Newbie with retirement withdrawal question

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danceswithhammer
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Newbie with retirement withdrawal question

Post by danceswithhammer » Mon Feb 04, 2019 2:51 pm

I thank the community for their generosity every day!

I have a question regarding retirement withdrawals.

I have posted my assets in portfolio question form in August, so I am not doing it again here. Briefly, I finally wrote my IPS in December, and have an AA of 45 equity/55 fixed, total portfolio of $825K, a substantial amount of my fixed is in short term reserves to serve as an emergency fund to protect myself against sequence risk during early retirement, age 68, for at least five years, to be rolled over if investment income allows. My emergency fund is to be used in order to avoid selling mutual funds (Life Strategy Growth and Moderate)for less than original purchase price plus 2% allowance for inflation. I realize this is excessive to most Bogleheads, but is a personal decision based on my desire to not feel financially constrained in the next few years of my retirement when I am likely most healthy and active.

My question regarding retirement withdrawal advice:
My IPS calls for me to deposit about $500 K over a six month period beginning Dec 2018, using DCA (as suggested by members as a way to feel more secure in this seemingly very volatile time), rather than all at once.
The shares i have purchased thus far, due to recent phenomenal rally, have increased in value about $7K, as well as producing about 3K in div/cg income from fund manager.
Which seems most sensible:
1. Sell 7K worth of shares, and put money in my MM account, where Vanguard draws my retirement check each month? This transaction would have short term cap gain consequence (my tax bracket is still pretty low at 12%, but some of this could get taxed at 24% if there is substantial short term gain this year), but would result in new money to draw from for retirement checks.
2. When I gp tp make my February IPS prescribed purchase of Lifestrategy of about 90K, I subtract 7K, so I still maintain same total dollar amount of Lifestratey, but have the 7K to use for retirement check debit this year. This transaction would not have negative tax consequences, but results in me owning fewer shares.
3. Stick to my IPS, make the the $90 February purchase of LS, maintaining my AA, and wait until at least June, when all DCA deposits will have been made, to start making withdrawals from LS funds, assuming some shares are worth more than i paid for them.. This way I run the risk of not realizing the recent gain in the last six weeks, if the shares lose value in the meantime. I see the importance of sticking to my IPS, but it presents contradictory instructions for this situation: a. Deposit entire amount of funds allocated in Dec in 6 equal payments using DCA , toward LS purchases, b. Make withdrawals from my investments whenever I can sell them for more than I paid for them (including a 2% inflation rate), to be used for retirement withdrawals.

bloom2708
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Re: Newbie with retirement withdrawal question

Post by bloom2708 » Mon Feb 04, 2019 4:53 pm

Why would you sell off the gains?

Update the dividend/capital gains re-investment settings to send dividends to your settlement account. It creates less tax lots and allows you to withdraw or consolidate to buy what you are short of.

Your IPS is your IPS, but it doesn't seem like it should cause scenarios where there is no clear course of action.

What if the market drops every month for the next 6 months while you dollar cost average? Or what if it goes up every month and you miss out on all those gains? Many discussions about lump summing vs dollar costing in. You don't know which is right until you are done and looking back.

Don't harvest gains if you are not needing to withdraw funds.
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Peter Foley
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Re: Newbie with retirement withdrawal question

Post by Peter Foley » Mon Feb 04, 2019 5:20 pm

One thing I would consider if you are approaching withdrawals is to turn off any dividend and capital gains reinvestment. Once it is all long term the tax rate will be zero or 15%. If you can stall off selling for a year that would be worthwhile.

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danceswithhammer
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Re: Newbie with retirement withdrawal question

Post by danceswithhammer » Tue Feb 05, 2019 4:18 pm

Thanks Peter and Bloom,
Thanks for taking the time to offer your advice.
I have been having div/cg deposited to my settlement account. I can also see that it is better to not to sell my LIfeStrategy shares before all other sources of income are exhausted each year, to be invested as much as possible in the equity investments.

