POLL: Preferred Withdrawal Method

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Preferred Withdrawal Method

Withdraw largely/exclusively from bonds first
8
9%
Withdraw largely/exclusively from equities first
2
2%
Withdraw from equities/bonds in proportion to your asset allocation
37
42%
Withdraw from a mix of equities/bonds in no particular pattern
3
3%
Withdraw based on market performance
19
21%
Some other method (please explain)
20
22%
 
Total votes: 89

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EternalOptimist
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POLL: Preferred Withdrawal Method

Post by EternalOptimist » Fri Jan 17, 2014 1:48 pm

Generally speaking, for the withdrawal phase, which of these do you feel is the best method of drawing from a stock/bond portfolio over time.
Last edited by EternalOptimist on Sat Jan 18, 2014 3:00 pm, edited 1 time in total.
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Rodc
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Re: Preferred Withdrawal Method

Post by Rodc » Fri Jan 17, 2014 2:36 pm

Ask me again when I really get there in several years.

I think I may just do the opposite of what I do now (new money goes into an asset that is below target, once in a while rebalance if that does not keep things more or less where I want the allocation). That is take from any allocation that is above target.

I'm a little on the fence regarding rebalancing from safe assets into risky assets when risky asset are tanking. Historically this has been a good idea. But in the case of a very long deep decline it would be a very bad idea. Might be lower risk, if also lower return, to not rebalance in this direction in retirement.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

manwithnoname
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Re: Preferred Withdrawal Method

Post by manwithnoname » Fri Jan 17, 2014 2:50 pm

I withdraw the dividends, distributions and interest from my investment portfolio which along with SS covers my living expenses and taxes. I don't need to sell any investments.

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CABob
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Re: Preferred Withdrawal Method

Post by CABob » Fri Jan 17, 2014 3:10 pm

On this forum I will be surprised if a choice other than “in proportion to asset allocation” gets many votes.
Of course, “market performance” might be considered the same thing.
On the other hand, I am often surprised at poll results.
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ajcp
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Re: Preferred Withdrawal Method

Post by ajcp » Fri Jan 17, 2014 3:19 pm

I'm a long way away from this, but my plan is a combination of collecting the dividends and this.
Rodc wrote: I think I may just do the opposite of what I do now (new money goes into an asset that is below target, once in a while rebalance if that does not keep things more or less where I want the allocation). That is take from any allocation that is above target.

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FNK
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Re: Preferred Withdrawal Method

Post by FNK » Fri Jan 17, 2014 3:20 pm

Confusing choices. I intend to withdraw towards my AA at the time. That's not strictly in AA proportions and is somewhat influenced by the market.

Further, I intend to maintain a 1-2 year cash/short term bond reserve, withdraw constant-percentage to the reserve and direct all distributions there.

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Cut-Throat
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Re: Preferred Withdrawal Method

Post by Cut-Throat » Fri Jan 17, 2014 3:29 pm

manwithnoname wrote:I withdraw the dividends, distributions and interest from my investment portfolio which along with SS covers my living expenses and taxes. I don't need to sell any investments.
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HawaiiBrewer
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Re: Preferred Withdrawal Method

Post by HawaiiBrewer » Fri Jan 17, 2014 6:26 pm

Starting in 2 years, I'll probably sell off my individual equities...Chevron, McDonalds, etc along with individual mutual funds I bought a long time ago before finding this forum and the Boglehead's 3-4 fund portfolio mantra. Selling those will move me towards simplification and about the time that my PenFed CD's will be maturing so I may withdraw those next, then I'll probably go with a mix to keep my AA near my goals.

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john94549
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Re: Preferred Withdrawal Method

Post by john94549 » Fri Jan 17, 2014 8:33 pm

We had initially planned to "cash in" our IRA CDs for the first 20 years or so, to supplement S/S, pension, and interest income. Then I realized how silly that was. I voted "per AA".

