Share your retirement cash flow plan

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murrays
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Share your retirement cash flow plan

Post by murrays »

We're two years into retirement and the question I would ask any person approaching retirement is "How do you plan to pay the credit card bill for the big trip you take 6 months after you quit work?" Those of you with sufficient pensions or social security probably have an easy answer, but my wife and I retired early without pensions so we needed to generate cashflow from our assets which begs the question: I have bills to pay this month, where exactly does the money come from?

I'm curious how the retired people here create cash flow and what those of you approaching retirement are planning? I'd like some details as in, if you sell funds from your nest egg, how do you choose which funds to sell? Did you move funds around in the years leading up to retirement in preparation?

Personally, I developed our plan in the year or two prior to our retirement and continue to refine it so I'm always looking for advice or critique. I'll share my plan after some responses to not poison the discussion.
livesoft
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Re: Share your retirement cash flow plan

Post by livesoft »

We have a non-small taxable account. The money therefore comes from selling shares of ETFs from that account. The exact shares sold are simply the shares that will cost us the least in income taxes. That generally has been the shares with the least unrealized gains for the amount we need to sell. Until this year all the realized capital gains have been offset by previous tax-loss harvesting with carryovers. That means we paid no income taxes on the return-of-capital (always tax-free) and the realized gains. That is, the least in income taxes has been $0.00.

If the above doesn't make sense, then ask more questions and I will try to clarify.

But I also want to mention that the taxable account investments (they are all stock mutual funds or ETFs, no bond funds, no money market funds, no savings accounts) pay dividends every quarter which we also use to pay expenses. We did not move funds around at all since we were already invested tax efficiently for years and years. That meant that our Form 1040 Schedule B has less than $20 on the top half and mostly qualified dividend income on the bottom half.
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Kenkat
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Re: Share your retirement cash flow plan

Post by Kenkat »

I rolled a lump sum pension distribution into my 401k. Between my original 401k and the lump sum pension distribution, this is about 40% of my retirement assets. I invested that fairly conservatively (30/70) with the intent to use it all over 11-1/2 years to get me to age 70. I take a monthly distribution - my retirement paycheck - across all of the funds that make up the 30/70 and will rebalance as needed and as I approach age 70. I’ve been retired for 2 years so now I am down to 9-1/2 years to go. So far, so good.

The remaining 60% is allowed to growth as it was before I retired in a 70/30 mix. Once I claim social security at 70 I expect to only need to take 1-2% from my remaining portfolio yearly so hopefully my kids can receive an inheritance.
Golf maniac
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Re: Share your retirement cash flow plan

Post by Golf maniac »

I have a pension and my wife has her SS. But we still have a shortfall. We have established a ladder with our retirement accounts. For funds we project we will need in the next 5 years (before I start SS) we have a target income fund we pull from monthly. Any one time expenses. (Vacation, large home maintenance expenses, or a new car would also come out of that fund). After I start SS at 70 our regular cash flow needs will be pretty small. Funds we may need in year 5 to 10 are in a 2030 target fund. Anything past that is in a 2035 target fund. I like the simplicity and ease of managing my retirement assets this way.
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Svensk Anga
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Re: Share your retirement cash flow plan

Post by Svensk Anga »

I have mostly been selling out of our taxable brokerage account, highest basis assets first. There was also some motivation to clean out some junk from pre-Bogleheads adventures in the name of portfolio simplification. If the basis is high enough, sales to the top of the 0% long term capital gains tax bracket might generate enough cash to cover expenses beyond our small pensions for two, maybe three years. No SS yet. I do Roth conversions in those off years to the top of a selected bracket or now to an IRMAA limit. I am also liquidating I-series savings bonds. I don't have any of the 3%+ real yield variety. Stock sales proceeds are usually parked in a MM fund until used. Dividends in the taxable account are sent to the settlement fund for spending.

I did not move funds prior to retirement since this would have had adverse tax consequences.

A new wrinkle is withdrawing from tIRA to pay income taxes. Withholding from withdrawals is considered by the IRS to have been distributed throughout the year, so it is easy to make the safe harbor target with a late 4th quarter withdrawal and no quarterly estimated tax payment need be made. Fidelity will let you designate up to 99% of a withdrawal as withholding for taxes.

