Retirement: Withdrawing from cash when do u replenish?

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sixtyforty
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Retirement: Withdrawing from cash when do u replenish?

Post by sixtyforty » Tue Jun 30, 2020 8:43 am

I have a couple of questions for those that use a cash reserve (ie set aside) for withdrawing from their portfolio. I've read a number of threads during this recent downturn where people would state something to the effect "I keep 3 years in CD's, so I don't have to sell any investments " etc.

(1) What criteria do you use to determine whether to withdraw from cash or investments ?
(2) If you are withdrawing from cash, what criteria do you use to replenish (ie sell investments) those cash reserves ?

Note: The questions above don't really apply to those that have dividends or pensions covering all their expenses.
"Simplicity is the ultimate sophistication" - Leonardo Da Vinci

BanquetBeer
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by BanquetBeer » Tue Jun 30, 2020 8:50 am

I would imagine good years you sell stock and don’t touch the cash and then bad years you touch the cash and don’t sell the stock but I’m curious to hear other peoples insights

RadAudit
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by RadAudit » Tue Jun 30, 2020 9:02 am

OK. I recognize that each case is unique. So, I don't expect my approach will necessarily work for you - but since you asked.
sixtyforty wrote:
Tue Jun 30, 2020 8:43 am
What criteria do you use to determine whether to withdraw from cash or investments ?
Usually, I withdraw from cash. The criteria is baked in to my IPS which provides the target for % of cash in the portfolio.
sixtyforty wrote:
Tue Jun 30, 2020 8:43 am
If you are withdrawing from cash, what criteria do you use to replenish (ie sell investments) those cash reserves ?
The cash account is replenished each year from investments when I take RMDs. Before turning 70, the plan was to withdraw from bonds if stocks were down and there was a need for extra cash. Essentially, I tried to avoid selling stocks during a downturn. Then when stocks recovered, I'd rebalance to IPS portfolio targets.

YMMV
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sixtyforty
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by sixtyforty » Tue Jun 30, 2020 10:56 am

BanquetBeer wrote:
Tue Jun 30, 2020 8:50 am
I would imagine good years you sell stock and don’t touch the cash and then bad years you touch the cash and don’t sell the stock but I’m curious to hear other peoples insights
Yes... but to get to the point.. how do you define "good years" how do you define " bad years". Is it bad right now ? Or is it good ?
"Simplicity is the ultimate sophistication" - Leonardo Da Vinci

sailaway
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by sailaway » Tue Jun 30, 2020 11:02 am

sixtyforty wrote:
Tue Jun 30, 2020 10:56 am
BanquetBeer wrote:
Tue Jun 30, 2020 8:50 am
I would imagine good years you sell stock and don’t touch the cash and then bad years you touch the cash and don’t sell the stock but I’m curious to hear other peoples insights
Yes... but to get to the point.. how do you define "good years" how do you define " bad years". Is it bad right now ? Or is it good ?
Look at your allocation: sell whatever is overweighted.

So, if you needed a top up in February, you probably sold stocks. If you needed a top up in April, you probably sold bonds. If you need to top up now, well, look at your current allocation...

It doesn't matter if your allocation isn't in the type of account you want to access, as long as you rebalance. I may have reason to sell stocks in taxable, but that would mean I also have to rebalance my traditional retirement account to keep my overall AA.

kaneohe
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by kaneohe » Tue Jun 30, 2020 11:07 am

Dividends & SS cover most of daily expenses. Taxes are an issue so cash to pay for the RMD taxes is obtained by
reserving part of the RMDs for that before the rest is reinvested.

Random Poster
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by Random Poster » Tue Jun 30, 2020 12:15 pm

I haven’t decided whether I’m retired or not yet, or how many years of expenses I want to keep in cash, but...

My general thought would be to have generally X years of cash, and have all dividends and interest payments flow into that cash account each year, and then withdraw from the cash account the 3 or 5 year rolling average of what the dividend and interest amounts have been.

And, of course, make the rolling average amounts roughly equal to my yearly expenses.

If there is a shortfall between the rolling average withdrawal and living expenses needs for a year, I guess I’d either sell a bit from the overweight stock/bond holding, or pull more from the cash account and hope for the best.

btenny
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by btenny » Tue Jun 30, 2020 1:53 pm

I keep about a 1.3 years of spending in cash in my taxable account. I withdraw and move some of this cash as needed to my checking account. I make these cash withdrawals every few months. I could set this up to happen automatically each month but choose to do it manually.

