How to draw money from 401k in retirement?

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E_Zwicky
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How to draw money from 401k in retirement?

Post by E_Zwicky » Wed Nov 06, 2019 4:17 pm

Sorry if this is elementary, but I am a set-and-forget index-fund investor for the most part, and I don't regularly frequent the boards, and am not particularly litereate financially.

Right now at age 62 I have a mix of 50-50 S&P500 index funds (Vanguard for rollover, company-mandated Fidelity for 401k out of paychecks) and bond index funds, all Vanguard. One total market, one total int'l, and one intermediate-term.

Do I go into retirement still at 50-50? Live off the bonds and hope the stocks grow?

Or do I move the bond funds into stock dividend funds and live off the dividends?

Again, sorry if this is a dumb question, but I hope it can be abswered.

Thanks in advance for your time and advice

niceguy7376
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Re: How to draw money from 401k in retirement?

Post by niceguy7376 » Wed Nov 06, 2019 4:42 pm

The suggested Asset Allocation would be anywhere from 60-40 to 40-60 between Bonds and Stocks.
You mentioned that you are 50-50 which is within that band.

As for "how to draw money", I will leave it upto folks that are near or already in retirement age to provide suggestions. I need to learn that part.

mhalley
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Re: How to draw money from 401k in retirement?

Post by mhalley » Wed Nov 06, 2019 4:47 pm

There are many ways to do it. I have elected to stick to 50/50, but some recommend dropping lower then increasing stocks to decrease sequence of returns risk. Selling equal parts is reasonable. Dividends are not the answer.
Physician on fire had a post with his drawdown strategy, with links to other financial bloggers strategies that u might find useful.
https://www.physicianonfire.com/drawdown/

retired@50
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Re: How to draw money from 401k in retirement?

Post by retired@50 » Wed Nov 06, 2019 5:39 pm

If you're happy with a 50% stock / 50% bond allocation, then all you need to to in retirement is maintain that allocation. In other words, sell whichever asset class has done well, and avoid selling the asset class that is doing "less well" or is down. After a few years of practice, you'll easily get the hang of it. Just try to keep your stock bond mix around 50% each.

The more challenging issue for most retired folks is a safe withdrawal rate (SWR). Some start with a 4% rule, and others adopt other strategies. If you find yourself needing much more than 4% of your portfolio per year, then you may need to control expenses where possible.

Regards,

Topic Author
E_Zwicky
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Joined: Mon Aug 06, 2018 6:23 am

Re: How to draw money from 401k in retirement?

Post by E_Zwicky » Wed Nov 06, 2019 6:03 pm

So I'll have to sell shares rather than live off of dividends. That's what I was wondering... the mechanics of the whole thing. I never thought about it before.

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Random Musings
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Re: How to draw money from 401k in retirement?

Post by Random Musings » Wed Nov 06, 2019 10:17 pm

The real question about asset allocation is whether you need 50/50 allocation to achieve your goal of some targeted SWR to get through retirement. Also, with respect to drawing money for retirement, do you have any other sources of savings to draw from besides a rollover IRA and 401k (that most likely will be rolled over)? For example, if you have taxable savings, you may want to draw off of those first. There are many variables if other savings available, but if you essentially just have primarily two rollover IRA's, keys are asset allocation and SWR choice. If you have a lot of dollars in those buckets, may want to consider some level of Roth IRA conversion.

At current low bond yields and higher valuations, perhaps a 4% SWR rate is a little risky.

RM
I figure the odds be fifty-fifty I just might have something to say. FZ

Topic Author
E_Zwicky
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Re: How to draw money from 401k in retirement?

Post by E_Zwicky » Thu Nov 07, 2019 2:18 am

thanks random musings (Overnite Sensation quote and WYWH avatar... nice)

$775k of our money is in Vanguard Admiral rollover IRAs from past jobs, $575k is in a Vanguard Institutional company 401k and $80k is in company Fidelity 401ks. We are 62 (me) and 60.

I have not considered this Roth IRA conversion (I don't even know what it means). I will talk to Vanguard this week and see if they can educate / help me.

Thanks,

Eric

22twain
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Re: How to draw money from 401k in retirement?

Post by 22twain » Thu Nov 07, 2019 7:33 am

E_Zwicky wrote:
Thu Nov 07, 2019 2:18 am
I have not considered this Roth IRA conversion (I don't even know what it means).
From the Bogleheads Wiki: https://www.bogleheads.org/wiki/Roth_IRA_conversion

Basically, you generate more taxable income while you can pay the tax at a lower rate, to save on taxes later when your tax rate is higher (when you're collecting Social Security and taking RMDs). Also, it reduces your RMDs (and the taxes on them).
My investing princiPLEs do not include absolutely preserving princiPAL.

dbr
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Re: How to draw money from 401k in retirement?

Post by dbr » Thu Nov 07, 2019 2:15 pm

You set an asset allocation, you choose how much you want to withdraw, and, as needed, you rebalance the asset allocation. None of this has anything to do with "living" off the stocks, the bonds, the dividends, or anything else in particular. The amounts you withdraw and spend will affect how well the portfolio survives and perhaps grows in the future.

When you choose to withdraw some money you can make the withdrawal by selling whatever asset is over target. In the meantime dividends and distributions can be automatically reinvested or directed to whatever asset is below target. When you have to take RMDs, that is just a transfer of assets from tax deferred to taxable accounts and may require adjusting some things to keep the asset allocation on target.

Portfolio survival under withdrawal is not very sensitive to asset allocation except when withdrawing too much from an allocation too low in stocks. Otherwise asset allocation is mainly related to how much your chances are to hold more wealth rather than less wealth when you die, if things go other than the worst outcomes. All this can be seen if you run forecasters such as FireCalc and other similar programs.

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Random Musings
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Re: How to draw money from 401k in retirement?

Post by Random Musings » Thu Nov 07, 2019 9:47 pm

E_Zwicky wrote:
Thu Nov 07, 2019 2:18 am
thanks random musings (Overnite Sensation quote and WYWH avatar... nice)

$775k of our money is in Vanguard Admiral rollover IRAs from past jobs, $575k is in a Vanguard Institutional company 401k and $80k is in company Fidelity 401ks. We are 62 (me) and 60.

I have not considered this Roth IRA conversion (I don't even know what it means). I will talk to Vanguard this week and see if they can educate / help me.

Thanks,

Eric
There are many excellent resources at this site to help you with transitioning to retirement. if you want a general primer that covers a lot of bases about retirement, I recommend the book "Your complete Guide to a Successful and Secure Retirement" by Larry Swedroe and Kevin Grogan. If you want to delve further than that, you always can. However, I don't invest in those alternative lending, reinsurrance and two other choices in the book that make up "portfolio C" as I am not sold on those yet and most likely will not invest in those alternatives. I do small value tilt a bit, though. Overall, a good book to read even if one uses an advisor, it may lead to the conclusion that your advisor is not looking at the whole picture.

One other item that may come into the picture, perhaps, is a meaningful inheritance. Receiving one even at ten percent of your investible net worth could reduce your need of risk or allow a slightly higher SWR.

RM
I figure the odds be fifty-fifty I just might have something to say. FZ

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