We have a TIPS ladder out to my age 88. Early on, maturing TIPS proceeds may buy stocks (unless withdrawn for taxes) while stocks in taxable will go to cash. Later, maturing TIPS will become part of tIRA withdrawals/RMDs.
jebmke
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Re: Share your retirement cash flow plan

Post by jebmke »

During the first 10 years we had no pension or SS. We sold something if we needed cash.
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MrBobcat
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Re: Share your retirement cash flow plan

Post by MrBobcat »

I'm approaching retirement. My plan is to keep 2ish years of expenses in cash/cash equivalents and replenish it partially with dividends/interest and selling the index funds in my taxable account when needed to keep the balance up. Big portion of my investible assets are in my taxable account which should last me well past the time we start drawing SS. I may also start drawing down my SEP at some point too (if it makes tax sense) just to use it up first.
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Re: Share your retirement cash flow plan

Post by steadyosmosis »

I like my annual Schedule B to look much like Livesoft described, so I sell only when I need to pay a bill, and from the 'least-taxed' account.
Age<59.5 | Early-retired | AA ~55/45 | Taxable=100% VTI | Roth IRA=97% equities | HSA=94% equities | Traditional IRA=100% fixed income | I spend from the taxable account |
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murrays
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Re: Share your retirement cash flow plan

Post by murrays »

jebmke wrote: Mon May 06, 2024 7:26 pm During the first 10 years we had no pension or SS. We sold something if we needed cash.
What criteria did you use to decide what to sell?
KlangFool
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Re: Share your retirement cash flow plan

Post by KlangFool »

OP,

I keep 2 to 3 years of expense in cash all the times. So, I do not face any of your problems.

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Scorpion Stare
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Re: Share your retirement cash flow plan

Post by Scorpion Stare »

I keep about 1–2 months’ cash in my brokerage account’s settlement fund. I also direct dividends to the settlement fund.

Once a month I transfer cash from my brokerage account to my checking account. Then, if necessary, I replenish the settlement fund by selling whatever is most above its target allocation in my brokerage account.
CletusCaddy
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Re: Share your retirement cash flow plan

Post by CletusCaddy »

I intend to early retire as well. When I do I will draw down my accounts in the following order:

Taxable
Tax-deferred
Tax free
helloeveryone
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Re: Share your retirement cash flow plan

Post by helloeveryone »

livesoft wrote: Mon May 06, 2024 6:42 pm We have a non-small taxable account. The money therefore comes from selling shares of ETFs from that account. The exact shares sold are simply the shares that will cost us the least in income taxes. That generally has been the shares with the least unrealized gains for the amount we need to sell. Until this year all the realized capital gains have been offset by previous tax-loss harvesting with carryovers. That means we paid no income taxes on the return-of-capital (always tax-free) and the realized gains. That is, the least in income taxes has been $0.00.

If the above doesn't make sense, then ask more questions and I will try to clarify.

But I also want to mention that the taxable account investments (they are all stock mutual funds or ETFs, no bond funds, no money market funds, no savings accounts) pay dividends every quarter which we also use to pay expenses. We did not move funds around at all since we were already invested tax efficiently for years and years. That meant that our Form 1040 Schedule B has less than $20 on the top half and mostly qualified dividend income on the bottom half.
Small Non-Taxable accounts or Non-Small Taxable accounts? I’m reading your post as likely big taxable accounts given your comments on tax loss harvesting and such. Did you fund those as you got closer to retirement?
livesoft
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Re: Share your retirement cash flow plan

Post by livesoft »

helloeveryone wrote: Mon May 06, 2024 9:41 pmSmall Non-Taxable accounts or Non-Small Taxable accounts? I’m reading your post as likely big taxable accounts given your comments on tax loss harvesting and such. Did you fund those as you got closer to retirement?
Taxable accounts were funded when we were both working. They have not been added to since early 2016 after I stopped working. They were not funded closer to retirement as we were using them to pay for college expenses. Also hardly any TLH since 2016, too. Our tax-advantaged accounts are much larger than our taxable accounts because we were always contributing the max legally allowed since about 1982.
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PaddyMac
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Re: Share your retirement cash flow plan

Post by PaddyMac »

A couple of years before we started withdrawing regularly, we turned off Reinvest Dividends and let cash accumulate in the money market fund. Between all our accounts, the dividends pretty much pay for our annual outlay and I like not having to think about what to sell.
doobiedoo
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Re: Share your retirement cash flow plan

Post by doobiedoo »

Below is a snapshot of my taxable dividend income from 2023.
In addition, the TWCUX Ultra fund typically distributes $20-$35k in LTCG to me each year. [It's unpredictable.]
And I also received survivor's benefits from Social Security and rental income from a house. [not shown below]
Image

These payments all go to the settlement fund or directly to my checking account.
So month-to-month I don't have any decisions. The income stream has already been set up.

This avoids making a mistake in month-month sell decisions.
It may not be optimal, but it's good enough for me.