One thing I still need help understanding is the best way to reap the benefits of ongoing gains. The gains don't produce more shares, only are a gain on paper until shares are sold. I will definitely have to draw on my Life Strategy shares, where about 60% of my portfolio is placed, so am trying to understand best method/time to do it. As the share value fluctuates, it makes sense to me to sell them when some are worth more than what i originally paid, and to avoid selling them if at all possible when they are worth less than I paid. So seizing opportunities from time to time when share price is high seems better than spending div'cg income down to zero ongoing, then selling shares for sometimes less than I paid originally to be able to meet my monthly retirement withdrawal seems counterintuitive (Please excuse my beginner questions!) It sounds like avoiding sale of equity fund shares unless absolutely necessary, and especially after owning them for more than a year is important, from what both of you say, just want to know best time to sell them when I need income. If you or anyone else can help me understand this, much appreciated!

Regarding DCA, I understand that there is no way to know what will happen each month during a six month period, one could lose a lot or gain a lot and won't know until the period ends and one can look back, So, since it is totally unknown, would you (and others) advise that placing all money immediately has the same scientific probability of outcome at the end of six months or six years?

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Re: Newbie with retirement withdrawal question

Post by bloom2708 » Tue Feb 05, 2019 5:28 pm

The gains if held less than a year are ordinary income, gains held more than a year are taxed at 15%.

I understand the feeling you want to "make money" on the shares, but your total portfolio value is what matters.

For tax purposes it is better to sell losers/winners so you have no extra tax owed. For your portfolio value, you want as big of gains as possible. That means the market is going up and up.

This is strictly speaking for taxable/brokerage shares. There are no gains/losses in Traditional/Roth IRAs.

If you sell shares before you need the money because of gains, then those shares can't grow and produce other dividends. On the flip side, they also can't go down in value.

Depending on when you buy, some shares will have gains and others might be close to even, others might have a loss. I just wouldn't specifically harvest shares with gains if you don't actually need to withdraw the money. Good luck!
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BL
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Re: Newbie with retirement withdrawal question

Post by BL » Tue Feb 05, 2019 5:48 pm

If you need money, why not take from the last month of planned DCA instead of selling something before a year has gone by? Sounds like you have invested 2-3 months worth of the total. Maybe you need all of that month 6 or more to cover expenses at least until you have long-term investments.

I simply don't see your plan working that well, at least for this year. Perhaps I just don't get it.

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danceswithhammer
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Re: Newbie with retirement withdrawal question

Post by danceswithhammer » Tue Feb 05, 2019 6:10 pm

Bloom,
Thanks again for your input.
I can see that controlling taxation is a bigger factor than I had imagined, and have understood that selling with the least capital gain is highly preferable . I also like the inherent simplicity of your advice: only sell when you need the money, and what matters is total portfolio value, not the slicing dicing effect of selling shares to grab "gains", I chose my very simplistic IPS based on basic three fund type Boglehead approach so I could sleep at night, and your advice just makes it that much simpler.
So might you advise me regarding withdrawals?: 1. Only withdraw amounts needed ongoing 2. Withdraw lowest capital gain shares first 3. If the market is declining for a period of several months, like it did most of last year, almost reaching Bear market definition, use cash reserves to avoid having to sell my LifeStrategy funds. Use of cash reserves now is a hedge against sequence risk for me at age 68, and most of the money is making an average of 2.5%, about the rate of inflation. OR 4. Stop looking my substantial cash reserve as "emergency" funds to provide retirement withdrawals, and instead feel confident about spending them whenever needed to maintain AA, which means buying more Life Strategy when shares are low and causing my AA to tip towards excess fixed income. I put the 5 year emergency fund (CD's and mm funds, averaging about 2.5% )in my IPS counting towards my AA, rolling over to last until i am 80 in 12 years, in order to have money to spend to maintain my 4% SWR at least during the time I am healthy enough to spend it on an active lifestyle no matter what the market does between now and 2030, and to guard against sequence risk early on. Does this approach since ridiculously conservative, and more fear based than reality based? Most people on the forum that I have read seem to think of emergency funds for just months, up to 2-3 years, not 5 or more.

