Withdrawals

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Time2Quit
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Joined: Thu Nov 01, 2018 9:47 am

Withdrawals

Post by Time2Quit » Tue Nov 27, 2018 5:53 pm

The more I read the more questions I have, so please bear with me.

If you hold a three funded portfolio and let’s assume you do your withdrawals in January, which asset do you withdraw from if all the assets are down for the year? It has been stated many times that as long as you don’t sell when an asset drops it will recover. In this instance you have no choice but to sell as all are down. In my mind this makes a case that a slice and dice portfolio might work in this particular scenario as you have a better chance one of the holdings being up and harvesting from that holding.

Of course this is a non-issue if one has enough cash equivalents which you harvest from when all asset classes are down. So let’s pretend you don’t have cash in this scenario.

Interested in BH thoughts.

Thanks

alex_686
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Re: Withdrawals

Post by alex_686 » Tue Nov 27, 2018 5:56 pm

Time2Quit wrote:
Tue Nov 27, 2018 5:53 pm
It has been stated many times that as long as you don’t sell when an asset drops it will recover.
??? I have never heard anybody say this, nor can I think of any rational behind it. I can think of cognitive and behavioral economics that would explain this behavior - but as defects in reasoning that need to be fixed.

You are way overthinking this. What is your target AA? Withdraw from each of your 3 funds to get to your target AA.
Last edited by alex_686 on Tue Nov 27, 2018 5:58 pm, edited 1 time in total.

barnaclebob
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Re: Withdrawals

Post by barnaclebob » Tue Nov 27, 2018 5:58 pm

alex_686 wrote:
Tue Nov 27, 2018 5:56 pm
Time2Quit wrote:
Tue Nov 27, 2018 5:53 pm
It has been stated many times that as long as you don’t sell when an asset drops it will recover.
??? I have never heard anybody say this, nor can I think of any rational behind it.

You are way overthinking this. What is your target AA? Withdraw from each of your 3 funds to get to your target AA.
I think OP is confusing the nonsense idiom of "you haven't actually lost anything until you sell".

The Wizard
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Re: Withdrawals

Post by The Wizard » Tue Nov 27, 2018 5:58 pm

I do retirement withdrawals on a monthly basis, not annually.
And I do pro rata withdrawals.
It works just fine for me...
Attempted new signature...

2b2
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Re: Withdrawals

Post by 2b2 » Tue Nov 27, 2018 6:01 pm

The assets (stocks) that you don't sell have never failed to recover - given enough time.
The assets (stocks) you sold cannot recover.

2b2

Time2Quit
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Re: Withdrawals

Post by Time2Quit » Tue Nov 27, 2018 6:06 pm

2b2 wrote:
Tue Nov 27, 2018 6:01 pm
The assets (stocks) that you don't sell have never failed to recover - given enough time.
The assets (stocks) you sold cannot recover.

2b2
What 2b2 said is what I was trying to convey. If all your assets (VTI, VXUS, BND) are all down and you sell as part of your withdrawal you can never recover as those shares are gone and if you don’t sell given enough time they recover.

fposte
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Re: Withdrawals

Post by fposte » Tue Nov 27, 2018 6:35 pm

Time2Quit wrote:
Tue Nov 27, 2018 6:06 pm
2b2 wrote:
Tue Nov 27, 2018 6:01 pm
The assets (stocks) that you don't sell have never failed to recover - given enough time.
The assets (stocks) you sold cannot recover.

2b2
What 2b2 said is what I was trying to convey. If all your assets (VTI, VXUS, BND) are all down and you sell as part of your withdrawal you can never recover as those shares are gone and if you don’t sell given enough time they recover.
But it doesn't matter if your shares are up or down--if you sell them, they're gone and they won't grow any more. That's the decumulation phase.