See BH thread: "Retirement Related Readiness/Investiments" viewtopic.php?t=429747
See BH thread: "Re: Income vs Return in Retirement" viewtopic.php?t=423069
marcopolo
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Re: Share your retirement cash flow plan

Post by marcopolo »

KlangFool wrote: Mon May 06, 2024 7:59 pm OP,

I keep 2 to 3 years of expense in cash all the times. So, I do not face any of your problems.

KlangFool
If you always keep it, its not cash flow.
What are you spending from?
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marcopolo
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Re: Share your retirement cash flow plan

Post by marcopolo »

murrays wrote: Mon May 06, 2024 6:33 pm We're two years into retirement and the question I would ask any person approaching retirement is "How do you plan to pay the credit card bill for the big trip you take 6 months after you quit work?" Those of you with sufficient pensions or social security probably have an easy answer, but my wife and I retired early without pensions so we needed to generate cashflow from our assets which begs the question: I have bills to pay this month, where exactly does the money come from?

I'm curious how the retired people here create cash flow and what those of you approaching retirement are planning? I'd like some details as in, if you sell funds from your nest egg, how do you choose which funds to sell? Did you move funds around in the years leading up to retirement in preparation?

Personally, I developed our plan in the year or two prior to our retirement and continue to refine it so I'm always looking for advice or critique. I'll share my plan after some responses to not poison the discussion.
We keep it very simple.
Dividends in taxable account are directed to our Fidelity CMA account. That covers about 1/2 our expenses.

The rest is derived from selling equities in taxable account with lowest unrealized gains.

We then may sell bonds and buy equities in tax deferred account if necessary to maintain asset allocation. This is rare, and would only happen after steep decline in equity markets.
Once in a while you get shown the light, in the strangest of places if you look at it right.
MangoSmoothie
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Re: Share your retirement cash flow plan

Post by MangoSmoothie »

We are currently two years in to early retirement.

We exited our corporate jobs with over 3-years of expenses in cash which might have been excessive, but we slept better at night knowing our first few years were fully funded.

Additionally, we had a small non-qualified 457(b) that we drew down annually which funded the first two years of retirement.

We have now adjusted the portfolio a bit so we have two years in cash. The plan is to rebalance and withdraw from our taxable account every six months, replenishing the cash account with 6 months of living expenses using dividends and by selling shares in our equities. I should add that we have a very precise and detailed budget which we developed well before we retired, but that we also continue to refine and adjust. That budget helps us stay on target for our 50-year time horizon.

We are also planning to do annual Roth conversions and LTCG harvesting in the taxable account over the next decade. Once we hit retirement age in 10 years, we will start to draw down our tIRAs and use those for cash flow, in addition to taxable.
Cannoli
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Re: Share your retirement cash flow plan

Post by Cannoli »

My cash flow bucket is a Vanguard IRA with four funds. Short term bond index fund I use for withdrawals now followed eventually by 2020 TDF in a few years, then the 2030 fund and finally the 2035 fund to hopefully get me to the end. I also have a QLAC for a backstop

My uninsured health care funds are a couple of roths and taxable accounts at Schwab.

Good luck to us all
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fourwheelcycle
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Re: Share your retirement cash flow plan

Post by fourwheelcycle »

A. All investment dividends and RMDs (net of QCDs and tax withholding) are directed to our Vanguard settlement account, which pays a competitive interest rate. RMDs represent the biggest portion of our income.

B. My pension (net of 50% tax withholding!) and our SS payments (net of IRMAA and max SS withholding) are directed debited to our BoA checking account. My pension is not large; about 14% of our income.

C. When our checking account gets low we transfer cash from our Vanguard settlement account.

D. We generally run an annual surplus in our Vanguard settlement account (yea!), most of which we give to our children. We stay below the IRS' annual gift exclusion, so we don't have to submit any 709 forms.
tonyclifton
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Re: Share your retirement cash flow plan

Post by tonyclifton »

Spouse will be retiring in the near future with a pension. Cash flow plan is to withdraw from 457b plan (which allows withdrawals at any age after retirement with no penalty) or taxable brokerage account - whichever has better tax implications. We are also building up a cash cushion in the taxable brokerage account (in a money market fund) to fund a significant home renovation. I have not yet found a great way to pay for large expenses once she “retires” because as they say money doesn’t grow on trees - has to come from somewhere. In fact, we need to cut down a tree which will cost money :)
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Re: Share your retirement cash flow plan