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danceswithhammer
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Re: Newbie with retirement withdrawal question

Post by danceswithhammer » Wed Feb 06, 2019 2:31 pm

BL,
Thanks for your attention and response to my post.
I do see that it is advantageous for me to avoid selling equities this year to avoid short term capital gain, and that using some of the cash i am investing using DCA over 6 months (four payments to go) for living expenses this year is in order.

Regarding the practice of DCA for placing the rest of my cash in LifeStrategy, do you (or others in the community) think that there is a statistical advantage in the long run to invest this money by DCA over 6 months, versus placing all the money immediately? Obviously, nobody knows what the market could do in the next four months remaining, so following my DCA plan has a 50% chance of either hurting me or helping me in the big picture. Would the probability be the same 50% if i just invest the money right away? I originally was drawn to the idea thinking it was a "safer" way to throw the dice.

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BL
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Re: Newbie with retirement withdrawal question

Post by BL » Wed Feb 06, 2019 7:53 pm

It makes mathematical sense to put it all in at once. No one knows whether this year will follow the probability of increases in equities.

It is usually advised that money needed within 5 years should not be in the stock market. It seems you are having trouble because you are tying up too much of your needed cash/fixed income in the short term. Since even Prime Money Market now pays 2.48%, that might be one place to keep some cash. You are running into to one of the disadvantages of balanced in taxable, that is, having to sell both equities and bonds where it might make sense to sell one or the other sometimes. Guess that is a trade-off to simplicity.

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danceswithhammer
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Re: Newbie with retirement withdrawal question

Post by danceswithhammer » Fri Feb 08, 2019 2:10 am

BL,
Thanks for your further input.

I using two different LS funds (growth and Moderate) to get my desired AA, along with enough cash in one year CD's I can rollover, and a substantial amount in Vanguard prime MM . As mentioned in one of the earlier parts of this post, I do have five years worth of cash on hand separate from the stock and bond market, and have been concerned that I am being overly cautious, so nice to hear that is not unreasonable from someone who has written over 8000 posts! Although I can't choose equities versus fixed with my balanced funds, I can buy (probably won't have any more new money) more of or sell more of one of the other to adjust to my AA.

I had a feeling you would advise that placing all my money right now is statistically the same as four more months of DCA.

Is the main advantage to not using balanced funds taxation issues , or lack of control over AA as my needs change in the future? Or maybe some other reasons? As you know, I still haven't placed the remaining 2/3 of my money destined for mutual funds, so it is certainly not too late to tweak my IPS to something more hands on. I have to admit i do like the simplicity of the balanced fund approach, with stocks and bonds in diversified markets being bought and sold daily as needed to maintain my AA, with each daily fluctuation of market forces. Do you think this approach can be too costly for the benefit of the simplicity?

I am brought back to my first question on this string: How do I know the right time to use my "emergency 5 year cash reserve" instead of drawing from my stock/bond investments ? I suggested selling shares ongoing when I can sell them for more than I bought them for (although I could designate a tax lot that I paid more for) , and when that is not possible, using that as a trigger to use my savings instead for withdrawals. I believe you were the one who advised that total portfolio value is what matters, and to definitely avoid short term gain tax by selling shares in the first years, which I am prepared for. Do I wait until a bear market is declared before using cash instead of LS withdrawals....? Advice on how you and others decide this would be appreciated! So far I am not having any trouble sleeping at night, and I plan to keep it that way with a little help from my friends who are willing to talk about investing. I feel like my newbie self management can't possibly cost me more than if I was paying an advisor the average !% or even Vanguard at .3 %, even with something boring like LifeStrategy funds on autopilot.

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Re: Newbie with retirement withdrawal question

Post by The Wizard » Fri Feb 08, 2019 4:26 am

I would not hold a balanced fund in my taxable account.
I would hold separate stock and bond index funds, which makes it easier to Tax Loss Harvest when the time comes.
And I probably wouldn't hold bond funds in taxable if I had other options.

