Mother in retirement: Withdraw annually or monthly?

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FriedFire
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Mother in retirement: Withdraw annually or monthly?

Post by FriedFire » Tue Nov 14, 2017 3:53 pm

My mother-in-law is retired. Her only retirement account is a rolled over IRA with a simple 60/40 allocation. Her account is set up with a monthly sell order for a fixed dollar amount which then get's transferred to her checking account.

I was wondering if it is better to sell a year worth of expenses once a year and transfer that amount to a high yield savings account which will then transfer a monthly "salary" to her checking account.

I tried to search for this topic but I only saw discussions on (a) withdrawal methodology (SWR, VWR, etc) and (b) which asset to withdraw from. I haven't come across a discussion on withdrawing monthly vs annually. Thoughts?

dbr
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Re: Mother in retirement: Withdraw annually or monthly?

Post by dbr » Tue Nov 14, 2017 4:21 pm

The result is just a question of the overall asset allocation. In this case withdrawing annually presumably results in slightly higher allocation to cash giving a little less return at a little less risk. I think overall the difference is very small. It would seem to be an unnecessary complication to have the extra account unless there is some convenience in having it available.
Last edited by dbr on Tue Nov 14, 2017 4:23 pm, edited 1 time in total.

RadAudit
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Re: Mother in retirement: Withdraw annually or monthly?

Post by RadAudit » Tue Nov 14, 2017 4:22 pm

I am not so sure I know the right answer.

If the WR is < 3% or 4% / year and the WR will not draw down the account to zero in your MIL's lifetime, I'm not so sure it makes a difference.
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thangngo
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Re: Mother in retirement: Withdraw annually or monthly?

Post by thangngo » Tue Nov 14, 2017 4:29 pm

For my parents, I set it up as 60/35/5 equity/bond/short-term savings and sell order for a fixed amount every month. The 5% cash serves as emergency fund should they need it. They will sell/withdraw every month to pay for expense when they need it. It won't make a big difference in either case. Make sure your mother-in-law is comfortable with whichever arrangement you make.

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Re: Mother in retirement: Withdraw annually or monthly?

Post by Meg77 » Tue Nov 14, 2017 4:55 pm

In general if someone is used to being paid monthly or bi-monthly, monthly retirement distributions simulate that and may make budgeting easier (even if just psychologically). Financially I think monthly is ideal as well, since selling all at once puts you more at market timing risk. I wouldn't want to sell a whole year worth of stocks on a Really Bad Day nor worry about trying to do so at a relative market high either.

In general though your assumption is wrong at least statistically. Selling sooner (i.e. in January versus all year long) means on average your returns will be lower, even if you put the cash in a high yielding money market. This is for the same reason that lump sum investing (investing all in January versus all year long) more often provides for a higher return. Something like 60-80% of the time lump sum investing comes out ahead depending on the time period studied.
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Re: Mother in retirement: Withdraw annually or monthly?

Post by itstoomuch » Tue Nov 14, 2017 5:22 pm

We are opting for monthly. Except for annuities where there is no benefit for doing monthly and may in fact be disadvantageous.
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ruralavalon
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Re: Mother in retirement: Withdraw annually or monthly?

Post by ruralavalon » Tue Nov 14, 2017 6:04 pm

We have a monthly withdrawal from my rollover IRA, just because it's convenient.
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FriedFire
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Re: Mother in retirement: Withdraw annually or monthly?

Post by FriedFire » Tue Nov 14, 2017 6:55 pm

Great. Thanks for everyone’s input. Sounds like we should keep the monthly arrangement in place.

FriedFire
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Re: Mother in retirement: Withdraw annually or monthly?

Post by FriedFire » Tue Nov 14, 2017 9:02 pm

follow up question: for those who withdraw monthly, do you withdraw proportionally so your asset allocation stays the same or do you choose a specific asset class and change it every now and then based on how the different asset classes are performing?

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ruralavalon
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Re: Mother in retirement: Withdraw annually or monthly?

Post by ruralavalon » Tue Nov 14, 2017 9:09 pm

FriedFire wrote:
Tue Nov 14, 2017 9:02 pm
follow up question: for those who withdraw monthly, do you withdraw proportionally so your asset allocation stays the same or do you choose a specific asset class and change it every now and then based on how the different asset classes are performing?
It's withdrawn proportionally from each fund in my rollover IRA. so it tends to keep the asset allocation unchanged.
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Re: Mother in retirement: Withdraw annually or monthly?

Post by AlohaJoe » Tue Nov 14, 2017 9:13 pm

One downside of annual withdrawals is that, for most people, it is more at risk of behavioural errors.

For most people 1 year's income is a substantial amount of money. To go into their brokerage and say sell for that much is stressful. It probably increases the chances of things like, "Well I heard that the markets are down last week...so maybe I'll just wait a week or two before doing it?"

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Re: Mother in retirement: Withdraw annually or monthly?

