Advice on a simple way to distribute income in retirement?

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whyme
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Advice on a simple way to distribute income in retirement?

Post by whyme » Wed Jul 29, 2020 11:50 am

I'm planning for retirement within a couple of years, and still unsure on some practical details of my drawdown plan. Let's assume that I've figured out my overall asset allocation, the withdrawal rate, and the order in which various accounts are tapped--no need to discuss those matters here.

Assume I'm going to take out $60,000 for a given year, and want to receive it as $5000 monthly deposits to my checking account. My goal is to implement a sensible system that won't require a lot of involvement from me; something simple enough that I can still handle it as I age, even if there's some loss of energy or mild cognitive decline as the years wear on.

Anybody have experience with a good set-up that meets this requirement? Does it make sense to withdraw the amount annually as a lump sum and move it to a dedicated account, which then makes monthly automatic deposits in the checking account? Any reason to keep that dedicated account separate, in savings at the bank or at a different provider than the bulk of my assets? Is there a better option? Should I just park the annual cash in a money market or savings account, or is there a superior solution?

Thanks in advance for your thoughts.

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David Jay
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Re: Advice on a simple way to distribute income in retirement?

Post by David Jay » Wed Jul 29, 2020 1:08 pm

whyme wrote:
Wed Jul 29, 2020 11:50 am
Does it make sense to withdraw the amount annually as a lump sum and move it to a dedicated account, which then makes monthly automatic deposits in the checking account?
That’s what I did. I set up a new, taxable account we call our “distribution account”. I have an automated monthly transfer from the distribution account settlement fund to my Credit Union checking account (in your case, this would be for that $5,000).

I set up the monthly transfer for my spouse who was missing the “paycheck” every 2 weeks. I move funds into the distribution account as appropriate (I am under 65 so I have to be careful with how much tIRA and how much Roth I take out to meet ACA limits). I usually put about 6-9 months into the account at a time and always keep 3 months in the distribution account to assure that the transfers happen if I was “out of commission” for a few weeks (or quarantined on a cruise ship).

For simplicity, I will likely move to an annual “top-off” for simplicity after start of Medicare in a couple of years.
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sycamore
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Re: Advice on a simple way to distribute income in retirement?

Post by sycamore » Wed Jul 29, 2020 1:31 pm

I'm not in retirement so no direct experience to share. I've heard of people preferring a "bucket" of spending money for a year, separate from their investment accounts. That's up to you, whatever makes sense. It could be at your bank/credit union, or at a cash management account like at Fidelity or Schwab.

Regarding when you "take out" money, I assume you're referring to when you sell a stock or bond fund for spending needs. Once a year would be a simple way. If you have RMDs for any IRAs, that'd be the minimum "take out" action. If you have taxable accounts, you could "take out" at other times during the year as needed.

Instead of a single annual withdrawal, consider a monthly frequency instead as done with the spending model used by the Early Retirement Now blog. The idea is to minimize the "cash drag" from holding cash instead of stocks/bonds.

Broken Man 1999
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Re: Advice on a simple way to distribute income in retirement?

Post by Broken Man 1999 » Wed Jul 29, 2020 1:33 pm

I set DW's account to sell assets in her TIRA (a distribution) and send funds to her credit union account each month. Vanguard removes the taxes that I have set up for her distributions, as well. It requires no activity once it was set up initially. Her expenses are pretty much the same each month.

I can't use such an automated setup for my TIRA distributions as my expenses are lumpy. So, a week or so before end of month I set up a distribution to pay the first couple of weeks bills in the next month. The rest of the monthly expenses are covered by our SS benefits.

My first year of retirement I pulled out a year of expenses all at once. However, I didn't like my cash standing around doing nothing for me, so I started taking out expenses monthly.

Broken Man 1999
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dbr
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Re: Advice on a simple way to distribute income in retirement?

Post by dbr » Wed Jul 29, 2020 2:31 pm

I take my annual RMD from the 401k at the end of the year and pay all income taxes by withholding from that. This usually avoids any estimated tax payments being needed. Before we had RMDs we did not withdraw any tax exempt money but spent taxable assets as needed.