You seem to have a lot of moving parts to your strategy and it's not clear what your tax-deferred portfolio looks like or what your SS strategy is.

I'm not a fan of holding lots of cash in retirement, so I can't help too much with your overall plan.
I retired in 2013 with a seven year span until starting SS and continue to stay fully invested in my portfolio.
(I do have annuity income to cover most expenses.)
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Re: Newbie with retirement withdrawal question

Post by The Wizard » Fri Feb 08, 2019 4:53 am

Also, you have what's called a Bucket Strategy for retirement spending, even if you didn't call it that.
And, of course, the ongoing problem with buckets is determining which to spend from, which to refill, etc.

Maintaining a target AA, whether 40/60, 60/40, or something else, is simpler.
Just withdraw $X000 per month from your mix of funds with an eye toward rebalancing toward target.
This is much easier done in a tax-deferred account.
In a taxable account, there's more to factor in, such as preferring Long-term gains over Short-term...
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Re: Newbie with retirement withdrawal question

Post by The Wizard » Fri Feb 08, 2019 5:06 am

Also, the concept of an Emergency Fund in retirement needs discussion.

Main utility of an EF as I see it is to cover a period of job loss during working years. So that need goes away in retirement.

I suppose there could be other emergencies, but I have insurance to cover many of them. And I have a good-sized Roth IRA in case I need it. But I can't say I've encountered a real emergency requiring lots of cash ever.

Still, it's a good idea to maintain a Cash Buffer to deal with lumpy expenses (some of which are discretionary) from month to month. $10,000 seems to be adequate for my moderate lifestyle...
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BL
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Re: Newbie with retirement withdrawal question

Post by BL » Fri Feb 08, 2019 12:26 pm

Your August thread:
viewtopic.php?f=1&t=255426&p=4053709#p4053709

(With no link given, I didn't bother to look it up until now.)

Since you have 5 years of "emergency funds" it makes sense to me to use that money to avoid selling your funds at least until you have LTCGs (one year from purchase). I would even consider delaying until you have your much higher SS at age 70 to hopefully allow the rest to grow. At that point you will also have RMDs which should about take care of inflation, unless that goes wild. That leaves a modest sum to withdraw from taxable, IRA, or cash according to your choice. So after age 70 or so, it shouldn't matter so much.

Good choice to delay your own SS to get the best COLA-enhanced annuity available.

If you are planning to withdraw from taxable, perhaps having the dividends go to your bank account or to a money market there would make sense. Since you are already paying taxes on that amount anyway, it makes sense to me to spend that first.

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Re: Newbie with retirement withdrawal question

Post by ruralavalon » Fri Feb 08, 2019 12:46 pm

You are considering hyper complex solutions to a simple problem.

The simple problem is you need $xxx per month for living expenses.

The simple answer is to take total of $xxx per month from the paid out dividends of funds in your taxable account and from your large cash reserve.
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Peter Foley
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Re: Newbie with retirement withdrawal question

Post by Peter Foley » Fri Feb 08, 2019 12:53 pm

BL wrote:
Since you have 5 years of "emergency funds" it makes sense to me to use that money to avoid selling your funds at least until you have LTCGs (one year from purchase).
I agree. While BH typically advises having an emergency fund, this advice does not usually come with any age based or family size criteria. Obviously if you are working and the sole support of your family you need a larger fund than if both parents are working outside the home. In retirement, with SS benefit income and perhaps an annuity or pension one can prudently have a smaller emergency fund.

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danceswithhammer
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Re: Newbie with retirement withdrawal question

Post by danceswithhammer » Sun Feb 10, 2019 11:58 am

thanks for your kind attention BL, Wizard, and Peter!
1. Wizard: I am waiting to file my SS claim until Oct 2020, in the meantime collection 9K survivor's claim, to be replaced by 33K claim. I will need a lot less from my portfolio after SS kicks in.. I also have RMD's of about 4K yr to kick in 2021. If it makes more sense to start IRA payout sooner to avoid using cash, or put some of my cash in bonds instead of CD and MMprime, that is an option; I have been advised against this by several people however.
I don't have annuities or pension to access; I had bad experiences with several people trying to sell me annuities, and decided to self manage the money I would use to purchase annuity.