Minot
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Re: Preferred Withdrawal Method

Post by Minot » Fri Jan 17, 2014 8:34 pm

About 25% is dividends and capital gains distributions from my taxable account; the other 75% is RMDs from my IRAs, which are in bond funds. Before I reached RMD age, I was pretty much withdrawing from taxable, which at that time (pre-Bogleheads) held both bond and equity funds, and I don't remember that I had any real plan about what fund(s) to withdraw from. If I were doing it now, I'd be pretty much using withdrawals to stay closer to my AA. With my 5% rebalancing spread, however, even with the runup of equities and the drop in bonds, I'm still only 1/2 way to needing to rebalance--and who know what the future will bring?

I checked "bonds" on the poll, because that's what I actually do, but only because of the RMDs, not because I would otherwise be doing it.

22twain
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Re: Preferred Withdrawal Method

Post by 22twain » Fri Jan 17, 2014 11:59 pm

I intend to withdraw first from whichever side (stocks or bonds) is "high" relative to my target AA. If I thereby regain my target AA, then withdraw in proportion to my target AA. If I don't regain my target AA, do some further rebalancing. This would happen once or twice per year, with the withdrawals going into my "working" checking account.

Dividends and capital gains distributions go into a money market fund, which I include in the "bond" side of my portfolio.
My investing princiPLEs do not include absolutely preserving princiPAL.

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Sheepdog
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Re: Preferred Withdrawal Method

Post by Sheepdog » Sat Jan 18, 2014 12:10 am

manwithnoname wrote:I withdraw the dividends, distributions and interest from my investment portfolio which along with SS covers my living expenses and taxes. I don't need to sell any investments.

Most years that is the case for me, however, I have sold some when making a large purchase like an automobile or other large expense. In that case it may be a mix to maintain my allocation or it may be according to the market performance that year. (I avoid selling a stock containing fund in down years, like 2008.)
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siamond
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Re: Preferred Withdrawal Method

Post by siamond » Sat Jan 18, 2014 12:24 am

Yes, the poll choices are a tad confusing. I selected the 'market performance' option, but what I really meant was to reverse-balance. Which isn't the same thing as withdrawing in proportion to your AA...

lazyday
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Re: Preferred Withdrawal Method

Post by lazyday » Sat Jan 18, 2014 1:23 am

Rodc wrote:<snip> I'm a little on the fence regarding rebalancing from safe assets into risky assets when risky asset are tanking. Historically this has been a good idea. But in the case of a very long deep decline it would be a very bad idea. Might be lower risk, if also lower return, to not rebalance in this direction in retirement.
I've proposed a compromise to delay rebalancing from safe assets until either a very deep decline or, essentially, an extended decline.

If anyone wants I can find the post.

YDNAL
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Re: Preferred Withdrawal Method

Post by YDNAL » Sat Jan 18, 2014 6:12 am

EternalOptimist wrote:Generally speaking, for the withdrawal phase, which of these do you feel is the best method of drawing from a stock/bond portfolio over time.
Options 5 drives option 3, so are the same for all intent and purpose, that's why you see 75% of votes (at time of my post).
Withdraw largely/exclusively from bonds first
Withdraw largely/exclusively from equities first
Withdraw from equities/bonds in proportion to your asset allocation
Withdraw from a mix of equities/bonds in no particular pattern
Withdraw based on market performance
Some other method (please explain)
Why are the responses to the poll meaningful in any way to your personal circumstances? I would only check a 7th option.. *MOST of the above*.
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Dave C.
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Re: Preferred Withdrawal Method

Post by Dave C. » Sat Jan 18, 2014 6:38 am

I am surprised this point has not been brought up yet. I am beginning to become self-conscious.

This was not a choice but, I will withdraw from my non-taxed sheltered funds first. That way, I will pay only capital gains tax on my withdrawals, not my federal income tax. It doesn't matter if these funds are equities or fixed income. If I have already paid tax on them, I will use them first.

I will do this for two reasons.

1. My tax rate will likely be higher in my early retirement years. It is not brain surgery, during these years I will use the money from which I will pay the least text.

2. By using my taxable money first, I leave my text sheltered money alone to continue to gain interest and earnings tax free, for as long as possible.

The issue is not spending bonds or equities first, the issue is to spend taxable money first, text sheltered money second.