Most brokers will arrange constant monthly withdrawal plans from a taxable or IRA account. I don't think 401k plans often offer that, but maybe they do. Mine does not, but, as I said, I do it manually and set the withholding at year end.

We do have automated income deposited from Social Security and some pensions, but on the whole I would prefer to avoid automatic moving of money among accounts. I think it is more likely to cause hassles than solve them as month to month circumstances vary quite a bit.

In general spending has been lumpy enough that any particular fixed plan would not be all that helpful. Our annual spending has varied in any given year from twice the average spend to half the average spend.

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CAsage
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Re: Advice on a simple way to distribute income in retirement?

Post by CAsage » Wed Jul 29, 2020 2:49 pm

I have a short-term bond fund with enough money in it to pay living expenses for ~2 years, which is part of my overall bond allocation. Simply set up a monthly transfer directly from there to your checking account monthly. Mine is still in my IRA; no need to come up with a special temporary holding account. Just pick your most stable bond or money market account, and when you rebalance annually, top it off.
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fourwheelcycle
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Re: Advice on a simple way to distribute income in retirement?

Post by fourwheelcycle » Wed Jul 29, 2020 3:21 pm

We have the monthly amounts for my pension, my wife's RMDs, and our SS payments, less withholding, direct deposited to our BoA checking account. That more than covers our expenses.

Topic Author
whyme
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Re: Advice on a simple way to distribute income in retirement?

Post by whyme » Fri Jul 31, 2020 4:35 pm

Thanks for the advice. I will probably just try one of these arrangements and adjust as needed. Retirement is still at least a year off.

sport
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Re: Advice on a simple way to distribute income in retirement?

Post by sport » Sat Aug 01, 2020 10:13 am

If you have a taxable account, you should turn off any automatic reinvestment of distributions. You have to pay tax on the distributions in any case, so there is no sense in reinvesting them, and then possibly paying more tax when you sell shares to get spendable income.

dbr
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Re: Advice on a simple way to distribute income in retirement?

Post by dbr » Sat Aug 01, 2020 10:31 am

whyme wrote:
Wed Jul 29, 2020 11:50 am

Assume I'm going to take out $60,000 for a given year, and want to receive it as $5000 monthly deposits to my checking account. My goal is to implement a sensible system that won't require a lot of involvement from me; something simple enough that I can still handle it as I age, even if there's some loss of energy or mild cognitive decline as the years wear on.
It might be that staying active in managing financial affairs is a better idea than putting things as much as possible on autopilot. It is the use it or lose it theory. In any case the most dangerous thing with aging would be actually forgetting all your set it and forget it arrangements.

That sort of thing also applies to staying current with technology of all kinds, keeping up with current affairs, and so on.

260chrisb
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Re: Advice on a simple way to distribute income in retirement?

Post by 260chrisb » Sat Aug 01, 2020 10:43 am

This is a really good question and a subject I've given a lot of thought to. My plan is to lump sum in January every year most of what I think I will need for the year to my savings account to be transferred to wherever it's needed or to bill pay. This will be from a managed roll over IRA that I plan to spend first that will be about a fourth of my overall retirement assets. My thoughts are to keep it at the lowest tax bracket possible and also reduce my fees paid on a quarterly basis based on the lower balance.

Golf maniac
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Re: Advice on a simple way to distribute income in retirement?

Post by Golf maniac » Sat Aug 01, 2020 10:43 am

If you know the order of accounts you will be using then just make monthly withdrawals, have them withhold taxes at your marginal rate and send it to your checking each month. That is what I do. Very simple.

sailaway
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Re: Advice on a simple way to distribute income in retirement?

Post by sailaway » Sat Aug 01, 2020 10:45 am

Golf maniac wrote:
Sat Aug 01, 2020 10:43 am
If you know the order of accounts you will be using then just make monthly withdrawals, have them withhold taxes at your marginal rate and send it to your checking each month. That is what I do. Very simple.
Why do you have taxes withheld at your marginal rate, rather than your effective rate?