Post by jebmke »

murrays wrote: Mon May 06, 2024 7:52 pm
jebmke wrote: Mon May 06, 2024 7:26 pm During the first 10 years we had no pension or SS. We sold something if we needed cash.
What criteria did you use to decide what to sell?
Whatever asset class was off on the high side. I retired in December 2007. I was selling bonds like crazy in 2008-09 to fund expenses plus buy equity in re-balance trades trades.
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racy
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Re: Share your retirement cash flow plan

Post by racy »

My IRA and taxable accounts are with Vanguard.
1. I have taxable account funds' quarterly dividends directed to my bank.
2. I have an IRA fund's quarterly dividends (less fed & state taxes withheld) settled to my IRA Fed MM account. And an auto monthly withdrawal from there to my bank.
3. Our monthly SS income is auto deposited in our bank.
KlangFool
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Re: Share your retirement cash flow plan

Post by KlangFool »

marcopolo wrote: Tue May 07, 2024 1:35 am
KlangFool wrote: Mon May 06, 2024 7:59 pm OP,

I keep 2 to 3 years of expense in cash all the times. So, I do not face any of your problems.

KlangFool
If you always keep it, its not cash flow.
What are you spending from?
I refill whenever it is tax efficient for me. Hence, it is not tied to the spending need.

I spend from my 2 to 3 years expense cash buffer.

KlangFool
Last edited by KlangFool on Tue May 07, 2024 8:45 am, edited 1 time in total.
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dcabler
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Re: Share your retirement cash flow plan

Post by dcabler »

murrays wrote: Mon May 06, 2024 6:33 pm We're two years into retirement and the question I would ask any person approaching retirement is "How do you plan to pay the credit card bill for the big trip you take 6 months after you quit work?" Those of you with sufficient pensions or social security probably have an easy answer, but my wife and I retired early without pensions so we needed to generate cashflow from our assets which begs the question: I have bills to pay this month, where exactly does the money come from?

I'm curious how the retired people here create cash flow and what those of you approaching retirement are planning? I'd like some details as in, if you sell funds from your nest egg, how do you choose which funds to sell? Did you move funds around in the years leading up to retirement in preparation?

Personally, I developed our plan in the year or two prior to our retirement and continue to refine it so I'm always looking for advice or critique. I'll share my plan after some responses to not poison the discussion.
I use an amortization method to calculate my withdrawals quarterly. Examples on this forum include ABW, TPAW and VPW, but I have my own spreadsheet for this.

My cash flows come from 2 main parts
1. Fixed Income: This includes income from what is effectively a TIPS ladder which builds in SS bridges for before we start SS and another portion that will last well into our 90's.
2. Withdrawals from stock in our taxable and tax advantaged accounts. In our taxable account, we don't reinvest dividends. They're conveniently paid out about a week before our quarterly withdrawals are made and are considered in the withdrawal calculations. In our tax advantaged accounts, we continue to reinvest dividends.

After withdrawals are made, 1/3 goes directly to our checking for spending and the remainder sits in a HY account. The next month 1/2 of what is in the HY account is transferred to checking and on the last month of the quarter, the remainder is transferred.

Other than the 3 month micro-buffer above, we aren't holding X number of years for spending. I would prefer to keep as much fully invested outside of cash-like instruments as much as possible. I do, however, have enough in our checking to handle the usual "lumpy" expenses that come along in life. What I am seeing is that our spending capacity is higher than what our actual spending is. That is, our checking account is starting to slowly rise in value. Therefore, I am no longer actually withdrawing the full amount that I calculate each quarter. I am instead considering the withdrawal calculations to be a "max" and I will apply discretion each quarter to determine what to actually withdraw. Stocks in our tax advantaged space is the primary spending source where I apply such discretion.

By keeping more invested than I otherwise would, over time, I would expect that the margin between what we can withdraw and what we actually withdraw would increase such that if a pinch comes along in the future, we'll be in better shape vs. not having done that.

Cheers.
MikeG62
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Re: Share your retirement cash flow plan

Post by MikeG62 »

murrays wrote: Mon May 06, 2024 6:33 pm We're two years into retirement and the question I would ask any person approaching retirement is "How do you plan to pay the credit card bill for the big trip you take 6 months after you quit work?" Those of you with sufficient pensions or social security probably have an easy answer, but my wife and I retired early without pensions so we needed to generate cashflow from our assets which begs the question: I have bills to pay this month, where exactly does the money come from?