8-)
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Rodc
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Re: Preferred Withdrawal Method

Post by Rodc » Sat Jan 18, 2014 8:52 am

lazyday wrote:
Rodc wrote:<snip> I'm a little on the fence regarding rebalancing from safe assets into risky assets when risky asset are tanking. Historically this has been a good idea. But in the case of a very long deep decline it would be a very bad idea. Might be lower risk, if also lower return, to not rebalance in this direction in retirement.
I've proposed a compromise to delay rebalancing from safe assets until either a very deep decline or, essentially, an extended decline.

If anyone wants I can find the post.
That is another option I have considered as well. Challenge is picking implementation parameters.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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obgyn65
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Re: Preferred Withdrawal Method

Post by obgyn65 » Sat Jan 18, 2014 9:09 am

My investments are very conservative- mostly CDs. I like the certainty of income streams which allow the withdrawal of the same amount of money every year until age 95.
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Dandy
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Re: POLL: Preferred Withdrawal Method

Post by Dandy » Sat Jan 18, 2014 4:42 pm

Leading up to age 70 and SS use liquid taxable/tax free assets. When taking RMD-- proportionately from my IRA equity and bond investments excluding my CD ladder (about 5 yrs worth of yearly needs).

lazyday
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Re: Preferred Withdrawal Method

Post by lazyday » Sat Jan 18, 2014 4:57 pm

Rodc wrote:That is another option I have considered as well. Challenge is picking implementation parameters.
Glad others are thinking about this. And agree, seems difficult to form a good strategy. In my early attempt without backtesting, the (1) is for deep declines and probably never used, (2) is intended to help survive long bears.

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Electron
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Re: POLL: Preferred Withdrawal Method

Post by Electron » Sat Jan 18, 2014 5:11 pm

A significant factor is how much of a portfolio is taxable versus tax sheltered. Personally, I will consider the tax impact as part of the withdrawal decision.

One might want to defer taxes as long as possible, and in other cases one might want to pay more taxes now. There are a lot of variables. One should also consider any planned Roth Conversions from taxable retirement accounts.

Note also that one's tax bracket may rise when RMDs start.
Electron

dbr
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Re: POLL: Preferred Withdrawal Method

Post by dbr » Sat Jan 18, 2014 5:20 pm

Since the concept of a withdrawal "from" an asset does not make any sense to portfolio management, I don't think this poll has any answers.

Maybe what is meant is something about how asset allocation should be adjusted during the course of retirement. My answer to that is that it is not likely to be helpful enough to mess around with it to justify anything other than leaving it alone. That at least until there is some significant change in circumstances that might dictate otherwise.

Benn1950
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Re: Preferred Withdrawal Method

Post by Benn1950 » Sat Jan 18, 2014 5:21 pm

Dave C. wrote:I am surprised this point has not been brought up yet. I am beginning to become self-conscious.

This was not a choice but, I will withdraw from my non-taxed sheltered funds first. That way, I will pay only capital gains tax on my withdrawals, not my federal income tax. It doesn't matter if these funds are equities or fixed income. If I have already paid tax on them, I will use them first.

I will do this for two reasons.

1. My tax rate will likely be higher in my early retirement years. It is not brain surgery, during these years I will use the money from which I will pay the least text.

2. By using my taxable money first, I leave my text sheltered money alone to continue to gain interest and earnings tax free, for as long as possible.

The issue is not spending bonds or equities first, the issue is to spend taxable money first, text sheltered money second.

8-)
+1

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Garco
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Re: POLL: Preferred Withdrawal Method

Post by Garco » Sat Jan 18, 2014 5:26 pm

I do not have any alternative to withdrawing from my tax sheltered funds, because my very first withdrawals from my accumulated funds will coincide with RMD's at age 70.5. And these withdrawn funds will be taxable as regular income. I won't need to tap my taxable investments to have a sufficient budget, so I will let them ride.

In first year, at least, I will withdraw from equities and bonds, proportionately from each fund within these categories. But I do not expect to withdraw anything from TIAA Real Estate (TREA) or Traditional ("stable value fund"). On net, assuming growth in valuation of equities during the year, this should keep my basic % of equities roughly where it is at ca. 52%.