Golf maniac
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Re: Advice on a simple way to distribute income in retirement?

Post by Golf maniac » Sat Aug 01, 2020 10:49 am

Because I have a pension.

fourwheelcycle
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Re: Advice on a simple way to distribute income in retirement?

Post by fourwheelcycle » Sat Aug 01, 2020 11:40 am

dbr wrote:
Sat Aug 01, 2020 10:31 am
It might be that staying active in managing financial affairs is a better idea than putting things as much as possible on autopilot. It is the use it or lose it theory. In any case the most dangerous thing with aging would be actually forgetting all your set it and forget it arrangements.
Ha! :happy When I was working I had to plan and manage as part of my job, but I purposely minimized planning and managing our money by keeping everything in a set it and forget it index fund portfolio. Our pay was direct-deposited to our BoA account and when the balance got too high I just transferred the excess to Vanguard.

Now that we are retired we still have the set it and forget it portfolio, but I find I am spending a lot of time planning and managing our finances related to transferring 403b accounts at TIAA and Fidelity to IRA accounts at Vanguard, when to file for (and suspend) SS benefits, how to structure our estate plan, how to select and enroll in Medicare Part B and Part D insurance, how to keep track of RMDs and QCDs, how to advise our kids on their first mortgages, how to set up 529 plans, how to fill out 709 forms, and finally, how to manage our cash flow to cover living expenses, taxes, and gifts to children and charities. I hope all this financial management exercise keeps my brain working for a few years longer.

This forum, including the advice of bsteiner, spirit rider, and Alan S., has been a tremendous resource for my retirement education.
Last edited by fourwheelcycle on Sun Aug 02, 2020 6:06 am, edited 1 time in total.

backpacker61
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Re: Advice on a simple way to distribute income in retirement?

Post by backpacker61 » Sat Aug 01, 2020 7:18 pm

dbr wrote:
Sat Aug 01, 2020 10:31 am
whyme wrote:
Wed Jul 29, 2020 11:50 am

Assume I'm going to take out $60,000 for a given year, and want to receive it as $5000 monthly deposits to my checking account. My goal is to implement a sensible system that won't require a lot of involvement from me; something simple enough that I can still handle it as I age, even if there's some loss of energy or mild cognitive decline as the years wear on.
It might be that staying active in managing financial affairs is a better idea than putting things as much as possible on autopilot. It is the use it or lose it theory. In any case the most dangerous thing with aging would be actually forgetting all your set it and forget it arrangements.

That sort of thing also applies to staying current with technology of all kinds, keeping up with current affairs, and so on.
To an extent, I agree with this, but at some point, this model will begin to break down (if you live long enough).

My mother is 92, and reconciled my family's checking account statements to the penny for decades.
She also mantained ledger books to keep track of their cost basis in mutual and closed end funds (in an era when mutual funds didn't keep track of your cost basis for you).

But she's 92 now.

She has forgotten how to log into her iMac and just gets confused looking at the screen.

She hasn't logged into her brokerage account in months.

She lives in an assisted living facility, so I haven't been able to visit her since February. I had been reconciling her checkbook balance during my regular (monthly or better) visits, but COVID 19 has put the kibosh on my ability to visit.

Luckily, her Social Security and a small pension check get direct deposited monthly to her bank account. And she also has some CEF's and open end mutual funds that have their dividends directed to her bank account. I think this will all be enough to keep her from overdrawing her bank account when the bill for her assisted living facility is withdrawn every month.

While it's fine to plan for a certain amount of intervention (brokerage sales, asset transfers), at some point, those tasks could get to be very difficult, and cognitive decline can be fairly precipitous.

Ask yourself who will be helping you? How trustworthy are they? And what would happen if they were removed from the picture (by a "Black Swan" event like the one we are experiencing)?
“Now shall I walk or shall I ride? | 'Ride,' Pleasure said; | 'Walk,' Joy replied.” | | ― W.H. Davies

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