My cash is partially replenished monthly with stock and bond dividends over the year. But I also rebalance my overall portfolio and replenish my cash stash in November when i rebalance my overall portfolio. I take my RMD and my wife's RMD in November and move that money to my taxable account. As a part of my RMD calculations I estimate my Federal Tax liability and pay that tax when I do the RMD. This saves me doing quarterly tax payments. When I make major purchases ( new car) I sell some bonds or stock to provide extra cash.

I also keep 1.5 years of spending in 3 month T bills and several years of spending in municipal bonds all in my taxable account. All this $$ is my emergency fund and big purchases fund. Now that COVID has changed the risk profiles of everything I may sell some of these municipal funds and move that money to additional short T bills.

Hope this helps.
Good Luck.

palanzo
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by palanzo » Tue Jun 30, 2020 1:59 pm

btenny wrote:
Tue Jun 30, 2020 1:53 pm
I keep about a 1.3 years of spending in cash in my taxable account. I withdraw and move some of this cash as needed to my checking account. I make these cash withdrawals every few months. I could set this up to happen automatically each month but choose to do it manually.

My cash is partially replenished monthly with stock and bond dividends over the year. But I also rebalance my overall portfolio and replenish my cash stash in November when i rebalance my overall portfolio. I take my RMD and my wife's RMD in November and move that money to my taxable account. As a part of my RMD calculations I estimate my Federal Tax liability and pay that tax when I do the RMD. This saves me doing quarterly tax payments. When I make major purchases ( new car) I sell some bonds or stock to provide extra cash.

I also keep 1.5 years of spending in 3 month T bills and several years of spending in municipal bonds all in my taxable account. All this $$ is my emergency fund and big purchases fund. Now that COVID has changed the risk profiles of everything I may sell some of these municipal funds and move that money to additional short T bills.

Hope this helps.
Good Luck.
Can you say more about how you avoid doing quarterly tax payments? Would not the dividends that you get quarterly result in a tax penalty since you do your RMDs in November and then pay tax in November? Also what about State taxes?

Do you think the risk profile of say Limited-Term TE has changed so much that it is not a safe investment and would be better replaced by 3 month T bills?

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Re: Retirement: Withdrawing from cash when do u replenish?

Post by kaneohe » Tue Jun 30, 2020 2:56 pm

palanzo wrote:
Tue Jun 30, 2020 1:59 pm
.......................................................

Can you say more about how you avoid doing quarterly tax payments? Would not the dividends that you get quarterly result in a tax penalty since you do your RMDs in November and then pay tax in November? Also what about State taxes?

.............................................................
If you withhold from the RMDs (or pensions/SS/etc) the payments are considered timely regardless of when they are made unlike estimated tax payments which must be timely.

palanzo
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by palanzo » Tue Jun 30, 2020 5:37 pm

kaneohe wrote:
Tue Jun 30, 2020 2:56 pm
palanzo wrote:
Tue Jun 30, 2020 1:59 pm
.......................................................

Can you say more about how you avoid doing quarterly tax payments? Would not the dividends that you get quarterly result in a tax penalty since you do your RMDs in November and then pay tax in November? Also what about State taxes?

.............................................................
If you withhold from the RMDs (or pensions/SS/etc) the payments are considered timely regardless of when they are made unlike estimated tax payments which must be timely.
I did not know that. Do you mean that if you withhold from either an RMD or Social Security payments approximately the correct amount of Federal tax for the year in November there are no penalties and no need to make estimated tax payments?

Does this timelines also apply to State taxes?

kaneohe
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by kaneohe » Tue Jun 30, 2020 6:59 pm

palanzo wrote:
Tue Jun 30, 2020 5:37 pm
kaneohe wrote:
Tue Jun 30, 2020 2:56 pm
palanzo wrote:
Tue Jun 30, 2020 1:59 pm
.......................................................

Can you say more about how you avoid doing quarterly tax payments? Would not the dividends that you get quarterly result in a tax penalty since you do your RMDs in November and then pay tax in November? Also what about State taxes?