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BigFoot48
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Re: Preferred Withdrawal Method

Post by BigFoot48 » Sat Jan 18, 2014 6:38 pm

manwithnoname wrote:I withdraw the dividends, distributions and interest from my investment portfolio which along with SS covers my living expenses and taxes. I don't need to sell any investments.
Ditto. Of course, a decent SS benefit, relatively low expenses and a fairly large portfolio make all the math work. I only sell funds when I rebalance.
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Re: POLL: Preferred Withdrawal Method

Post by Lafder » Sat Jan 18, 2014 6:46 pm

I look at the cost basis and capital gains or tax loss harvesting effects, as well as my asset allocations. Then decide from there.
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pastafarian
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Re: Preferred Withdrawal Method

Post by pastafarian » Sat Jan 18, 2014 6:58 pm

Edit-- uh, never mind.
Last edited by pastafarian on Mon Feb 24, 2014 8:59 pm, edited 1 time in total.

longinvest
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Re: POLL: Preferred Withdrawal Method

Post by longinvest » Sat Jan 18, 2014 7:50 pm

I selected Withdraw from equities/bonds in proportion to your asset allocation.

I intend to withdraw from the porfolio, but also to rebalance it when it gets out of balance. I'll spend any cash (dividends, interest) first and sell inflated assets to get the desired withdrawal amount. I'll only do additional transactions when rebalancing is needed.
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mickeyd
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Re: POLL: Preferred Withdrawal Method

Post by mickeyd » Sat Jan 18, 2014 8:29 pm

My RMD drop-dead year is next year. I have yet to begin a serious evaluation as to how I will opt to take my distribution.

Some factors that will probably influence my actions in 2015~

1 ) Since I will also be changing my AA from 60/40 to 50/50 eventually, I plan on favoring the selling of tax deferred (IRA) equites so I can move toward this goal. If bears/bulls are running I will probably have to take all of that into consideration.

2 ) Other things being equal, I will probably take my RMD at the end of the year (2015) in a lump sum (less taxes) exchange to my taxable TSM account, which will increase my quarterly dividends from the taxable TSM. How I take my 2016 distribution should be considered at the same time. Will I take distribution in monthly, quarterly or annual distribution? (If I take it monthly, I will be taking an annual distribution in Dec 2015 and a monthly again in Jan 2016~not sure about that)...

3 ) I will probably redo my AA and consolidate a few equity funds (Value, S/C Value, REIT) into my TSM (TIRA) just to decrease the complexity a bit. Maybe reduce my TIPS from about 33% of bonds to around 20%.

4 ) Figure out how to begin spending all of the above...
Last edited by mickeyd on Sun Jan 19, 2014 6:38 pm, edited 1 time in total.
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SpaceCommander
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Re: POLL: Preferred Withdrawal Method

Post by SpaceCommander » Sat Jan 18, 2014 10:03 pm

Need the option for "Withdraw dividends only, selling NEITHER equities nor bonds." Works for me.
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rotorhead
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Re: POLL: Preferred Withdrawal Method

Post by rotorhead » Sat Jan 18, 2014 10:16 pm

I was withdrawing proportionately from equity and bond funds until late last year. We had a pretty good year in 2013; and our AA became more heavily tilted toward equities. So now am only withdrawing from the equity funds as I slowly "re-balance" using this method rather than all at one time.

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Re: Preferred Withdrawal Method

Post by sperry8 » Sat Jan 18, 2014 10:39 pm

ajcp wrote:I'm a long way away from this, but my plan is a combination of collecting the dividends and this.
Rodc wrote: I think I may just do the opposite of what I do now (new money goes into an asset that is below target, once in a while rebalance if that does not keep things more or less where I want the allocation). That is take from any allocation that is above target.
That's exactly what I do. I do not reinvest dividends and spend those. I also use cash that is not allocated in years where dividends do not cover expenses. In years where I do not have enough cash/dividends, I use rebalancing as an opportunity to pull out some minor cash (from equities) so that I can spend this. I only do the last part however in up years (sell high). From 2008-11 I did not pull out a little when rebalancing.
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