Proposed new wiki page: Retirement draw-down priority

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Proposed new wiki page: Retirement draw-down priority

Post by fyre4ce »

Update Nov 22: Earlier this year there was an extensive review of this page that ultimately resulted in two pages being proposed for publication:

Retirement draw-down priority

and

Retirement income planning

The first page is more of an analog to the Prioritizing investments page, but for the decumulation phase. It's meant to be high-level and targeted at more novice readers, and was renamed several times. The second page focuses more on the concepts, rather than prescribing a specific order, and is targeted for more advanced readers making their own customized plan. My opinion, and seemingly that of most editors, is that both pages have value. Please provide any feedback for either here.

Earlier post:


Title was "Proposed new wiki page - Spending priority in retirement". Thread moved from the private wiki editor's forum into the Personal Finance (Not Investing) forum. See this post for the updated thread. --admin LadyGeek]

It's not really the best content for this "start-up kit" page, but I did throw together a very rough draft of a "spending priority" page:

https://www.bogleheads.org/wiki/User:Fy ... retirement

I mirrored it after the Prioritizing Investments page. Someone (LadyGeek?) has a tool to make that arrow priority chart, which we could use to make an equivalent chart if the group decided this content is worth polishing up and publishing. Thoughts?
Last edited by fyre4ce on Wed Nov 22, 2023 6:16 am, edited 3 times in total.
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Re: 'Bogleheads® retirement planning start-up kit' article

Post by TedSwippet »

fyre4ce wrote: Tue Jun 06, 2023 10:21 pm It's not really the best content for this "start-up kit" page, but I did throw together a very rough draft of a "spending priority" page:

https://www.bogleheads.org/wiki/User:Fy ... retirement
Seems like a decumulation priorities page would be a good bookend to the current accumulation priorities one. For feedback though, better to take this to the main forum. Visibility of things in the Wiki Editor's Lounge tends to be low.

Nothing from me on your page content (not a US investor), but on format, the current layout looks decidedly weird on a laptop. Table rows don't flow around the image, and as a result, I get to scroll down through multiple screens where the table row is about 1/3 of the screen width, and with other 2/3 entirely blank white. Maybe you're using a different screen layout to me? It's actually fine in Mobile, because the Mobile skin doesn't even try to float the image to screen right, but simply puts it above the text.

A table may not be quite the right format for this information anyway. I notice that our wiki has a bit of 'table-itis' throughout; perhaps a sense of authors thinking along the lines of "the solution is a table, now how can I make my writing fit into it?". In particular, a two-column table with columns that are "Thing" and "Words about that thing" is just a list in disguise, and nearly always clearer when written as either an actual definition list, or perhaps better still (because it goes into the TOC), simply subheading and then text. And unlike tables, both of these will flow properly around images.

While I'm venting, our wiki also regularly uses numbered lists where bulleted lists would be appropriate -- that is, the numbering is entirely irrelevant -- and bulleted (or numbered) lists where things aren't even a list at all, just a bunch of paragraphs of text. "Table-itis" and "list-itis" then! Shrug.
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Re: 'Bogleheads® retirement planning start-up kit' article

Post by LadyGeek »

Yes, please start a dedicated discussion thread in the general forum. Since it's retirement planning, perhaps the personal finance forum would be best.

As a guide, the prioritizing investments thread is here: "Wiki - Prioritizing investments (proposed updates)"

If you look at the image's wiki page File:Prioritizing investments.svg, you'll see that it was created with Google Drawings.
Source: Prioritizing investments, on Google Drawings.
You can make a copy the file and modify it as you wish.
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Re: Proposed new wiki page - Spending priority in retirement

Post by LadyGeek »

I made this is a separate thread so we can discuss / edit the page until fyre4ce is ready to post in the general forum. (This is the private wiki editor's forum.)
TedSwippet wrote: Wed Jun 07, 2023 5:57 am While I'm venting, our wiki also regularly uses numbered lists where bulleted lists would be appropriate -- that is, the numbering is entirely irrelevant -- and bulleted (or numbered) lists where things aren't even a list at all, just a bunch of paragraphs of text. "Table-itis" and "list-itis" then! Shrug.
I will blame PowerPoint for influencing that style.
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Re: Proposed new wiki page - Spending priority in retirement

Post by TedSwippet »

LadyGeek wrote: Wed Jun 07, 2023 6:15 am
TedSwippet wrote: Wed Jun 07, 2023 5:57 am While I'm venting, our wiki also regularly uses numbered lists where bulleted lists would be appropriate -- that is, the numbering is entirely irrelevant -- and bulleted (or numbered) lists where things aren't even a list at all, just a bunch of paragraphs of text. "Table-itis" and "list-itis" then! Shrug.
I will blame PowerPoint for influencing that style.
Yes! That, and FAQ formats. Both of them discourage marshalling information into a structured and ordered narrative, and instead encourage a form of shorthand where initial thoughts can be thrown onto a page in any order and then left that way, with the bullet list or FAQ presenting an entirely illusory veneer of organisation.

Although FAQs are useful where questions are genuinely frequently asked, far too many companies (who should know better) and web sites just use them as a lazy way to throw out important information -- often stuff that nobody ever has actually asked about! -- while avoiding spending the time to properly lay out this information. Or, at the other extreme, highly formalised T&Cs that, of course, nobody bothers to read; this would be an example of over-structuring to discourage readers!
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Re: Proposed new wiki page - Spending priority in retirement

Post by TedSwippet »

... oh, and almost forgot, honourable mention has to go to listicles. Pretty much the apex of lazy journalism. Our wiki is, happily, pretty much free of listicle-like titles, and the few pages that are more or less only lists tend to be navigational, which is fine.

One thing that does puzzle me is why some of our wiki pages exist at all, given that the topics are perhaps fully (and better?) covered elsewhere. I can give a pass to Exchange-traded fund (ours), because compared to Exchange-traded fund) (Wikipedia), our version can slant towards indexing and Vanguard in a way that main Wikipedia cannot. Similarly, Mutual fund (ours) and Mutual fund (Wikipedia). A net positive for Wikipedia's versions though is that they cover non-US ETF and fund detail, something I probably care about more than most other Wiki authors.

A few pages seem harder to justify, though. For example, the entire section on "Statistical concepts" seems a bit redundant to me. There's little or no attempt to connect them to our own core site/wiki principles, and they're well covered elsewhere. At maximum, this could all be replaced with a single page of links to main Wikipedia articles; at minimum, would we miss it if it went away?
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Re: Proposed new wiki page - Spending priority in retirement

Post by LadyGeek »

^^^ The "Statistical concepts" sections are written with a focus on investing and personal finance. They're helpful from that perspective vs. a general description of mathematical concepts.
fyre4ce wrote: Tue Jun 06, 2023 10:21 pm I mirrored it after the Prioritizing Investments page. Someone (LadyGeek?) has a tool to make that arrow priority chart, which we could use to make an equivalent chart if the group decided this content is worth polishing up and publishing. Thoughts?
I'm thinking there would be quite a bit of interest, as this is, after all, a retirement forum. :wink:

For example, we have several dedicated Bogleheads chapters such as "Pre-Retirement/Early Retirement" Life Stage Virtual Chapter "Master Thread" and "Retired" Life Stage Virtual Chapter "Master Thread". (I'm only mentioning this because I'm involved with these chapters.)
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Re: 'Bogleheads® retirement planning start-up kit' article

Post by fyre4ce »

LadyGeek wrote: Wed Jun 07, 2023 6:08 am Yes, please start a dedicated discussion thread in the general forum. Since it's retirement planning, perhaps the personal finance forum would be best.