2. I certainly can just spend my "emergency" fund for at least three years, keeping my hands off LS funds to let them grow or do whatever they are going to do. The vision behind the "emergency " fund when I designed my IPS was to not have to worry about what the market does for the next 5-10 years, while I am in prime health (lets hope!) and trying to avoid sequence risk of my investment portfolio. After 2020, my emergency fund can be much smaller due to SS, but having 5 years seems ideal. The idea behind the "emergency" fund was not to be using bucket strategy, but rather to only draw on cash bucket if market portfolio is in decline.

******3 I still hope to get some feedback from community on what is a good trigger to use "emergency funds" instead of selling securities. Official bear market announcement only? My vision when setting up fund was to be able to use it to avoid selling securities when and if my portfolio enters market induced decline at this early stage in my retirement; I would sell securities as necessary during growth periods, and use cash during decline periods, maintaining 5 year cushion as needed (and that is looking a lot like bucket philosophy, even if not intended!) I understand that selling shares of equities/bonds anytime is going to reduce my position for future share price gains, but want to protect against sequence risk of the basic nest egg so early on. I definitely am not going to sell any market shares for the next year to avoid STCG.

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Ben Mathew
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Re: Newbie with retirement withdrawal question

Post by Ben Mathew » Sun Feb 10, 2019 12:13 pm

danceswithhammer wrote:
Tue Feb 05, 2019 4:18 pm
Regarding DCA, I understand that there is no way to know what will happen each month during a six month period, one could lose a lot or gain a lot and won't know until the period ends and one can look back, So, since it is totally unknown, would you (and others) advise that placing all money immediately has the same scientific probability of outcome at the end of six months or six years?
I am not entirely clear on what you are DCA-ing from and into. But it doesn't matter because DCA-ing does not makes sense from a financial point of view. Just get into the AA you have determined is correct for you at this time. No need to spread the process out over six months.

If the buying and selling is happening in a taxable account and there are tax consequences, please clarify the situation and we can help you work out a an optimal strategy.

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Re: Newbie with retirement withdrawal question

Post by Ben Mathew » Sun Feb 10, 2019 12:15 pm

danceswithhammer wrote:
Sun Feb 10, 2019 11:58 am
I still hope to get some feedback from community on what is a good trigger to use "emergency funds" instead of selling securities. Official bear market announcement only? My vision when setting up fund was to be able to use it to avoid selling securities when and if my portfolio enters market induced decline at this early stage in my retirement; I would sell securities as necessary during growth periods, and use cash during decline periods, maintaining 5 year cushion as needed (and that is looking a lot like bucket philosophy, even if not intended!) I understand that selling shares of equities/bonds anytime is going to reduce my position for future share price gains, but want to protect against sequence risk of the basic nest egg so early on. I definitely am not going to sell any market shares for the next year to avoid STCG.
This is way too complicated. You need a simpler plan. It can't be based on "bear market announcements" and "growth periods" and "decline periods" as so on. You will second guess yourself to panic or paralysis.

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danceswithhammer
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Re: Newbie with retirement withdrawal question

Post by danceswithhammer » Sun Feb 10, 2019 1:21 pm

Thanks for you attention Ben.

Other members have expressed your same sentiment, and I am all for simplicity. I certainly don't want to "play the market" . What do you advise to hedge against sequence risk in early retirement.?