.............................................................
If you withhold from the RMDs (or pensions/SS/etc) the payments are considered timely regardless of when they are made unlike estimated tax payments which must be timely.
1)I did not know that. Do you mean that if you withhold from either an RMD or Social Security payments approximately the correct amount of Federal tax for the year in November there are no penalties and no need to make estimated tax payments?

2)Does this timelines also apply to State taxes?
1) yes http://www.vikingtaxservice.com/18904/I ... Penalties/ see 3rd paragraph
2) good question......not sure; possibly state dependent

palanzo
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by palanzo » Tue Jun 30, 2020 7:15 pm

kaneohe wrote:
Tue Jun 30, 2020 6:59 pm
palanzo wrote:
Tue Jun 30, 2020 5:37 pm
kaneohe wrote:
Tue Jun 30, 2020 2:56 pm
palanzo wrote:
Tue Jun 30, 2020 1:59 pm
.......................................................

Can you say more about how you avoid doing quarterly tax payments? Would not the dividends that you get quarterly result in a tax penalty since you do your RMDs in November and then pay tax in November? Also what about State taxes?

.............................................................
If you withhold from the RMDs (or pensions/SS/etc) the payments are considered timely regardless of when they are made unlike estimated tax payments which must be timely.
1)I did not know that. Do you mean that if you withhold from either an RMD or Social Security payments approximately the correct amount of Federal tax for the year in November there are no penalties and no need to make estimated tax payments?

2)Does this timelines also apply to State taxes?
1) yes http://www.vikingtaxservice.com/18904/I ... Penalties/ see 3rd paragraph
2) good question......not sure; possibly state dependent
I know it applies to W2 income but that article does not say it applies to Social Security income. I'm hoping someone who has done this can confirm.

kaneohe
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by kaneohe » Tue Jun 30, 2020 7:28 pm

read the rest of the article.......it talks about w/h from other types of income including SS.

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Leif
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by Leif » Tue Jun 30, 2020 7:41 pm

(1) What criteria do you use to determine whether to withdraw from cash or investments ?
I'm always withdrawing from cash to pay bills. I'm between retirement and SS/RMDs.
(2) If you are withdrawing from cash, what criteria do you use to replenish (ie sell investments) those cash reserves ?
I keep 1-2 years of cash reserves. They are replenished from my CD ladder with a CD maturing every year. Once I reach SS@70 and RMD age I will probably have enough income to pay for expenses. If I need more then I just need to decide between ST or IT bonds, or equities.

palanzo
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by palanzo » Tue Jun 30, 2020 7:43 pm

kaneohe wrote:
Tue Jun 30, 2020 7:28 pm
read the rest of the article.......it talks about w/h from other types of income including SS.
I did.

Other Forms of Withholding – The same rules described above in regard to amounts withheld from payroll also apply to overpayments of Social Security taxes and to income taxes withheld from: supplemental unemployment compensation benefits, sick pay, pensions, annuities, investments, gambling, etc.

I don't see withholding from Social Security. Maybe I missed in earlier in the article?

bck63
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by bck63 » Tue Jun 30, 2020 7:48 pm

sailaway wrote:
Tue Jun 30, 2020 11:02 am
sixtyforty wrote:
Tue Jun 30, 2020 10:56 am
BanquetBeer wrote:
Tue Jun 30, 2020 8:50 am
I would imagine good years you sell stock and don’t touch the cash and then bad years you touch the cash and don’t sell the stock but I’m curious to hear other peoples insights
Yes... but to get to the point.. how do you define "good years" how do you define " bad years". Is it bad right now ? Or is it good ?
Look at your allocation: sell whatever is overweighted.

So, if you needed a top up in February, you probably sold stocks. If you needed a top up in April, you probably sold bonds. If you need to top up now, well, look at your current allocation...

It doesn't matter if your allocation isn't in the type of account you want to access, as long as you rebalance. I may have reason to sell stocks in taxable, but that would mean I also have to rebalance my traditional retirement account to keep my overall AA.
I like this approach. Looking at it this way, one doesn't really need much cash. Just withdraw in order to maintain your chosen asset allocation.

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Re: Retirement: Withdrawing from cash when do u replenish?

Post by RetiredAL » Tue Jun 30, 2020 7:54 pm

sixtyforty wrote:
Tue Jun 30, 2020 8:43 am
I have a couple of questions for those that use a cash reserve (ie set aside) for withdrawing from their portfolio. I've read a number of threads during this recent downturn where people would state something to the effect "I keep 3 years in CD's, so I don't have to sell any investments " etc.