As a guide, the prioritizing investments thread is here: "Wiki - Prioritizing investments (proposed updates)"

If you look at the image's wiki page File:Prioritizing investments.svg, you'll see that it was created with Google Drawings.
Source: Prioritizing investments, on Google Drawings.
You can make a copy the file and modify it as you wish.
Did I get this right?

https://docs.google.com/drawings/d/e/2P ... 186&h=1050

Edit: the background looks dark gray when I download the image, which doesn't look right. I've never used google drawings before. Do you know how to edit the background color?
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Re: 'Bogleheads® retirement planning start-up kit' article

Post by fyre4ce »

TedSwippet wrote: Wed Jun 07, 2023 5:57 am
fyre4ce wrote: Tue Jun 06, 2023 10:21 pm It's not really the best content for this "start-up kit" page, but I did throw together a very rough draft of a "spending priority" page:

https://www.bogleheads.org/wiki/User:Fy ... retirement
Seems like a decumulation priorities page would be a good bookend to the current accumulation priorities one. For feedback though, better to take this to the main forum. Visibility of things in the Wiki Editor's Lounge tends to be low.

Nothing from me on your page content (not a US investor), but on format, the current layout looks decidedly weird on a laptop. Table rows don't flow around the image, and as a result, I get to scroll down through multiple screens where the table row is about 1/3 of the screen width, and with other 2/3 entirely blank white. Maybe you're using a different screen layout to me? It's actually fine in Mobile, because the Mobile skin doesn't even try to float the image to screen right, but simply puts it above the text.

A table may not be quite the right format for this information anyway. I notice that our wiki has a bit of 'table-itis' throughout; perhaps a sense of authors thinking along the lines of "the solution is a table, now how can I make my writing fit into it?". In particular, a two-column table with columns that are "Thing" and "Words about that thing" is just a list in disguise, and nearly always clearer when written as either an actual definition list, or perhaps better still (because it goes into the TOC), simply subheading and then text. And unlike tables, both of these will flow properly around images.

While I'm venting, our wiki also regularly uses numbered lists where bulleted lists would be appropriate -- that is, the numbering is entirely irrelevant -- and bulleted (or numbered) lists where things aren't even a list at all, just a bunch of paragraphs of text. "Table-itis" and "list-itis" then! Shrug.
I removed the table and used section headers. My only issue is that I would prefer the "list" to be numbered (otherwise it doesn't look enough like there is a specific order being suggested, in my opinion), but numbers look a little weird inside the section headers. What do you think?
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Re: 'Bogleheads® retirement planning start-up kit' article

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fyre4ce wrote: Wed Jun 07, 2023 12:26 pm Did I get this right?

https://docs.google.com/drawings/d/e/2P ... 186&h=1050

Edit: the background looks dark gray when I download the image, which doesn't look right. I've never used google drawings before. Do you know how to edit the background color?
The link is for downloading the file image. Can you share the file as "Anyone with a link can view"?
fyre4ce wrote: Wed Jun 07, 2023 12:48 pm I removed the table and used section headers. My only issue is that I would prefer the "list" to be numbered (otherwise it doesn't look enough like there is a specific order being suggested, in my opinion), but numbers look a little weird inside the section headers. What do you think?
Numbered sections headers don't look right. Please revert the change (restore the table). We can get the layout to work with the image - it's just a matter of formatting it correctly.
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Re: 'Bogleheads® retirement planning start-up kit' article

Post by TedSwippet »

fyre4ce wrote: Wed Jun 07, 2023 12:48 pm My only issue is that I would prefer the "list" to be numbered (otherwise it doesn't look enough like there is a specific order being suggested, in my opinion), but numbers look a little weird inside the section headers. What do you think?
Could you not simply dispense with the numbers altogether? If you state ahead of the subsections that they are listed below in order of precedence, preference, tax efficiency, and/or whatever criteria apply, it seems like that alone should be enough. As a general rule, numbering items is really only useful if you're going to refer to them in later text ("... as see in item 3 above", and so on).

As an example, this article section lists some things in approximate priority order, but doesn't number them in any way:

https://www.bogleheads.org/wiki/Investi ... nt_options

Alternatively, perhaps you could do what Prioritizing investments does, which is to use a numbered list to briefly note each in strict precedence order, followed by more complete explanation/rationale in a separate (and in this case, un-numbered) sections?

Or failing all of these, rearranging the article so that these numbered headings move down a level, from H3 (===) to H4 (====). That will reduce the font size used, so that they won't look huge relative to normal article text. It's only artifice, but can be useful; pretty sure I've done it once or twice in the past.
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Re: 'Bogleheads® retirement planning start-up kit' article

Post by fyre4ce »

LadyGeek wrote: Wed Jun 07, 2023 1:34 pm
fyre4ce wrote: Wed Jun 07, 2023 12:26 pm Did I get this right?

https://docs.google.com/drawings/d/e/2P ... 186&h=1050

Edit: the background looks dark gray when I download the image, which doesn't look right. I've never used google drawings before. Do you know how to edit the background color?
The link is for downloading the file image. Can you share the file as "Anyone with a link can view"?
fyre4ce wrote: Wed Jun 07, 2023 12:48 pm I removed the table and used section headers. My only issue is that I would prefer the "list" to be numbered (otherwise it doesn't look enough like there is a specific order being suggested, in my opinion), but numbers look a little weird inside the section headers. What do you think?
Numbered sections headers don't look right. Please revert the change (restore the table). We can get the layout to work with the image - it's just a matter of formatting it correctly.
Reverted.

https://docs.google.com/drawings/d/1rQP ... sp=sharing

^Does this work?
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Re: Proposed new wiki page - Spending priority in retirement

Post by LadyGeek »

^^^ Yes. I can now make my own copy.

Thanks for reverting. Now, focus on the page content. The page layout is secondary - which is something I can help you with. I'll also work on image.
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Re: 'Bogleheads® retirement planning start-up kit' article

Post by fyre4ce »

TedSwippet wrote: Wed Jun 07, 2023 1:53 pm
fyre4ce wrote: Wed Jun 07, 2023 12:48 pm My only issue is that I would prefer the "list" to be numbered (otherwise it doesn't look enough like there is a specific order being suggested, in my opinion), but numbers look a little weird inside the section headers. What do you think?
Could you not simply dispense with the numbers altogether? If you state ahead of the subsections that they are listed below in order of precedence, preference, tax efficiency, and/or whatever criteria apply, it seems like that alone should be enough. As a general rule, numbering items is really only useful if you're going to refer to them in later text ("... as see in item 3 above", and so on).

As an example, this article section lists some things in approximate priority order, but doesn't number them in any way:

https://www.bogleheads.org/wiki/Investi ... nt_options

Alternatively, perhaps you could do what Prioritizing investments does, which is to use a numbered list to briefly note each in strict precedence order, followed by more complete explanation/rationale in a separate (and in this case, un-numbered) sections?

Or failing all of these, rearranging the article so that these numbered headings move down a level, from H3 (===) to H4 (====). That will reduce the font size used, so that they won't look huge relative to normal article text. It's only artifice, but can be useful; pretty sure I've done it once or twice in the past.
Eh, I never liked the "double list" format of prioritizing investments. To me, it looks weird, and there's not enough difference between the two lists to justify having them separate. I advocated for a single unified list when that page was being edited, but wasn't successful in convincing the group. I feel strongly that numbering is important, so at this point I would recommend either sticking with a table of some type, or as you suggested going one level of indenture down on the headers.
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Re: Proposed new wiki page - Spending priority in retirement

Post by LadyGeek »

I took a stab at it. User:Fyre4ce/Spending priority in retirement Looks good with a mobile device (Chrome's mobile emulator).

First, the flow chart -

The downloaded file should be in Scalable Vector Graphics (.svg) format. fyre4ce's image was in a different format as PNG (Portable Network Graphics) and it didn't work out for the purposes here.

In the Google Drawings menu, File --> Download --> Scalable Vector Graphics (.svg) is the one to use. Don't worry about the size of the image when it's viewed in your browser. All that matters is what you see in the wiki.

I had first uploaded fyre4ce's version, but there was too much white space at the bottom border. This is due to the size of the Google drawing canvas. I made a copy of the file (as a new file in my account). I then made the canvas size smaller and uploaded a revised image.