...
Early retired in 2016 (in early 50's), no pension or SS yet. Most (call it ~80%) of our financial assets are in taxable accounts. Cash flow to pay our expenses comes from a combination of (1) interest on fixed income, (2) dividends on equities (mostly index ETF's) and (3) maturing fixed income investments. We have yet to need to sell any assets to meet our cash flow needs (and we spend a lot). Asset allocation is overweight fixed income (currently around 40% equities and 60% fixed income). For 2024, over 80% of our cash needs will come from a combination of (1) and (2) above. So, we aren't needing to consume or spend maturing fixed income (most maturing fixed income is reinvested).

Hope that somehow helps you in your planning. Good luck.
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RyeBourbon
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Re: Share your retirement cash flow plan

Post by RyeBourbon »

Summary: I have a taxable account full of T-bills. As they mature, I transfer the funds to my checking account to pay bills. When that account is depleted, I will pull monthly from traditional and Roth IRA.

More details: I had some company stock in a 401k. After I retired, I used NUA to pull it out and sold it to buy the T-bills. Cost basis was about 20%, will pay ordinary income tax on it and 80% was LTCG which I will pay 0% on. My Federal tax liability this year will be about $1200.

I bought a TIPS ladder in tIRA to provide a guaranteed amount equal to the SS we will receive 7 years from now (SS Bridge).

Starting next year, because we are getting ACA subsidies, I will decide what I want our AGI to be and convert that amount from tIRA to Roth. Spending will come out of the Roth. This will be a net reduction in our Roth balances, but when we get to Medicare age, I can get more aggressive with Roth conversions because we won't have the ACA subsidies to worry about. Probably up to the IRMAA cliff.

Withdrawals are about 6% per year, but once SS starts, withdrawals from the portfolio will be less than 4%.
Retired June 2023. LMP (TIPS Ladder/SS Bridge) 25%/Risk Portfolio 75%, AA = 70/0/30
dknightd
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Re: Share your retirement cash flow plan

Post by dknightd »

I basically cross my fingers and hope for the best. A little in stocks, a little in bonds, a little in SPIA. Hopefully it will be enough. SS is big part of my plan. But I have not claimed it yet.

For now we have been spending cash like things. Mostly TIAA traditional balances.
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
oldfatguy
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Re: Share your retirement cash flow plan

Post by oldfatguy »

murrays wrote: Mon May 06, 2024 6:33 pm We're two years into retirement and the question I would ask any person approaching retirement is "How do you plan to pay the credit card bill for the big trip you take 6 months after you quit work?"
That's easy. I won't be taking any big trips.
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mhc
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Re: Share your retirement cash flow plan

Post by mhc »

Early retired last year. No pension and too young for SS.

We only keep 1-2 months of expenses in cash. We are not fans of holding cash.

We did not move funds around. Our taxable account is VTSAX (TSM) and VTIAX (TISM).

We live off of dividends and selling from taxable account when necessary. We sell based off of rebalancing needs and shares with the smallest long term capital gains. This leaves more room for Roth conversions.
52% TSM, 23% TISM, 24.5% TBM, 0.5% cash
privateID
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Re: Share your retirement cash flow plan

Post by privateID »

CletusCaddy wrote: Mon May 06, 2024 9:39 pm I intend to early retire as well. When I do I will draw down my accounts in the following order:

Taxable
Tax-deferred
Tax free
I believe many will follow this order. My only issue here is what happens to your AA. I know for myself, my tax-free accounts are 100% in stock. As time goes on, RMDs/withdrawals from tax-deferred (have some stock there, but more fixed), would mean my AA will rise in stock. I can always add bonds to tax-free later on, but just wonder if that is what people intend to do? For myself, I have always liked the bond tent idea, so I think I'm ok with my bond allocation peaking at retirement and then slowly drifting lower as I get older. I think that is possible as I hope to never really drawdown my Roth accounts.
Broken Man 1999
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Re: Share your retirement cash flow plan

Post by Broken Man 1999 »

We both have SS benefits that cover 40%-50% of our monthly bills. The remaining funds needed come from distributions from our TIRA accounts.

DW and I have specific bills we are responsible to pay, hers are about 20% of expenses, mine are about 80% of expenses.

Her bills are fairly stable, so I have set up her TIRA distribution to be automatic each month from her Vanguard Short-term Treasury Index mutual fund holdings.

My bills are lumpy and my TIRA distributions can range from $2,000 - $8,000/month. My distributions are taken from the asset that is over our desired allocation.

Some folks like having an ongoing large cash balance, sometimes covering expenses for multiple years. I have never been a fan of holding cash, so usually I don't.

By the last week of the month I pretty much know the needed funds for next month's bills, the amount needed made easier by having everything possible charged to credit cards. So I can run very lean in my checking account. Repeat each month.