I could just step back, never look at anything except total portfolio value (as advised by others on forum), just spend cash for 3 years, then keep a two year fund for something like a 2008 situation, and meanwhile let my portfolio do whatever its going to do for the next three years, then start withdrawing from it as necessary, maintaining AA, regardless of whether it is way below the value today plus inflation adjustments. ???????????? My IPS was designed around the PAST performance statistics that show a 4% "safe withdrawal rate" very likely not to cause failure by the time I'm in my 90's (when I could sell my condo...), so I could just ignore my sequence risk protection fears, have faith, let my portfolio percolate for better or for worse, and start withdrawing investments in three years......... Of course, we all know past performance does not predict future, thus I introduced sequence risk hedge idea. In my favor, I am not likely to need as much as %4 withdrawal rate (I am at a 2.5% level right now) , as my lifestyle is simple and I am happy, so maybe fretting about any of this is a waste of my time and energy. I haven't started losing any sleep yet, the bottom line, and just want to keep it this way, including not feeling like I am depriving myself ongoing just to have cushion in a future that may never come.

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Re: Newbie with retirement withdrawal question

Post by ruralavalon » Sun Feb 10, 2019 2:02 pm

danceswithhammer wrote:
Sun Feb 10, 2019 1:21 pm
Thanks for you attention Ben.

Other members have expressed your same sentiment, and I am all for simplicity. I certainly don't want to "play the market" . What do you advise to hedge against sequence risk in early retirement.?

I could just step back, never look at anything except total portfolio value (as advised by others on forum), just spend cash for 3 years, then keep a two year fund for something like a 2008 situation, and meanwhile let my portfolio do whatever its going to do for the next three years, then start withdrawing from it as necessary, maintaining AA, regardless of whether it is way below the value today plus inflation adjustments. ???????????? My IPS was designed around the PAST performance statistics that show a 4% "safe withdrawal rate" very likely not to cause failure by the time I'm in my 90's (when I could sell my condo...), so I could just ignore my sequence risk protection fears, have faith, let my portfolio percolate for better or for worse, and start withdrawing investments in three years......... Of course, we all know past performance does not predict future, thus I introduced sequence risk hedge idea. In my favor, I am not likely to need as much as %4 withdrawal rate (I am at a 2.5% level right now) , as my lifestyle is simple and I am happy, so maybe fretting about any of this is a waste of my time and energy. I haven't started losing any sleep yet, the bottom line, and just want to keep it this way, including not feeling like I am depriving myself ongoing just to have cushion in a future that may never come.
Your substantial fixed income allocation of 55%, and your low withdrawal rate of 2.5%, are protection against the sequence of returns risk.

One way to look at this is to consider the number of years of expenses that could be covered by your fixed income allocation. About how many years worth of retirement living expenses would be covered by your fixed income allocation?

For what it's worth we are age 73, our asset allocation is 50/50, and our bond fund would cover about 15 years worth of living expenses net of Social Security (we have no pensions).

I am in the 9th year of my retirement so we are largely past the sequence of returns problem, but the point is still the same -- a substantial bond allocation can cover many years of retirement living without the need to depend on equity assets.
Last edited by ruralavalon on Sun Feb 10, 2019 2:10 pm, edited 1 time in total.
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Re: Newbie with retirement withdrawal question

Post by bltn » Sun Feb 10, 2019 2:10 pm

BL wrote:
Wed Feb 06, 2019 7:53 pm
It makes mathematical sense to put it all in at once. No one knows whether this year will follow the probability of increases in equities.

It is usually advised that money needed within 5 years should not be in the stock market. It seems you are having trouble because you are tying up too much of your needed cash/fixed income in the short term. Since even Prime Money Market now pays 2.48%, that might be one place to keep some cash. You are running into to one of the disadvantages of balanced in taxable, that is, having to sell both equities and bonds where it might make sense to sell one or the other sometimes. Guess that is a trade-off to simplicity.
I believe this is correct . I recall reading about studies that suggest making a lump sum investment in the stock market usually gives superior results to dca. Over a 6 month time frame, it probably doesn t make much difference. More important is to decide what portion you want to tie up for a few years to put in stocks, and keep the rest in short term fixed income , or money market funds. Rebalance your funds each year after the previous year’s withdrawals.

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Re: Newbie with retirement withdrawal question

Post by jj » Sun Feb 10, 2019 4:01 pm

Resist the temptation to tinker. You have a good plan and are executing it. Let me precis what I have gleaned to be your situation and set things out in a slightly different way.