See: File:Prioritizing spending.svg. The Summary section points to the latest version and explains how to download an SVG file.

fyre4ce - Feel free to edit your file to match. Or, make a copy of my file and edit as you wish. When uploading a new version, remember to include a link to the file in the "File changes:" summary to document which file was used to generate the image.

======================
Next, I moved the image to be above the table and centered in the page. Technically, the image is actually a table containing the image.

I replaced the float:right style with margin-left: auto; margin-right: auto; border: none;. Those with an interest in this should refer to Help:Table - Wikipedia for the correct way to center a table. align="center" is deprecated in HTML 5.

======================
Finally, I changed the table entry "Home equity" to "Home equity / reverse mortgage ". It's important to match the flow chart labels to the table entries.

Readers don't understand the terminology. Matching text provides confidence they are looking at the right thing.

Whenever you use a figure or table, it's important that you refer to it in your text. I also revised the wording to do just that.
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Re: Proposed new wiki page - Spending priority in retirement

Post by FiveK »

We can make the assumption that people will take their Required Minimum Distributions (RMDs).

Given that, the current #1 (RMDs), #2 (Taxable Income), and the interest component of #3 (Investment income) all fall into a general category of "unavoidable ordinary income". Yes, it makes sense to spend that total amount first. It's all fungible, however, so if that income is greater than expenses it doesn't matter which subset is spent and which is reinvested.

Although the article title includes the word "spending", at least a nod should be given to "income", lest someone fall into the tax sub-optimization described in Finding Your Tax Equilibrium Rate When Liquidating Retirement Accounts.
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Re: Proposed new wiki page - Spending priority in retirement

Post by LadyGeek »

I just realized that the introduction retained the wording from the prioritizing investments page. I flipped things around so now the article makes sense from a withdrawal perspective.

Also, I added a link to Retirement policy statement, which is the retirement equivalent of the Investment Policy Statement.

See: User:Fyre4ce/Spending priority in retirement

fyre4ce - Do you think the page is ready for the general membership to review?

If it's easier, I can move this thread to the personal finance forum instead of you starting a new thread.
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Re: Proposed new wiki page - Spending priority in retirement

Post by fyre4ce »

FiveK wrote: Wed Jun 07, 2023 8:16 pm We can make the assumption that people will take their Required Minimum Distributions (RMDs).

Given that, the current #1 (RMDs), #2 (Taxable Income), and the interest component of #3 (Investment income) all fall into a general category of "unavoidable ordinary income". Yes, it makes sense to spend that total amount first. It's all fungible, however, so if that income is greater than expenses it doesn't matter which subset is spent and which is reinvested.

Although the article title includes the word "spending", at least a nod should be given to "income", lest someone fall into the tax sub-optimization described in Finding Your Tax Equilibrium Rate When Liquidating Retirement Accounts.
Technically you are correct - all three sources of income (RMDs, general income, and investment income) are fungible. But I chose to break it out for a couple reasons. First, they come from different sources, and the first and third require specific action to be taken on the part of the investor. More importantly, I want RMD at the top as a reminder for readers to take it. The penalty was just reduced from 50% to 25%, but that's still large. If even a small number of readers benefit from the reminder, it will be worth the small "cost" of having them separated in the list.

Where do you suggest mentioning "income" vs. spending? I thought about this list in terms of spending, because I imagine a reader beginning with a more-or-less fixed demand for cash for spending, and then working their way down the list until that demand is met. Readers with low spending relative to their assets may end up reinvesting even RMDs, while readers with high spending relative to assets will go deep into the the list and borrow against their house.

Edit: I should mention that this list is mostly cribbed from a podcast a few years ago: https://www.whitecoatinvestor.com/neari ... l_Strategy

I thought the list was interesting but was surprised when I looked through the wiki that there wasn't anything like it. So that's why I am throwing this together.
Last edited by fyre4ce on Thu Jun 08, 2023 2:08 pm, edited 1 time in total.
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Re: Proposed new wiki page - Spending priority in retirement

Post by fyre4ce »

LadyGeek wrote: Wed Jun 07, 2023 8:40 pm I just realized that the introduction retained the wording from the prioritizing investments page. I flipped things around so now the article makes sense from a withdrawal perspective.

Also, I added a link to Retirement policy statement, which is the retirement equivalent of the Investment Policy Statement.

See: User:Fyre4ce/Spending priority in retirement

fyre4ce - Do you think the page is ready for the general membership to review?

If it's easier, I can move this thread to the personal finance forum instead of you starting a new thread.
Thanks very much for all the edits! Page looks much better.

There are a few things I still want to sort out before posting in the forums. I made a crude spreadsheet to check cases where it's better to tap low-basis taxable investments vs. retirement accounts. I included a summary of the results in text form within the "6/7/8" table entry, but it might make sense to add a section below the list that includes some more detailed summary for interested readers. The page is short as-is. I'll see if I can come up with something helpful.

Thinking more about the 6/7/8 and 9 items, I think it always makes sense to take a tax-free HSA withdrawal before a Roth withdrawal (ie. a Roth dollar is always at least as valuable as an HSA dollar). In the best case, an HSA dollar will be equal to a Roth dollar, if it can be later withdrawn tax-free. But Roth gets a 10 year tax-free stretch whereas HSAs get no stretch, and Roth avoids all the inheritance problems of HSAs.

Likewise, I think it always makes sense to take a tax-free HSA withdrawal (if possible) before a taxable HSA withdrawal. Paying taxes on a withdrawal when you don't have to is like giving the government an interest-free loan.

Between the five assets in question (low-basis taxable, pre-tax, Roth, tax-free HSA, taxable HSA), I can come up with scenarios for any order of preference, and even ones where those assets move farther away in the list (eg. if someone is on hospice, a HELOC is better than selling low-basis taxable) - EXCEPT for the two relative orderings I just mentioned. I'm just struggling with how to put that into the table in a way that's helpful and accurate, and not confusing.

An order that might apply to a plurality of cases is:
  1. Pre-tax up to a particular marginal rate step
  2. Low-basis taxable
  3. Tax-free HSA withdrawals
  4. Roth withdrawals
  5. Taxable HSA withdrawals
Maybe we should list that as the baseline, and just narrate that there are cases where the order should switch (eg. low-basis taxable should move down with short life expectancy, HSA withdrawals should move up if HSA is large)? What does the group think? I'm hoping some of the tax experts (FiveK, Grabiner) can weigh in and see if I'm missing something.

Edit: I am also not sure whether to include "reverse mortgage" in the title of the last item. I know reverse mortgages are generally considered inferior financial products and putting it in the title could be considered giving it an undue endorsement. On the other hand, for the subset of readers who have exhausted all other assets and need to tap home equity to eat, it could make sense. My understanding is that the big benefit of a reverse mortgage is the insurance component - borrowers get guaranteed monthly payments as long as they live in the house, even if the accumulated loan balance exceeds the home value. If the borrower dies with the balance exceeding the home value, the lender eats the difference. But, the loan becomes due when the borrower moves out of the home - say, into an assisted living facility, which a lot of older retirees need to do, not sure what %. I'm not an expert on reverse mortgages at all. Maybe just title both "home equity" and leave the link to reverse mortgage in the text?
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Re: Proposed new wiki page - Spending priority in retirement

Post by LadyGeek »

fyre4ce wrote: Thu Jun 08, 2023 1:44 pm Maybe just title both "home equity" and leave the link to reverse mortgage in the text?
Yes, for the reasons you've stated.
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Re: Proposed new wiki page - Spending priority in retirement

Post by fyre4ce »

LadyGeek wrote: Thu Jun 08, 2023 2:34 pm
fyre4ce wrote: Thu Jun 08, 2023 1:44 pm Maybe just title both "home equity" and leave the link to reverse mortgage in the text?
Yes, for the reasons you've stated.
Done. I haven't updated the picture yet but that's easy to do.

