taxation, etc. Once you do that, you may want to review your SS claiming strategy, whether to do Roth conversions, etc. The goal is to smooth your marginal tax rate(s) across the years to maximize your after-tax funds.

Big picture is you look to be in good shape financially. Your portfolio balance is $1,442k, you will withdraw $300k (3 years at $100k) leaving $1,142k when you start annual withdrawals of $40-$45k or 3.5-3.9%. That’s a reasonable withdrawal rate at ages 66/70.

Best of luck!
Last edited by HomeStretch on Wed Jan 13, 2021 1:05 pm, edited 1 time in total.
Topic Author
tyjy
Posts: 87
Joined: Thu Mar 09, 2017 11:37 am

Re: Help with first retirement withdrawal

Post by tyjy »

HomeStretch wrote: Wed Jan 13, 2021 12:46 pm You need $100k to cover 2021 expenses. You have $45k in cash now. You need $55k more cash for 2021.

“Where to get the $55k cash from?”:
1. $10k - your Taxable equity holdings will likely give you dividends of at least 2% which is ~$10k. Turn of auto reinvestment of dividends and capital gains distribution so the cash dividends go to your Taxable settlement account.
2. $? - will you receive cash from anywhere else in 2021 - stimulus payments, former employer payouts, part time work, etc.
3. $45k (or less) - distributions as suggested by willthrill81

When I do this for my parents (I won’t start my portfolio withdrawals until next year), my preference is to do some or all of #3 at year end after I run a tax projection. The projection helps decide where to take the money from (IRA distributions, sell stock) while being mindful of SS taxation, Medicare IRMAA surcharges, using up the standard deduction, etc.

Your current cash will only take you to mid-year so you’ll need to at least make a partial withdrawal mid-year. Try to build a bit of a cash cushion to give you flexibility on future withdrawal timing.

Everyone handles this differently. My way may not be your way. Find which way works best for you. Once you do it it will get easier. Automate what you can like auto transfers to checking, bill pay, etc.

As suggested in your previous thread, once you figure out 2021 cash flow plan, put together a plan by year for at least the next 10 years (through spouse age 72) to help you plan cash flow and your income subject to taxation. It will help you see the impact of RMDs, SS taxation, etc. Once you do that, you may want to review your SS claiming strategy, whether to do Roth conversions, etc. The goal is to smooth your marginal tax rate(s) across the years to maximize your after-tax funds.

Best of luck!
Okay, I think I got it. Thank you so, so much!
Topic Author
tyjy
Posts: 87
Joined: Thu Mar 09, 2017 11:37 am

Should I have federal/state taxes withheld?

Post by tyjy »

Is it best to have federal (10%) and state (5%) taxes withheld by VG when withdrawing money from a tax deferred account? (Basically if a $20,000 wd fed tax is -$2,000=$18,000)
Post Reply