Approximate figures. Total portfolio $825. Of which $100k is in a traditional IRA and $725 in taxable (was real estate until recently, so no huge embedded capital gains.) Home worth $550k.

Living expenses of $50k - this is $42k documented plus a buffer for medical/dental (never forget dental :D ) and taxes (which should be minimal.)

Social Security of $9k currently, increasing to $33k at 70 when you take your own (very good decision, imo)

You have a quite large income shortfall for two more years and have decided on a liability matching portfolio to bridge that gap to age 70. After age 70 SS covers a large part of your everyday living expenses and the portfolio balance has to cover the extra. While mindful of the volatility of stocks you are aware that with a potential retirement of 30 more years could leave you short if you keep all your portfolio in cash-like assets, so you have decided on a moderately conservative 45/55 stock/bond asset allocation.

Cash needs for the next two years $80k, plus potentially $45k for the following 3 years = $125k cash or near cash - high yield savings or short-term CD.

You decided to DCA $500k of your taxable cash over 6 months into a Vanguard portfolio of half Life Strategy (LS) Growth (80% stock) and the other half into L S Moderate Growth (60% stock). As there is $100k missing in this scenario I assume that you have kept this in a CD.

After you have added all $500k cash to the LS funds there will be +/- $350k stock in your portfolio which will represent 42.4% of your total assets (assuming your IRA contains a bond fund or CD's - which it should do). DO NOT touch these funds for at least a year and a day - there's no sense in realizing short-term capital gains - and you don't need the money. I would set all distributions to re-invest for the time being while you are using your cash to live on. The LS funds will generate taxable distributions every 6 months, some of this will be 'qualified' and taxed at capital gains rates. Your taxes this year will be incredibly low. Unless there is income you are not telling us about there is only $9k SS, interest from CD's and savings accounts and what is thrown off by the L S funds. You can look at the Vanguard site to see how much to expect in distributions (allowing 10% either way.)

Model your income taxes for 2019 and decide if it would be appropriate to make a Roth conversion of a few thousand from your IRA, you may find that you can do this at a very low tax cost before you take full SS at 70, but it may adversely affect your SS taxation. A small Roth account is always a good addition to a portfolio as it gives you the flexibility to be able to take extra income later without it affecting your taxes. Your RMD's will be small anyway so reducing them is not really a consideration.

I would say resist the temptation to look at your Vanguard portfolio, but that's wrong. LOOK at the portfolio often, but resist the urge to mess with it! Especially if the stock market takes a dive in the next few months. Keep your DCA inflows going. You have noticed that the funds have gone up quite well in January, but they could easily pull back... keep monitoring and get used to the ups and downs. It takes a while to get used to having an investment portfolio if you've been used to having real estate.

Unless you do something really drastic and silly you will be fine... really.
...it is madness to risk losing what you need in pursuing what you simply desire. Warren E. Buffett

Topic Author
danceswithhammer
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Re: Newbie with retirement withdrawal question

Post by danceswithhammer » Sun Feb 10, 2019 7:12 pm

\jj,
Thanks so much for taking the time to write this detailed response and provide your perspective! I tried to send this as a private message, but it wouldn't send as far as I could tell.

You are almost right on on all the numbers you had to surmise/estimate: I do have about 130 K taxable in CDs, and since I'm not splitting between the two LS funds exactly 50/50, my AA is heading toward 45/55 when I finish DCA deposits. It sounds like you favor the DCA method at this moment in history over lump sumo (?), even if only for another 4 months, mainly/maybe just so don't tinker with my plan...?. I can liquidate a 1 year CD in my IRA in November and convert some of it to Roth if it looks tax feasible, so will ask my tax accountant to do a model towards the end of the year. All my IRA money is in two CDs right now; I will have to decide when they each mature how to reinvest with interest rate environment so unstable. My tax bill for 2018 is going to be close to 30K due to real estate transaction (I scored right before the Seattle real estate collapse, otherwise we'd be looking at only about 700K or less!, so I am getting off to a good starts, so lucky!) , so my portfolio will drop down close to 800K very soon.