I broke apart the pre-tax and Roth accounts, and also broke apart tax-free and taxable HSA withdrawals. The extra detail still won't apply to every case, but I think it's an improvement to clarify these two points. If the group here is okay with the change the picture can be edited to include this detail as well.

Thoughts?

I still haven't added any numbers below on low-basis assets vs. retirement accounts; I'll be able to do this tonight at the earliest.

Edit: I ran my spreadsheet for a bunch of cases, and the results were interesting enough I thought they would be worth a try in a lower section on the page. I'm sure Ted and LadyGeek will chastise me for using more tables :-) but it seemed like the obvious formatting choice for the data. It probably won't look great on a phone. It could be made much more compact by using color coding, something like this: https://wizardofodds.com/games/blackjac ... y/4-decks/

Happy to take suggestions for formatting, or whether the additional information is worth including at all.
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Re: Proposed new wiki page - Spending priority in retirement

Post by TedSwippet »

fyre4ce wrote: Thu Jun 08, 2023 6:52 pm ... I'm sure Ted and LadyGeek will chastise me for using more tables :-) ...
Nope. A table is an entirely suitable format.
fyre4ce wrote: Thu Jun 08, 2023 6:52 pm It probably won't look great on a phone. It could be made much more compact by using color coding, ...
It's obviously not the same on mobile, but it's entirely usable. Better in landscape than portrait, of course. If you use Chrome, you can see for yourself how it will look. Add ?useformat=mobile to the URL (so this) to use the wiki's mobile skin, and then Chrome "More tools -> Developer tools" (ctrl+shift+i) to see phone emulation.

As for using colour as a form of "heat map" ... certainly worth a try, although as a visual aid rather than to make the table more compact. Better to avoid the kindergarten-style primary colours used by wizardofodds.com and use more subtle shades though, and use colour in addition to, rather than instead of, the current text; some readers will be colour-blind. I did something similar in the Nonresident alien's ETF domicile decision table article, but it really only has three cases to indicate (yes, no, and doesn't matter), whereas you have a more complex and nuanced set of cases to handle.

Your other alternative to this table is to instead embed a published Google spreadsheet that directly displays everything you want, but without the annoying intermediate step of converting it to a wikitext table. A bit fiddly to use on occasions (pages sometimes need a "kick" to load sheets properly), but useful where numbers alter over time, for example tax rate changes, and also "open source", in that it allows interested users access to the formulas and logic underpinning the spreadsheet and its results.
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Re: Proposed new wiki page - Spending priority in retirement

Post by celia »

fyre4ce wrote: Thu Jun 08, 2023 1:44 pm
See: User:Fyre4ce/Spending priority in retirement
I don't think it makes a lot of sense to have this wiki page since everyone's "retirement" is different.

* What if someone is under 55 or 59.5 and they don't yet have access to 401K withdrawals or other tax-deferred accounts (without a tax penalty)?

* What if they purposely want to keep their income low so they can get ACA subsidies, thus favoring withdrawals from Taxable, then Roth?

* What if they should consider doing Roth conversions in early retirement and when should they turn on SS?

* What if they are holding an inherited retirement account that they need to empty in 10 years?

* What if someone has enough income from SS and pension(s) that they don't need to withdraw anything?


Is there agreement among most Bogleheads that it often makes sense to aim to keep your Taxable Income (and thus your taxes) level throughout your remaining years instead of having a few years of low income followed by many years of high income once RMDs kick in? (This is where doing Roth conversions in early retirement can help.)
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Re: Proposed new wiki page - Spending priority in retirement

Post by LadyGeek »

celia wrote: Fri Jun 09, 2023 5:00 am I don't think it makes a lot of sense to have this wiki page since everyone's "retirement" is different.
I agree that everyone's retirement is different, but the same could be said for investing. Both User:Fyre4ce/Spending priority in retirement and it's "companion" Prioritizing investments for the accumulation side are all about strategy.

The primary goal is to inform readers of what they can do. The flow charts in both pages say how to do it. The reader then chooses which applies and proceeds accordingly.

From that perspective, I feel that fyre4ce's page is a piece of the puzzle that's sorely missing from the wiki.

---------------
fyre4ce wrote: Thu Jun 08, 2023 6:52 pm Edit: I ran my spreadsheet for a bunch of cases, and the results were interesting enough I thought they would be worth a try in a lower section on the page.
I agree with TedSwippet that the table is fine. If you don't want to embed the spreadsheet, can you at least provide a link to it? It's important to show the source. Not only because the wiki should cite its sources, but that readers can review the content for errors (or provide additional suggestions).

If you need help with embedding, post the link and myself or another wiki editor will take care of it.
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Re: Proposed new wiki page - Spending priority in retirement

Post by lgerla »

I had the same concern as Celia.

The strategy changes from earlier retirement years to later as different sources of income come on board or are required. Now that RMDs are not required until age 73 moving to age 75, that is a lot of retirement years where RMDs are not number one.

Maybe it is the word spending in the title. If the page is the inverse of prioritizing investments, then it is about taking income in a tax efficient manner/according to tax rules. In that case the ACA and Roth conversion strategies, and being aware of IRMAA cliffs are key.
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Re: Proposed new wiki page - Spending priority in retirement

Post by LadyGeek »

Good point.

Suggestion: Since RMDs are taxable income, I would move it from a top-level category to one under "Taxable income" and adjust the table to match.

Something like:
  • Taxable Income
    • RMDs
An explanation can then be provided in the table as lgerla describes.

It makes sense to change the page title to something more meaningful, such as "Prioritizing retirement income". Is this OK, or does anyone have a different suggestion?
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Re: Proposed new wiki page - Spending priority in retirement

Post by FiveK »

LadyGeek wrote: Fri Jun 09, 2023 8:26 am It makes sense to change the page title to something more meaningful, such as "Prioritizing retirement income". Is this OK, or does anyone have a different suggestion?
The current #1-3, RMDs+Taxable income+Investment income, together comprise "unavoidable income". The tax treatment of qualified dividends and capital gain distributions differs from ordinary income, but barring a change in asset allocation it's all simply income and one has no choice to make - other than whether to follow the law and take RMDs. ;)

"Spending" priority implies choices of how to allocate income according to what one values.

If the unavoidable income exceeds desired spending, then we're back to investing the excess to fit desired asset allocation.

If the unavoidable income is less than desired spending, then we have an income prioritization question. This is what tools such as I-ORP have been designed to answer, because "one size doth not fit all".
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Re: Proposed new wiki page - Spending priority in retirement

Post by celia »

LadyGeek wrote: Fri Jun 09, 2023 8:26 am It makes sense to change the page title to something more meaningful, such as "Prioritizing retirement income". Is this OK, or does anyone have a different suggestion?
How about "Withdrawing retirement income"?

lgerla wrote: Fri Jun 09, 2023 7:06 am If the page is the inverse of prioritizing investments, then it is about taking income in a tax efficient manner/according to tax rules. In that case the ACA and Roth conversion strategies, and being aware of IRMAA cliffs are key.
I agree with this. Also, just as when you were accumulating, you put money into different categories each year. It likely was a combination of different types of accounts as you planned for future needs (house down payment, future health care, college funding, retirement) and contributed to several of these in the same year. Retirement is the same, if you want to control your taxes or plan what legacy you will leave behind. Maybe you want to get control of that large tax-deferred account, but not withdraw completely from it, since your taxes would be too high.

And you may want to first spend from your monthly pensions and SS income and leave your other Taxable alone, so you can realize large capital gains (in Taxable) that will get a step-up in cost basis when you die.

If you want the page to be strategy-driven, then don't prioritize the account types compared to each other. Discuss each strategy separately, sort of like I did in my first post here. This allows the reader to move between (or combine) different strategies.
Last edited by celia on Fri Jun 09, 2023 12:22 pm, edited 1 time in total.
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Re: Proposed new wiki page - Spending priority in retirement

Post by LadyGeek »

FiveK wrote: Fri Jun 09, 2023 11:37 am
LadyGeek wrote: Fri Jun 09, 2023 8:26 am It makes sense to change the page title to something more meaningful, such as "Prioritizing retirement income". Is this OK, or does anyone have a different suggestion?
The current #1-3, RMDs+Taxable income+Investment income, together comprise "unavoidable income". The tax treatment of qualified dividends and capital gain distributions differs from ordinary income, but barring a change in asset allocation it's all simply income and one has no choice to make - other than whether to follow the law and take RMDs. ;)

"Spending" priority implies choices of how to allocate income according to what one values.