Broken Man 1999
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Flashes1
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Re: Share your retirement cash flow plan

Post by Flashes1 »

I'm 4 years away from retirement, so I'm starting to think about withdrawal strategies because I'm going to need to need proceeds from my current 401k to fund retirement expenses:

1. To handle large, lumpy expenses or unexpected expenses, I'm thinking about opening a HELOC on my paid-off house in retirement and sweep money from it to my checking account. I do that now actually multiple times a month, and I find it extraordinarily useful. I keep very little in my checking account in my working years and use excess cash flow to prepay mortgage, cash flow upcoming kids' college expenses, car purchases, etc.

2. I'm very much interested in doing a TIPS ladder.

3. I'm leaning towards keeping 1x-3x of expenses in a money market then be aggressive with equities.

One thing that's a little unnerving, is the source of withdrawals will be my at the time former 401k so I think I'll need to transfer it to Fidelity/Vanguard as an IRA and then divvy it up from there - so mentally that's a big move for me. I have multiple IRA's at Vanguard right now in the form of a prior 401k, and some non-deductible IRA's from a long time ago - Vanguard calls them different things and keeps them separate ---- relatively low dollar amounts in each one so, I might just sell them first ---- and transfer my 401k to Fidelity to keep it separate from the 3-4 IRA's I have at Vanguard.
Last edited by Flashes1 on Tue May 07, 2024 9:26 am, edited 2 times in total.
kleiner
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Re: Share your retirement cash flow plan

Post by kleiner »

I am retired but my wife is still working. I expect that she will retire at some point in the next year or two. When I filed my taxes for 2023, I discovered that we received over $150k in dividends and interest from our taxable brokerage and bank accounts. Thats more than what we need annually so I expect we will live on that while we do our Roth conversions. I have separate money set aside to pay the taxes associated with Roth conversions.
marcopolo
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Re: Share your retirement cash flow plan

Post by marcopolo »

KlangFool wrote: Tue May 07, 2024 6:17 am
marcopolo wrote: Tue May 07, 2024 1:35 am
KlangFool wrote: Mon May 06, 2024 7:59 pm OP,

I keep 2 to 3 years of expense in cash all the times. So, I do not face any of your problems.

KlangFool
If you always keep it, its not cash flow.
What are you spending from?
I refill whenever it is tax efficient for me. Hence, it is not tied to the spending need.

I spend from my 2 to 3 years expense cash buffer.

KlangFool
So not at "all the times".
You face the same problem the OP is asking about when you go to refill your buffer.
Once in a while you get shown the light, in the strangest of places if you look at it right.
KlangFool
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Re: Share your retirement cash flow plan

Post by KlangFool »

marcopolo wrote: Tue May 07, 2024 11:07 am
KlangFool wrote: Tue May 07, 2024 6:17 am
marcopolo wrote: Tue May 07, 2024 1:35 am
KlangFool wrote: Mon May 06, 2024 7:59 pm OP,

I keep 2 to 3 years of expense in cash all the times. So, I do not face any of your problems.

KlangFool
If you always keep it, its not cash flow.
What are you spending from?
I refill whenever it is tax efficient for me. Hence, it is not tied to the spending need.

I spend from my 2 to 3 years expense cash buffer.

KlangFool
So not at "all the times".
You face the same problem the OP is asking about when you go to refill your buffer.
As long as my cash buffer is not empty, I am spending from it all the times.

"You face the same problem the OP is asking about when you go to refill your buffer."

Except I do not have to refill the buffer/withdraw when I want to spend on something.

KlangFool
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MikeWillRetire
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Re: Share your retirement cash flow plan

Post by MikeWillRetire »

murrays wrote: Mon May 06, 2024 6:33 pm

I'm curious how the retired people here create cash flow and what those of you approaching retirement are planning? I'd like some details as in, if you sell funds from your nest egg, how do you choose which funds to sell? Did you move funds around in the years leading up to retirement in preparation?
My wife and I have modest pensions, so we also take monthly withdrawals from our thrift savings plan (federal version of 401k). We invested all of it in a target date fund while working and still do in retirement. Nice and simple.
aristotelian
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Re: Share your retirement cash flow plan

Post by aristotelian »

1) Spend taxable account dividends.
2) Take RMD, if any.
3) Sell taxable account stocks for cash. Keep realized gains to a minimum.
4) Rebalance (i.e. buy stocks) in retirement accounts.
5) Withdraw from retirement accounts if taxable account is exhausted.