Post by MJS » Wed Nov 15, 2017 1:06 pm

itstoomuch wrote:
Tue Nov 14, 2017 5:22 pm
... Except for annuities where there is no benefit for doing monthly and may in fact be disadvantageous.
This feels right, but I wondered if there is some research on optimizing annuity withdrawals?
Thanks!

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Tyler Aspect
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Re: Mother in retirement: Withdraw annually or monthly?

Post by Tyler Aspect » Wed Nov 15, 2017 1:19 pm

I use a mutual fund money market fund to hold one year of expense there. I sell my mutual funds possibly 4 times a year to the money market fund, then my checking account withdrawals occur monthly from my money market fund.
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FriedFire
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Re: Mother in retirement: Withdraw annually or monthly?

Post by FriedFire » Wed Nov 15, 2017 3:39 pm

Tyler Aspect wrote:
Wed Nov 15, 2017 1:19 pm
I use a mutual fund money market fund to hold one year of expense there. I sell my mutual funds possibly 4 times a year to the money market fund, then my checking account withdrawals occur monthly from my money market fund.
Sounds fairly elaborate. What was the main reason behind structuring it this way?

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Tyler Aspect
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Re: Mother in retirement: Withdraw annually or monthly?

Post by Tyler Aspect » Wed Nov 15, 2017 4:07 pm

FriedFire wrote:
Wed Nov 15, 2017 3:39 pm
Tyler Aspect wrote:
Wed Nov 15, 2017 1:19 pm
I use a mutual fund money market fund to hold one year of expense there. I sell my mutual funds possibly 4 times a year to the money market fund, then my checking account withdrawals occur monthly from my money market fund.
Sounds fairly elaborate. What was the main reason behind structuring it this way?
This is to make it easier for me to control the amount of capital gains that I realize each year. Having a large buffer space allows easier planning of lump sum withdrawals for vacations, etc. My checking account does not earn any interest, so I want to limit its balance to a reasonable value.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

randomguy
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Re: Mother in retirement: Withdraw annually or monthly?

Post by randomguy » Wed Nov 15, 2017 4:11 pm

FriedFire wrote:
Tue Nov 14, 2017 3:53 pm
My mother-in-law is retired. Her only retirement account is a rolled over IRA with a simple 60/40 allocation. Her account is set up with a monthly sell order for a fixed dollar amount which then get's transferred to her checking account.

I was wondering if it is better to sell a year worth of expenses once a year and transfer that amount to a high yield savings account which will then transfer a monthly "salary" to her checking account.

I tried to search for this topic but I only saw discussions on (a) withdrawal methodology (SWR, VWR, etc) and (b) which asset to withdraw from. I haven't come across a discussion on withdrawing monthly vs annually. Thoughts?
It doesn't matter.In theory leaving more money invested more aggressive for longer periods of time will result in more money. But we are talking small sums and if you really cared you could just up your stock allocation a couple of percentage points.

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tennisplyr
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Re: Mother in retirement: Withdraw annually or monthly?

Post by tennisplyr » Thu Nov 16, 2017 7:55 am

You didn't say how old she is or how savvy, you may want to go for once/year for simplicity. I know my wife would want that.
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FriedFire
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Re: Mother in retirement: Withdraw annually or monthly?

Post by FriedFire » Thu Nov 16, 2017 7:59 am

tennisplyr wrote:
Thu Nov 16, 2017 7:55 am
You didn't say how old she is or how savvy, you may want to go for once/year for simplicity. I know my wife would want that.
She’s 70 and Fidelity offers automatic withdrawals to a bank account. So once it’s set up she doesn’t have to do much and I can review it from time to time.

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ruralavalon
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Re: Mother in retirement: Withdraw annually or monthly?

Post by ruralavalon » Thu Nov 16, 2017 1:42 pm

FriedFire wrote:
Tue Nov 14, 2017 3:53 pm
My mother-in-law is retired. Her only retirement account is a rolled over IRA with a simple 60/40 allocation. . . . . . .
. . . . .
FriedFire wrote:
Thu Nov 16, 2017 7:59 am
tennisplyr wrote:
Thu Nov 16, 2017 7:55 am
You didn't say how old she is or how savvy, you may want to go for once/year for simplicity. I know my wife would want that.
She’s 70 and Fidelity offers automatic withdrawals to a bank account. So once it’s set up she doesn’t have to do much and I can review it from time to time.
She will soon be doing Required Minimum Distributions.

We have the Required Minimum Distributions from my rollover IRA set up for equal monthly distributions to us, automatically paid to our joint checking account.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

FriedFire
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Re: Mother in retirement: Withdraw annually or monthly?

Post by FriedFire » Thu Nov 16, 2017 3:12 pm

ruralavalon wrote:
Thu Nov 16, 2017 1:42 pm
She will soon be doing Required Minimum Distributions.

We have the Required Minimum Distributions from my rollover IRA set up for equal monthly distributions to us, automatically paid to our joint checking account.
That’s a really good point. Forgot about RMD. I’ll have to check what her RMD will be compared to her current withdrawals.

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