If the unavoidable income exceeds desired spending, then we're back to investing the excess to fit desired asset allocation.

If the unavoidable income is less than desired spending, then we have an income prioritization question. This is what tools such as I-ORP have been designed to answer, because "one size doth not fit all".
Then perhaps what you've just explained could be the focus of the page?
  • You have two types of income - "avoidable" and "unavoidable". (Explain what this means.) You have no choice on the unavoidable.
    • If the unavoidable income exceeds desired spending... do this
    • If the unavoidable income is less than desired spending... do this
The page could go into details for each section.
celia wrote: Fri Jun 09, 2023 12:11 pm
LadyGeek wrote: Fri Jun 09, 2023 8:26 am It makes sense to change the page title to something more meaningful, such as "Prioritizing retirement income". Is this OK, or does anyone have a different suggestion?
How about "Withdrawing retirement income"?
That would work.
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Re: Proposed new wiki page - Spending priority in retirement

Post by FiveK »

LadyGeek wrote: Fri Jun 09, 2023 12:21 pm
FiveK wrote: Fri Jun 09, 2023 11:37 am If the unavoidable income exceeds desired spending, then we're back to investing the excess to fit desired asset allocation.

If the unavoidable income is less than desired spending, then we have an income prioritization question. This is what tools such as I-ORP have been designed to answer, because "one size doth not fit all".
Then perhaps what you've just explained could be the focus of the page?
  • You have two types of income - "avoidable" and "unavoidable". (Explain what this means.) You have no choice on the unavoidable.
    • If the unavoidable income exceeds desired spending... do this
    • If the unavoidable income is less than desired spending... do this
The page could go into details for each section.
lgerla wrote: Fri Jun 09, 2023 7:06 am If the page is the inverse of prioritizing investments, then it is about taking income in a tax efficient manner/according to tax rules.
lgerla said it well, and the question does arise frequently: how does one structure income in retirement to have the largest after-tax spendable amount? This applies regardless of the relative amounts of spending and unavoidable income (assuming one cares about maximizing heirs' spendable amount also).

The full answer requires, in addition to a working crystal ball for tax policy, market performance, and the individual's health and lifespan, a combination of answers to
- when should I start taking SS?
- when should I start taking any other pension that pays a higher rate in return for a deferred start?
- how much Roth conversion should I do in a given year?
- etc.

It would be great if a wiki article could solve the problem, but that is unlikely. A simple wiki page that describes the issue and provides links for people to do further exploration, however, could be useful.
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Re: Proposed new wiki page - Spending priority in retirement

Post by Rob Relyea »

Would be happy to work on a tool that along with wiki text would help people with this topic.

Bogle.tools/saving is my attempt to date on prioritizing investments.

Also have bogle.tools/retirement under construction, but not yet advertised. Haven’t worked on it for a few weeks…but could go in many different directions. Feedback plus effort would be able to build a strong tool.

Update: took a look at the draft page. Like the approach (parallel to prioritizing investments). The thing that pops into my mind is how people can take that info and plan over several years. How much does this overlap with i-orp, and similar tools?
Last edited by Rob Relyea on Fri Jun 09, 2023 2:57 pm, edited 1 time in total.
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Re: Proposed new wiki page - Spending priority in retirement

Post by FiveK »

Rob Relyea wrote: Fri Jun 09, 2023 2:42 pm Also have bogle.tools/retirement under construction, but not yet advertised. Haven’t worked on it for a few weeks…but could go in many different directions. Feedback plus effort would be able to build a strong tool.
Optimized Roth Conversion Model Update and Optimal Retirement Planner - Extended Parameter Form are two tools for comparison.
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Re: Proposed new wiki page - Spending priority in retirement

Post by fyre4ce »

How about "Retirement income source priority"? Not all sources are accessed with a "withdrawal" (eg. home equity). I also think including the word "priority" is important, because it mirrors the investment priority page and establishes clearly in reader's mind that it contains an ordered list.
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Re: Proposed new wiki page - Spending priority in retirement

Post by fyre4ce »

LadyGeek wrote: Fri Jun 09, 2023 12:21 pm
FiveK wrote: Fri Jun 09, 2023 11:37 am
LadyGeek wrote: Fri Jun 09, 2023 8:26 am It makes sense to change the page title to something more meaningful, such as "Prioritizing retirement income". Is this OK, or does anyone have a different suggestion?
The current #1-3, RMDs+Taxable income+Investment income, together comprise "unavoidable income". The tax treatment of qualified dividends and capital gain distributions differs from ordinary income, but barring a change in asset allocation it's all simply income and one has no choice to make - other than whether to follow the law and take RMDs. ;)

"Spending" priority implies choices of how to allocate income according to what one values.

If the unavoidable income exceeds desired spending, then we're back to investing the excess to fit desired asset allocation.

If the unavoidable income is less than desired spending, then we have an income prioritization question. This is what tools such as I-ORP have been designed to answer, because "one size doth not fit all".
Then perhaps what you've just explained could be the focus of the page?
  • You have two types of income - "avoidable" and "unavoidable". (Explain what this means.) You have no choice on the unavoidable.
    • If the unavoidable income exceeds desired spending... do this
    • If the unavoidable income is less than desired spending... do this
The page could go into details for each section.
celia wrote: Fri Jun 09, 2023 12:11 pm
LadyGeek wrote: Fri Jun 09, 2023 8:26 am It makes sense to change the page title to something more meaningful, such as "Prioritizing retirement income". Is this OK, or does anyone have a different suggestion?
How about "Withdrawing retirement income"?
That would work.
For the reasons I stated (mostly that I think a reminder for readers of appropriate age to take their RMD has value) I would prefer to keep the top three items separate. But I did add some text to the top that contextualizes the list much better, and I think resolves yours, celia's, and FiveK's concerns:
The order in which you should prioritize your sources of retirement income is shown in Figure 1, and described in Table 1 below. To use the list, begin at the top and work your way down until you have met your income need for the year. Skip over any items that don't apply. If you have more unavoidable income than you intend to spend, reinvest the excess according to your investment priority. This order is only approximate and will not apply to every case. Some exceptions to the order are discussed in the details of the list.
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Re: Proposed new wiki page - Spending priority in retirement

Post by fyre4ce »

celia wrote: Fri Jun 09, 2023 5:00 am
fyre4ce wrote: Thu Jun 08, 2023 1:44 pm
See: User:Fyre4ce/Spending priority in retirement
I don't think it makes a lot of sense to have this wiki page since everyone's "retirement" is different.

* What if someone is under 55 or 59.5 and they don't yet have access to 401K withdrawals or other tax-deferred accounts (without a tax penalty)?

* What if they purposely want to keep their income low so they can get ACA subsidies, thus favoring withdrawals from Taxable, then Roth?

* What if they should consider doing Roth conversions in early retirement and when should they turn on SS?

* What if they are holding an inherited retirement account that they need to empty in 10 years?

* What if someone has enough income from SS and pension(s) that they don't need to withdraw anything?
You bring up some great points. It's hard to come up with a priority list that will apply equally well to someone retiring in their 70's and someone retiring in their 30's. That said, I think recent edits have gone a long way to addressing these concerns.

I added notation about avoiding early withdrawal penalties to the retirement account items.

Someone wanting to keep their income low would be subsumed under the "Pre-tax withdrawals up to a particular marginal tax rate". There's a lot that goes into the picking of that marginal rate threshold, more than can be included in this page, but it does lay out the issue at a high level and readers can pick their income to work around these issues and others.