In addition to the above for withdrawals, we will do annual Roth conversions to move money from traditional to Roth. Ideally we will never withdraw from the traditional account and only withdraw from Roth once taxable is exhausted.
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Hacksawdave
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Re: Share your retirement cash flow plan

Post by Hacksawdave »

murrays wrote: Mon May 06, 2024 7:52 pm
jebmke wrote: Mon May 06, 2024 7:26 pm During the first 10 years we had no pension or SS. We sold something if we needed cash.
What criteria did you use to decide what to sell?
Since I do not have a pension and I am too young for SS, I reply on the cashflow diagram to funnel lumpy expenses. The cashflow PowerPoint page has multiple cash bag icons moving around from box to box or to a holding spot. I have multiple distribution choices that I can select from to divert or even turn an auto-reinvest off based upon what is best. A click or two is all it needs to move funding to the desired point.
alfaspider
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Re: Share your retirement cash flow plan

Post by alfaspider »

Cash generation would mostly be driven by tax concerns. In rough order:

1) Money that is already taxed in the current year such as dividends and interest payments plus any social security or pension payments made to you
2) Investments out of post-tax tax advantaged accounts (i.e. Roth IRA) that don't generate capital gains tax bills
3) Investments in taxable accounts with high tax basis (small gain relative to the amount of cash)
4) Investments in taxable accounts with low tax basis
5) Investments in pre-tax accounts that generate ordinary income (i.e. non-Roth 401k money)

The general rule of tax planning is to defer income to the extent possible, because there is "time value" to your money. There's nuance to optimizing these strategies, however. You have to consider potential Roth conversions, the impact of potential RMDs, tax loss harvesting in your taxable account, and potential timing of your cash needs. You also have to consider your tax bracket in retirement. For example, your capital gains rate will depend on how much income you have for the year (some may be able to take advantage of the zero bracket for capital gains). Your taxable income can be managed in retirement in a way it can't be during your working years. You may also know something about your longevity. For example, if you have a chronic illness that is likely to reduce your lifespan, you may not have to worry as much about RMDs. Then there's a whole 'nother kettle of fish to consider if you may be subject to estate taxes and wish to leave a legacy.

I think cash withdrawal strategies is one area where ordinary folks may benefit from professional advice. It's not as simple as "VOO and chill."
tonyclifton
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Re: Share your retirement cash flow plan

Post by tonyclifton »

Flashes1 wrote: Tue May 07, 2024 9:14 am
1. To handle large, lumpy expenses or unexpected expenses, I'm thinking about opening a HELOC on my paid-off house in retirement and sweep money from it to my checking account.
We are trying to put together a plan that doesn’t use our HELOC since rates are now very high. Emergency or unexpected yes, but it is not free money due to the high interest rates (and we have a “good” HELOC).
mikeb123
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Re: Share your retirement cash flow plan

Post by mikeb123 »

I am pretty newly retired (a year ago). I currently have 80% equities and 20% fixed income (primarily laddered treasuries). This is spread across a Roth, a 401k, and a taxable account. I am using a variable percentage withdrawal system (VPW) based on my age. So if the market drops I will withdraw less. I have a pension that covers most of my day-to-day needs so I am comfortable with the variable withdrawals and also with having most of my money in equities.

I draw on dividends from the equities and the laddered treasuries as they mature to supplement my pension. This ladder should last about 5 years at my current rate of withdrawal. I will keep on withdrawing from here until my equities go up 20% or so. Then I will sell that equity gain to replenish the fixed income. Note that this is fundamentally different from a bucket approach because I do not regularly re-balance. This means my AA may not stay 80/20, and may even move to 100/0. But I hopefully avoid selling low on my equities. If equities stay low as I sell fixed income, VPW will result in my having smaller withdrawals (and I will have to take medium trips instead of big trips), so that the 5 years of fixed income will be stretched to 7 or 8. If I go 7-8 years and have no more fixed income investments and my equities have still not gone up, I will have to start selling them while they are low, but that will be true for virtually any system if we go through a long downturn.

Interesting thread, thank you!
stevethefundguy
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Re: Share your retirement cash flow plan

Post by stevethefundguy »

As I see it, while paying income tax rates on T-IRA withdrawals is a bigger bite than paying cap gains on brokerage withdrawals, income tax rates are almost certain to be going up still higher, and before too long. Also, you have control over taxable brokerage withdrawals in the future, but T-IRAs become subject to required minimum distributions, affecting your tax bracket, IRMAA for Medicare premiums and maybe even AMT. Thus, I'd rather withdrawal from my T-IRA now as expenses warrant it -- but I have stopped reinvesting brokage dividends and, as already paying taxes on these, use that as my first bucket of available funds.
My ranking for accounts to pull funds from is therefore:

-- Dividends from taxable brokerage (moved to settlement account/cash management)
-- T-IRA
-- Taxable brokerage ETF share sales
-- Roth IRA
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murrays
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Re: Share your retirement cash flow plan

Post by murrays »

Redundant post...
Last edited by murrays on Tue May 07, 2024 1:09 pm, edited 1 time in total.
Wanderingwheelz
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Re: Share your retirement cash flow plan

Post by Wanderingwheelz »

tonyclifton wrote: Tue May 07, 2024 12:23 pm
Flashes1 wrote: Tue May 07, 2024 9:14 am
1. To handle large, lumpy expenses or unexpected expenses, I'm thinking about opening a HELOC on my paid-off house in retirement and sweep money from it to my checking account.
We are trying to put together a plan that doesn’t use our HELOC since rates are now very high. Emergency or unexpected yes, but it is not free money due to the high interest rates (and we have a “good” HELOC).
Makes more sense to keep a figure in the settled fund that would cover what you consider to be a realistic lumpy expense, now that it’s paying more than 5% interest.

There’s no meaningful cash drag from having less than 1% of your liquid net worth in money market at a normal retirement age. Many of our friends and neighbors are paying an advisor more than 1% each year, and they appear to be doing just fine (not to mention the high imbedded fees of their investments).
Being wrong compounds forever.
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murrays
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Re: Share your retirement cash flow plan

Post by murrays »

oldfatguy wrote: Tue May 07, 2024 8:49 am
murrays wrote: Mon May 06, 2024 6:33 pm We're two years into retirement and the question I would ask any person approaching retirement is "How do you plan to pay the credit card bill for the big trip you take 6 months after you quit work?"
That's easy. I won't be taking any big trips.
It was more of a rhetorical question as in "How do you plan to pay any expenses that come along beyond what's currently in your savings?"
jebmke
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Re: Share your retirement cash flow plan

Post by jebmke »

murrays wrote: Tue May 07, 2024 1:08 pm
oldfatguy wrote: Tue May 07, 2024 8:49 am
murrays wrote: Mon May 06, 2024 6:33 pm We're two years into retirement and the question I would ask any person approaching retirement is "How do you plan to pay the credit card bill for the big trip you take 6 months after you quit work?"
That's easy. I won't be taking any big trips.
It was more of a rhetorical question as in "How do you plan to pay any expenses that come along beyond what's currently in your savings?"
Indeed. While I fully expected month to month variation to be significant, one of the slight surprises in retirement is the wide range year to year that we have experienced. Some of it is by choice, some of it not.
When you discover that you are riding a dead horse, the best strategy is to dismount.
sailaway
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Re: Share your retirement cash flow plan

Post by sailaway »

murrays wrote: Tue May 07, 2024 1:08 pm
oldfatguy wrote: Tue May 07, 2024 8:49 am
murrays wrote: Mon May 06, 2024 6:33 pm We're two years into retirement and the question I would ask any person approaching retirement is "How do you plan to pay the credit card bill for the big trip you take 6 months after you quit work?"
That's easy. I won't be taking any big trips.
It was more of a rhetorical question as in "How do you plan to pay any expenses that come along beyond what's currently in your savings?"
We have always kept cash flow tight enough that the big stuff generally involves selling stock. While working, we try to time it so that we can wait for the next RSU vesting, but life doesn't always cooperate.
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murrays
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Re: Share your retirement cash flow plan

Post by murrays »

I find it interesting that some here sell the most tax efficient funds in their taxable account first. This would seem to have an adverse impact on asset allocation targets since usually the most tax efficient funds are those that have grown the least.

As promised, I'll try to briefly detail my plan. Our fee for service advisor set up a multi fund asset allocation using mainly index funds to cover a broad range of asset classes. Per the chart below, it seemed logical to take small profits from the asset classes/funds that grew the most as indicated by the percent over the recommended AA.

Essentially, I sell a bit of 2-3 funds every month based on most over allocated to keep our cash balance at a determined amount while keeping a close eye on capital gains. I like this approach because I have simple objective rules which allow different asset classes to rise to the top of the list, be it bonds, REITs, value, growth, international, etc. while not selling assets that are having a down period.

I created a mock portfolio before I retired and it's been interesting to watch the daily/weekly/monthly ebb and flow of the different funds. Bottom line, nothing stays on top for long.

I was happy to see Rob Berger advocate a similar strategy over the "bucket strategy" in a youtube video: https://www.youtube.com/watch?v=fNP62fSLg1U&t=547s

Here's the chart I mentioned https://novelinvestor.com/asset-class-returns/:

Image
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