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Nestegg_User
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Re: Withdrawals

Post by Nestegg_User » Tue Nov 27, 2018 6:38 pm

Time2Quit

...assuming that they are in taxable accounts:

first, sell equities if any are eligible for tax loss harvesting __that gives you both the money that you need and allows for reduction of tax

second, check for your then current allocation versus your allocation in your IPS. If roughly at levels desired after (1) above, then sell BND, in addition to the above, to reach your desired spend.

If the allocation is stock heavy still, rebalance and start a cash buffer (short term CD’s, money market)

edit: if you have long term gains and are in the 0% cap gains rate... then you can do “tax gain harvesting”. The gains might subject you to state taxes, may affect things like ACA (not applicable to us). If enough can be “harvested” then any excess can be used for developing the cash buffer. That’s why one uses spec ID rather than average basis; sometimes there’s a short drop that allows a tax loss harvest (and one can either wait 30 days and rebuy the fund and thus reset the cost basis or buy a “similar” — but not identical— fund to maintain your allocation per IPS.

(for us, we keep a rolling three year CD ladder.... and have treasuries maturing at various times to replenish)

balbrec2
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Re: Withdrawals

Post by balbrec2 » Wed Nov 28, 2018 9:30 am

Why pretend there is no cash position? Make your yearly withdrawal amount
part of your asset allocation and just rebalance the whole thing every year.
Or carry a large enough cash position to carry you through several down years in the market.
I know many here will say cash is a drag on a portfolio and that was certainly true when MM funds
paid next to nothing. Right now however they are yielding over 2% and that ain't bad. It can also
save you from liquidating positions that are down. Just my $.02 and what I do. I think of it as another sleep
at night factor. This is based on all funds being in a tax deferred account.


Best regards

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House Blend
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Re: Withdrawals

Post by House Blend » Wed Nov 28, 2018 10:00 am

Time2Quit wrote:
Tue Nov 27, 2018 5:53 pm
If you hold a three funded portfolio and let’s assume you do your withdrawals in January, which asset do you withdraw from if all the assets are down for the year?
You pay no attention to which assets have had positive or negative returns. That's irrelevant. What matters is how much you have in each of your asset classes, percentage-wise, relative to what your chosen asset allocation says they should be.

You draw from the asset class(es) that are most above their targets.

A related issue that seems to befuddle many is unnecessary paralysis associated with choosing the account to draw from.

For example, you might prefer to withdraw from taxable in order to let more of your Roth and tax-deferred accounts remain tax-sheltered. But suppose taxable only contains Asset Class X, which happens to be *below* your allocation target. This is a false dilemma. You withdraw from X in taxable, *and* make a trade within tax-sheltered accounts that restores your allocation to X from assets that were previously allocated to the above-target asset class Y.

The point is that you can maintain any desired AA regardless of which account you are withdrawing from or where assets are located.

magicrat
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Re: Withdrawals

Post by magicrat » Wed Nov 28, 2018 10:33 am

Time2Quit wrote:
Tue Nov 27, 2018 6:06 pm
2b2 wrote:
Tue Nov 27, 2018 6:01 pm
The assets (stocks) that you don't sell have never failed to recover - given enough time.
The assets (stocks) you sold cannot recover.

2b2
What 2b2 said is what I was trying to convey. If all your assets (VTI, VXUS, BND) are all down and you sell as part of your withdrawal you can never recover as those shares are gone and if you don’t sell given enough time they recover.
Down from what? If you sell shares when they are "up" (whatever that means), those shares may also miss out on growth. What's the difference?

Time2Quit
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Re: Withdrawals

Post by Time2Quit » Thu Dec 06, 2018 8:24 am

Thanks All,

I like the idea of a rolling 3 to 4 year CD ladder/Cash option in addition to the pure three fund portfolio as a good way to handle down market withdrawals. Hopefuy you only sell when times are good and have plenty to replenish your ladder. Of course nothing is ever guranteed and unfavorable conditions could definitely last for more than three years, but this method adds a bit of cushion.

I sure am struggling with this decumulatuon phase. I liked the accumulation phase :moneybag much better!

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