Roth conversions are mentioned in the pre-tax item.

I just added some text about inherited accounts.

If someone has excess "unavoidable" income, then the instructions at the top say to reinvest it according to your investment priority list.
celia wrote: Fri Jun 09, 2023 5:00 am Is there agreement among most Bogleheads that it often makes sense to aim to keep your Taxable Income (and thus your taxes) level throughout your remaining years instead of having a few years of low income followed by many years of high income once RMDs kick in? (This is where doing Roth conversions in early retirement can help.)
In my experience, yes, but I would change the statement from keeping a level income to a level tax rate. Tax rate curves can get wonky when adding Social Security and IRMAA, so often the best strategy is large withdrawals/conversions before these kick in, and much smaller withdrawals after.
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Re: Proposed new wiki page - Spending priority in retirement

Post by LadyGeek »

I don't understand what you mean by "High basis" in #5 "High-basis taxable investments".

Please explain and provide an example.

=========================
Can you upload the spreadsheet used to generate the tables to Google Drive and share the link as "Anyone with a link can view"? Thiis will allow anyone to see what you did and check for errors.

Update: Also please explain "low basis" in #7. The idea is the term "low basis" and "high basis" are not in common use - I don't understand what they're referring to. Can you use terminology in common use?
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Re: Proposed new wiki page - Spending priority in retirement

Post by FiveK »

LadyGeek wrote: Fri Jun 09, 2023 7:24 pm I don't understand what you mean by "High basis" in #5 "High-basis taxable investments".

Update: Also please explain "low basis" in #7. The idea is the term "low basis" and "high basis" are not in common use - I don't understand what they're referring to.
Pretty sure he is referring to what fraction the basis is of the selling price for a capital asset. When that fraction is high, little taxable income is incurred on the sale; if the fraction is >1 (e.g., shares purchased just prior to a market drop), there is a loss.

When the fraction is low (e.g., shares of a successful company purchased many years ago), most of the sale is taxable.
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Re: Proposed new wiki page - Spending priority in retirement

Post by LadyGeek »

That's what I thought, but very few readers will understand what that means in terms of their investments. Perhaps change the wording to something like this. It's a bit awkward, but shows what I'm thinking.

From:
5 High-basis taxable investments
High-basis taxable investments can be tapped for a low tax cost, and will preserve the more valuable assets lower down the priority list.
To:
5 Taxable investments valued close to what you paid for them
Selling investments close to what you paid for them (low capital gain) will lower your tax cost, and will preserve the more valuable assets lower down the priority list.
From:
7 Low-basis taxable investments
...
To:
7 Taxable investments valued much higher than what you paid for them

An investment with a low cost basis (can be sold for much more than you paid for it - high capital gain)...
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Re: Proposed new wiki page - Spending priority in retirement

Post by FiveK »

LadyGeek wrote: Fri Jun 09, 2023 8:28 pm That's what I thought, but very few readers will understand what that means in terms of their investments. Perhaps change the wording to something like this....
Those look reasonable.

While I have a reply window open, some various thoughts:

Unlike "Prioritizing investments" where there is a logical, generally applicable ordering of distinct options throughout the list, the topic of "Prioritizing withdrawals" (or whatever we call it) has many "it depends..." components. I agree this is a worthwhile effort, but we shouldn't expect the same level of certainty the "P. i." page has.

Separating the unavoidable income into separate steps is a distinction without a difference. If there is a real concern that people will not be taking their RMDs, perhaps one sentence referring to the Required Minimum Distribution article would suffice.

To avoid the tax sub-optimization described in Finding Your Tax Equilibrium Rate When Liquidating Retirement Accounts, many could find it better to skip the "high basis" withdrawal step completely and go directly to Roth conversions.

There is a difference between needing income to cover an unexpected spending need, vs. choosing to incur income now in order to have more after-tax later. IIRC, McQ had a post (maybe several) where he showed using traditional funds to meet an unexpected spending need could be better than using Roth funds, depending on the circumstances (the specifics of which I don't recall).

For those with a substantial HSA balance and without a spouse who could assume it when the holder dies, that working crystal ball is needed to know the best time to take an HSA withdrawal. We can certainly point out the advantage of letting the account grow while accumulating unreimbursed medical expenses, but caution that a full withdrawal should be made before death without a surviving spouse, due to the HSA losing tax-advantaged status at that point. Given that, how an individual wants to play the odds is up to that individual.
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Re: Proposed new wiki page - Spending priority in retirement

Post by fyre4ce »

LadyGeek wrote: Fri Jun 09, 2023 7:24 pm I don't understand what you mean by "High basis" in #5 "High-basis taxable investments".

Please explain and provide an example.

=========================
Can you upload the spreadsheet used to generate the tables to Google Drive and share the link as "Anyone with a link can view"? Thiis will allow anyone to see what you did and check for errors.

Update: Also please explain "low basis" in #7. The idea is the term "low basis" and "high basis" are not in common use - I don't understand what they're referring to. Can you use terminology in common use?
FiveK was right. I would have thought those terms would be understood by most investors with taxable accounts; maybe I'm wrong. I also like that terminology because it's compact and fits neatly into the image. I'd prefer to retain it as a header, or something similarly compact (eg. "high/low-appreciation taxable investments"), but definitely agree more explanation is warranted inside the body text. A tax loss harvesting mention and link would be good. Let me take a swing at explaining those with current headers and you can see if that helps.

Here's the link to my spreadsheet: https://docs.google.com/spreadsheets/d/ ... ue&sd=true

If the group thinks the content is valuable I'll add a link on the page too.

Edit: I made some edits that may help. Please take a look and let me know what you think.
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Re: Proposed new wiki page - Spending priority in retirement

Post by fyre4ce »

FiveK wrote: Fri Jun 09, 2023 9:36 pm Unlike "Prioritizing investments" where there is a logical, generally applicable ordering of distinct options throughout the list, the topic of "Prioritizing withdrawals" (or whatever we call it) has many "it depends..." components. I agree this is a worthwhile effort, but we shouldn't expect the same level of certainty the "P. i." page has.
I completely agreed with this sentiment with the initial shorter version, but after breaking up the "6/7/8" section and steadily adding commentary and caveats based on feedback here, I'm actually confident that the current version will cover many, maybe most, readers' situations. It's longer than I initially envisioned, but breaking it up by asset makes it more digestible (it seems to me).
FiveK wrote: Fri Jun 09, 2023 9:36 pm To avoid the tax sub-optimization described in Finding Your Tax Equilibrium Rate When Liquidating Retirement Accounts, many could find it better to skip the "high basis" withdrawal step completely and go directly to Roth conversions.
I'm not sure I follow. I think of the two activities (selling high-basis investments, Roth conversions) as having different goals. Selling high-basis investments is a way to raise cash in the current year for spending while having a small tax impact. Roth conversions are for tax-planning for future years. Can you think of a common situation where it would be better to generate income from an asset below "high-basis investments" first?
FiveK wrote: Fri Jun 09, 2023 9:36 pm There is a difference between needing income to cover an unexpected spending need, vs. choosing to incur income now in order to have more after-tax later. IIRC, McQ had a post (maybe several) where he showed using traditional funds to meet an unexpected spending need could be better than using Roth funds, depending on the circumstances (the specifics of which I don't recall).
I think of it in two steps - first, generate the income needed for expenses this year, then make any tax-planning moves (the big one being Roth conversions, tax gain harvesting too possibly) that will optimize for future years. Roth conversions should be an option for basically all retirees, and I can't think of a situation where someone would "choose to incur more income now in order to have more after-tax later" aside from the two methods I mentioned. The current page focuses on income for spending, but does mention that Roth conversions should be considered if there is room in the current bracket. Are you suggesting any specific edits?
FiveK wrote: Fri Jun 09, 2023 9:36 pm For those with a substantial HSA balance and without a spouse who could assume it when the holder dies, that working crystal ball is needed to know the best time to take an HSA withdrawal. We can certainly point out the advantage of letting the account grow while accumulating unreimbursed medical expenses, but caution that a full withdrawal should be made before death without a surviving spouse, due to the HSA losing tax-advantaged status at that point. Given that, how an individual wants to play the odds is up to that individual.
Items 8 and 10 do discuss the estate planning challenges of HSAs. Item 8 specifically addresses your point:
Non-spouse heirs can no longer withdraw from a HSA tax-free for qualified expenses for which the owner saved receipts. Leaving the money in the HSA provides tax-deferred and potentially tax-free growth, but this benefit must be weighted against the possible loss of tax-free withdrawals if the owner dies without having taken them. Therefore, if you are of advanced age or have health problems, taking tax-free HSA withdrawals for prior and current expenses should be a high priority, somewhere between 2 and 5 on the list.
...but I'm very open to suggestions on how to say that better. I may disagree with you slightly and say it's not critical for someone without a spousal heir to completely drain their HSA before they die. It is very important to take all tax-free withdrawals for past and current medical expenses before they die, because these are lost at death. But once someone is down to making taxable withdrawals, it becomes more comparable to an IRA. The big difference is that an HSA is taxable in a single year, whereas the IRA gets spread over ten years. But if the balance is small enough such that it doesn't cause the heirs to push up into a higher bracket, both are simple marginal rate comparisons.