I am definitely not going to sell any LS this year. The dividend/CG income has been being deposited in my settlement account, where I have been using it as part of ongoing retirement withdrawal, on the assumption that this makes sense especially because I am paying tax on it ongoing. It sounds like you advise reinvesting it anyway in favor of using my cash reserve, in order to increase LS shares, even if i do have to pay tax on it now......

So far I have had it easy, with the huge gains that happened since I made my first and second DCA deposits on Dec 20 and Jan 20, and with Vanguard prime going up to 2.48% , where a lot of my cash is sitting that isn't in the CDS above.
I thought I was being rather adventurous with the 45/55AA, thinking "conservative=age in bonds" or 30/70, so it is reassuring that you think my 45/55 isn't so risky considering my overall situation. I am also comforted by the fact that I am keeping my investment costs low, from all the study over the past 3 years, and great help from people like you...!

Thanks a lot!

Topic Author
danceswithhammer
Posts: 32
Joined: Wed May 16, 2018 2:20 pm

Re: Newbie with retirement withdrawal question

Post by danceswithhammer » Sun Feb 10, 2019 7:14 pm

Thanks ruralvision and bltn for your input! It is nice to get some reassurance that I am headed in the right direction, and to get other perspectives from the community.

Thanks again!

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Ben Mathew
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Re: Newbie with retirement withdrawal question

Post by Ben Mathew » Sun Feb 10, 2019 9:41 pm

danceswithhammer wrote:
Sun Feb 10, 2019 1:21 pm
Thanks for you attention Ben.

Other members have expressed your same sentiment, and I am all for simplicity. I certainly don't want to "play the market" . What do you advise to hedge against sequence risk in early retirement.?
You hedge sequence risk by financing a larger fraction of your planned consumption with bonds. It would not involve any decisions at all about bear markets and other market timing considerations.

radiowave
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Re: Newbie with retirement withdrawal question

Post by radiowave » Sun Feb 10, 2019 10:32 pm

danceswithhammer wrote:
Sun Feb 10, 2019 1:21 pm
Thanks for you attention Ben.

Other members have expressed your same sentiment, and I am all for simplicity. I certainly don't want to "play the market" . What do you advise to hedge against sequence risk in early retirement.?
One strategy I am using to minimize SRR is to have both bond and stock funds in both tax-deferred and taxable using the standard 3 fund portfolio. So in tax-deferred, I will have a choice of withdrawing from bonds or stock mutual funds depending on market conditions. Likewise in taxable I have stock funds and CDs/T-Bills that I can draw from as needed.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

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David Jay
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Re: Newbie with retirement withdrawal question

Post by David Jay » Sun Feb 10, 2019 10:37 pm

Ben Mathew wrote:
Sun Feb 10, 2019 9:41 pm
danceswithhammer wrote:
Sun Feb 10, 2019 1:21 pm
Thanks for you attention Ben.

Other members have expressed your same sentiment, and I am all for simplicity. I certainly don't want to "play the market" . What do you advise to hedge against sequence risk in early retirement.?
You hedge sequence risk by financing a larger fraction of your planned consumption with bonds. It would not involve any decisions at all about bear markets and other market timing considerations.
I hold 2 years expenses in a Short Term Bond fund.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Topic Author
danceswithhammer
Posts: 32
Joined: Wed May 16, 2018 2:20 pm

Re: Newbie with retirement withdrawal question

Post by danceswithhammer » Sun Feb 10, 2019 11:44 pm

thanks for more tips radiowave, ben, and David!

I need to revisit the idea of putting some of my cash reserve that is being held for at least three years in short term bond fund instead of CDs and Prime MM.

You and others on this post and some others have finally calmed my concern about sequence risks

Because my tax deferred investments 100K are such a small part of my portfolio 825K, and I''ll be stuck with RMDs for a long time, I don't have much control over taxation (I can think of much worse things in retirement).


Thanks again!

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