For example, a $20,000 HSA and a $200,000 IRA will both generate about $20,000 of taxable income in the first year. The IRA gets up to 10 years of tax deferral so the HSA should still probably be tapped first, but there's not a huge difference. If it were a $200,000 HSA and a $200,000 IRA, spending down the HSA balance would be a much higher priority, but the need would drop once the balance got small enough to fit within the heir's current bracket. The commentary for item 10 addresses this point. But again, happy to take suggestions on how to explain it better.
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Re: Proposed new wiki page - Spending priority in retirement

Post by FiveK »

fyre4ce wrote: Sat Jun 10, 2023 12:16 am I'm not sure I follow. I think of the two activities (selling high-basis investments, Roth conversions) as having different goals. Selling high-basis investments is a way to raise cash in the current year for spending while having a small tax impact. Roth conversions are for tax-planning for future years. Can you think of a common situation where it would be better to generate income from an asset below "high-basis investments" first?
Yes, when one has enough unavoidable income for current expenses, but is doing Roth conversions now to reduce RMD taxation later. That leads to the next comments:
FiveK wrote: Fri Jun 09, 2023 9:36 pm There is a difference between needing income to cover an unexpected spending need, vs. choosing to incur income now in order to have more after-tax later. IIRC, McQ had a post (maybe several) where he showed using traditional funds to meet an unexpected spending need could be better than using Roth funds, depending on the circumstances (the specifics of which I don't recall).
I think of it in two steps - first, generate the income needed for expenses this year, then make any tax-planning moves (the big one being Roth conversions, tax gain harvesting too possibly) that will optimize for future years. Roth conversions should be an option for basically all retirees, and I can't think of a situation where someone would "choose to incur more income now in order to have more after-tax later" aside from the two methods I mentioned. The current page focuses on income for spending, but does mention that Roth conversions should be considered if there is room in the current bracket. Are you suggesting any specific edits?
The main suggestion is to decide among us, and then make it clear to readers, whether this is about "spending priority" or "withdrawing retirement income". "Spending priority" gets into what people value most to spend on, and that is highly subjective. "Withdrawing retirement income" makes more sense for a wiki page.
Items 8 and 10 do discuss the estate planning challenges of HSAs. Item 8 specifically addresses your point: ...
HSAs seem better handled as their own category, due to the difference between withdrawals based on medical expenses vs. "just because" withdrawals.
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Re: Proposed new wiki page - Spending priority in retirement

Post by fyre4ce »

FiveK wrote: Sat Jun 10, 2023 12:54 am
fyre4ce wrote: Sat Jun 10, 2023 12:16 am I'm not sure I follow. I think of the two activities (selling high-basis investments, Roth conversions) as having different goals. Selling high-basis investments is a way to raise cash in the current year for spending while having a small tax impact. Roth conversions are for tax-planning for future years. Can you think of a common situation where it would be better to generate income from an asset below "high-basis investments" first?
Yes, when one has enough unavoidable income for current expenses, but is doing Roth conversions now to reduce RMD taxation later.
If someone completely satisfies their income needs with RMD's and SS, so doesn't go further down the list than those, I don't think the current page precludes doing Roth conversions. It's not the emphasis for sure, but the section on pre-tax withdrawal does mention it and links to the page which has more details about tax planning.

I completely agree about the title. I changed all references from spending to income, except for the page title itself which I will change when we agree on a new one. I really like including the word "priority" in the title though, because I think it emphasizes the rank order. Is everyone OK with "Retirement income withdrawal priority"?
FiveK wrote: Sat Jun 10, 2023 12:54 am
Items 8 and 10 do discuss the estate planning challenges of HSAs. Item 8 specifically addresses your point: ...
HSAs seem better handled as their own category, due to the difference between withdrawals based on medical expenses vs. "just because" withdrawals.
Definitely agree HSAs are their own animal, which is why I broke them out into two separate categories, one for tax-free and one taxable. I think it is useful to tell readers things like, "always take a tax-free HSA withdrawal before a Roth withdrawal" and some of the other details.
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Rob Relyea
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Re: Proposed new wiki page - Spending priority in retirement

Post by Rob Relyea »

I'm not sure I like the approach of having one list. Feels something like Income Streams and Where to get more $$ when needed.

So I like to think of this more like this:

Planning of Income Streams
- Social Security: optimize when you (and spouse) start social security, once started, have auto deposited into checking or savings account
- Have Pensions (and other income) deposited into checking/savings
- In Taxable Investment Accounts, turn off dividend reinvestment, etc…this money will collect in money market
- IRAs: Starting at age of 72 (?), ensure you take your required RMD and move proceeds into money market

Cash Flow Management - do monthly spending from Checking/Savings/Money Markets
Have Extra Money? If you have more money in these accounts than you spend, move excess money into your investment accounts per your AA.
Need More Money to Spend? If spending level is higher than amount regularly put into your checking/savings/money market, plan and generate more spending money by withdrawals from these accounts (listed in priority order):
- 1) 457(b)/other deferred compensation
- 2) High basis taxable investments
- 3) Pre-tax withdrawals up to a specific marginal tax rate
- 4) Low-basis taxable investments
- 5) Tax Free HSA withdrawals
- 6) Roth Withdrawals
- 7) Taxable HSA withdrawals
- 8) Permanent Life Insurance
- 9) Home Equity

(this might have been touched on as part of prior discussion, which I haven't caught up to the entire back/forth)
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Re: Proposed new wiki page - Spending priority in retirement

Post by LadyGeek »

fyre4ce wrote: Fri Jun 09, 2023 10:17 pm ...FiveK was right. I would have thought those terms would be understood by most investors with taxable accounts; maybe I'm wrong. I also like that terminology because it's compact and fits neatly into the image. I'd prefer to retain it as a header, or something similarly compact (eg. "high/low-appreciation taxable investments"), but definitely agree more explanation is warranted inside the body text. A tax loss harvesting mention and link would be good. Let me take a swing at explaining those with current headers and you can see if that helps.

Here's the link to my spreadsheet: https://docs.google.com/spreadsheets/d/ ... ue&sd=true

If the group thinks the content is valuable I'll add a link on the page too.

Edit: I made some edits that may help. Please take a look and let me know what you think.
I saw your edits, much better. I went a step further and changed "basis" to "cost basis" in your definition sentences. "Cost basis" needs to be explicit. Otherwise, readers won't understand what you mean (including me).

With the definitions understood, your explanation of step-up in basis seemed out of place in the low-basis section. I moved it to the high-basis section and clarified the wording.

See: User:Fyre4ce/Spending priority in retirement

The difficulty is that you want to keep discussions of inherited assets together, but it's not possible when discussing "low-basis" vs. "step-up in basis". I think it's more important to put them in the correct sections. Readers will see both, then understand what's going on.

I also added citations for the spreadsheet.

Remember that I'm not expert and could be wrong. Please feel free to change / correct whatever I did. It was simply easier to show what I did in the wiki page than explain it here.
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Re: Proposed new wiki page - Spending priority in retirement

Post by FiveK »

Rob Relyea wrote: Sat Jun 10, 2023 8:06 am I'm not sure I like the approach of having one list. Feels something like Income Streams and Where to get more $$ when needed.

So I like to think of this more like this:

Planning of Income Streams
- Social Security: optimize when you (and spouse) start social security, once started, have auto deposited into checking or savings account
- Have Pensions (and other income) deposited into checking/savings
- In Taxable Investment Accounts, turn off dividend reinvestment, etc…this money will collect in money market
- IRAs: Starting at age of 72 (?), ensure you take your required RMD and move proceeds into money market
That looks good and makes sense.
Cash Flow Management - do monthly spending from Checking/Savings/Money Markets
Have Extra Money? If you have more money in these accounts than you spend, move excess money into your investment accounts per your AA.
That's a good first approximation, and pretty much what we have been discussing so far. The issue of proactive Roth conversions, however, should also be considered in this situation.
Need More Money to Spend? If spending level is higher than amount regularly put into your checking/savings/money market, plan and generate more spending money by withdrawals from these accounts (listed in priority order):
Here's where the "it depends..." issues really kick in. E.g., see this timely post in Tax Strategies in Retirement - should we hire an "expert" or can this be done on our own?

I tried the free version of the tool linked there, and got "This additional inheritance is equivilent to increasing your investment return by 0.02% per year" as part of the feedback for what improvements the $200/yr subscription could suggest. Of course, that's just one person's situation - from what I could see, the improvements would come from accelerated Roth conversions, and we are already doing that.

E.g., see their take on The Common Rule for Retirement Account Withdrawals, and their version of
The Modified Common Rule for Retirement Account Withdrawals
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Re: Proposed new wiki page - Spending priority in retirement

Post by fyre4ce »

LadyGeek wrote: Sat Jun 10, 2023 12:20 pm
fyre4ce wrote: Fri Jun 09, 2023 10:17 pm ...FiveK was right. I would have thought those terms would be understood by most investors with taxable accounts; maybe I'm wrong. I also like that terminology because it's compact and fits neatly into the image. I'd prefer to retain it as a header, or something similarly compact (eg. "high/low-appreciation taxable investments"), but definitely agree more explanation is warranted inside the body text. A tax loss harvesting mention and link would be good. Let me take a swing at explaining those with current headers and you can see if that helps.

Here's the link to my spreadsheet: https://docs.google.com/spreadsheets/d/ ... ue&sd=true

If the group thinks the content is valuable I'll add a link on the page too.

Edit: I made some edits that may help. Please take a look and let me know what you think.
I saw your edits, much better. I went a step further and changed "basis" to "cost basis" in your definition sentences. "Cost basis" needs to be explicit. Otherwise, readers won't understand what you mean (including me).

With the definitions understood, your explanation of step-up in basis seemed out of place in the low-basis section. I moved it to the high-basis section and clarified the wording.

See: User:Fyre4ce/Spending priority in retirement

The difficulty is that you want to keep discussions of inherited assets together, but it's not possible when discussing "low-basis" vs. "step-up in basis". I think it's more important to put them in the correct sections. Readers will see both, then understand what's going on.

I also added citations for the spreadsheet.

Remember that I'm not expert and could be wrong. Please feel free to change / correct whatever I did. It was simply easier to show what I did in the wiki page than explain it here.
Both "basis" and "cost basis" are in common usage, but often when someone says "cost basis" in the forums, someone else quickly jumps in and says, "Cost basis is redundant! The proper term is basis!" Maybe pedantic, but technically correct: https://www.irs.gov/taxtopics/tc703

I think I favor still mostly sticking with "basis", both for technical accuracy and compactness, but I'll go in and add a clarification that "cost basis" is also used. And it helps readers understand who don't know already what it means.

The reason the step-up in basis is discussed in the low-basis section rather than the high-basis is that it's only a relevant factor there. The reason high-basis investments are good to tap first is that you get a lot of proceeds relative to the tax cost. If a taxable investment has a basis of 95%, you get $20 of spendable income for every $1 of taxable income, on which you may pay only 15 cents of tax. High-basis investments are more similar to cash; the limit as the basis fraction approaches 100% is cash. No appeal to the step-up in basis is necessary, because there's not much step-up to be had.

The step-up becomes relevant when you are considering selling investments that have already appreciated a lot. Selling a low-basis investment means incurring a tax that neither you nor your heirs would otherwise pay, a clear negative. On the other hand, if the alternative is drawing from retirement accounts, that means losing tax-protected growth for your life expectancy plus a 10-year stretch, plus maybe some tax rate arbitrage if there is a rate difference between you and your heir. The low-basis investments tend to be more valuable (and should therefore be tapped later) if life expectancy is short, and the retirement money more valuable if life expectancy is long, or if there is a big tax rate difference between you and heirs. The two big tables I added at the bottom show the optimal choices for a variety of situations.

Let me see if I can mention the step-up in the high-basis section for content. But, I still think most of the discussion belongs in the low-basis section where it's most relevant.
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Re: Proposed new wiki page - Spending priority in retirement

Post by FiveK »

fyre4ce wrote: Sun Jun 11, 2023 3:57 pm Both "basis" and "cost basis" are in common usage, but often when someone says "cost basis" in the forums, someone else quickly jumps in and says, "Cost basis is redundant! The proper term is basis!" Maybe pedantic, but technically correct: https://www.irs.gov/taxtopics/tc703

I think I favor still mostly sticking with "basis", both for technical accuracy and compactness, but I'll go in and add a clarification that "cost basis" is also used. And it helps readers understand who don't know already what it means.
Or just use "cost basis" so everyone understands immediately, while giving the pedantic a chance to demonstrate their pedantry.
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Re: Proposed new wiki page - Spending priority in retirement

Post by LadyGeek »

^^^ Yes.

I'm reviewing the page like a newbie who understands the basic concepts. From personal experience, the term "basis" threw me for quite some time until I realized it meant "cost basis" and that it had something to do with taxes.

From that perspective, connecting "basis" with "cost basis" is very helpful.

Not related to this page, but another term I struggled with was "realized" vs. "unrealized" gain. The only way I learned these terms was to relate "realized gain" to mean "you really did sell it". "Unrealized gain" was the other one (you didn't sell it).

When you've worked in this area for a while, you tend to forget there was a learning curve. My comments are intended to put things in the perspective of new investors and flag the more difficult terminology.
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Re: Proposed new wiki page - Spending priority in retirement

Post by fyre4ce »

FiveK wrote: Sun Jun 11, 2023 4:28 pm
fyre4ce wrote: Sun Jun 11, 2023 3:57 pm Both "basis" and "cost basis" are in common usage, but often when someone says "cost basis" in the forums, someone else quickly jumps in and says, "Cost basis is redundant! The proper term is basis!" Maybe pedantic, but technically correct: https://www.irs.gov/taxtopics/tc703

I think I favor still mostly sticking with "basis", both for technical accuracy and compactness, but I'll go in and add a clarification that "cost basis" is also used. And it helps readers understand who don't know already what it means.
Or just use "cost basis" so everyone understands immediately, while giving the pedantic a chance to demonstrate their pedantry.
Eh, yeah, but there's also the risk of confusion using non-standard terminology. For example, everyone (including the wiki) talks about a "step-up in basis". If we use "cost basis" everywhere, some might wonder if the "basis" gets stepped up but not the "cost basis", etc. I just made an edit to try to make it clearer, explaining more how the basis works and adding "...sometimes called 'cost basis'" but then sticking to basis everywhere else, including when discussing the step-up. You and LadyGeek can let me know whether it's clear enough.
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