(1) What criteria do you use to determine whether to withdraw from cash or investments ?
(2) If you are withdrawing from cash, what criteria do you use to replenish (ie sell investments) those cash reserves ?

Note: The questions above don't really apply to those that have dividends or pensions covering all their expenses.
I took my pension as a lump sum and placed it in its own IRA. In this Pension based IRA, I allocated a single bucket (fund) to withdraw from monthly. This bucket is a short term treasury fund. It is a piece of my fixed income allocation. Normally, every 6 months I replenish it to 18 months worth of withdrawals. The replenishment starts as transfers out other bond funds, then I do a re-balance for that account. So essentially the higher returning asset class will be the replenish source, but a blend could happen. My IPS allows me skip a single replenish if both classes are down. My last replenish was in Jan, by next will be in July.

I've currently deviated some from my IPS. Concerned with uncertainty, I withdrew the remainder of the year's withdrawals to my checking account in March.

I have occasionally withdrawn small amounts from my 401K based IRA for special needs. I have no plan for that.

marcopolo
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by marcopolo » Tue Jun 30, 2020 8:03 pm

sailaway wrote:
Tue Jun 30, 2020 11:02 am
sixtyforty wrote:
Tue Jun 30, 2020 10:56 am
BanquetBeer wrote:
Tue Jun 30, 2020 8:50 am
I would imagine good years you sell stock and don’t touch the cash and then bad years you touch the cash and don’t sell the stock but I’m curious to hear other peoples insights
Yes... but to get to the point.. how do you define "good years" how do you define " bad years". Is it bad right now ? Or is it good ?
Look at your allocation: sell whatever is overweighted.

So, if you needed a top up in February, you probably sold stocks. If you needed a top up in April, you probably sold bonds. If you need to top up now, well, look at your current allocation...

It doesn't matter if your allocation isn't in the type of account you want to access, as long as you rebalance. I may have reason to sell stocks in taxable, but that would mean I also have to rebalance my traditional retirement account to keep my overall AA.
This is a very reasonable way to withdraw from a portfolio.
Not sure what purpose the cash "reserve" serves, one could just use this approach when they need to withdraw money from the portfolio (whether that is on a weekly, monthly, quarterly, or as-needed basis). We have some CD's, we simply consider that a part of our Fixed Income allocation, and use the described approach to withdraw money as we need it. I guess one could call those CDs our cash reserves, but it just seems like unnecessary mental gymnastics to create a separate category of dollars.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Leif
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by Leif » Tue Jun 30, 2020 8:04 pm

Regarding the question above about paying taxes from a RMD withdrawal, I was happy to learn about this myself a few years ago. I'm not at that age yet, so I'm still dealing with estimated taxes. You may find this article of interest.

The RMD Solution to the Hassle of Filing Estimated Taxes in Retirement

At the end of the article it states:
Note that RMD withholding might not work when it comes to state estimated taxes because some IRA sponsors won't withhold state income taxes. Check this point with your IRA sponsor.

kaneohe
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by kaneohe » Tue Jun 30, 2020 8:17 pm

palanzo wrote:
Tue Jun 30, 2020 7:43 pm
kaneohe wrote:
Tue Jun 30, 2020 7:28 pm
read the rest of the article.......it talks about w/h from other types of income including SS.
I did.

Other Forms of Withholding – The same rules described above in regard to amounts withheld from payroll also apply to overpayments of Social Security taxes and to income taxes withheld from: supplemental unemployment compensation benefits, sick pay, pensions, annuities, investments, gambling, etc.

I don't see withholding from Social Security. Maybe I missed in earlier in the article?
I misread that part about SS in the quote you have .....it's talking about overpayments of SS taxes, not withholding from SS. Not sure if they phrased it that way on purpose or not. But the 1040 has this for line 17 which doesn't seem to distinguish between sources of w/h:
17 Federal income tax withheld from Forms W-2 and 1099

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LarryG
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by LarryG » Tue Jun 30, 2020 8:32 pm

I begin each year with the amount of my RMD in a treasury account and the balance according to my asset allocation in bond and equity accounts. At the end of the year I rebalance to my desired asset allocation by withdrawing from the appropriate accounts. This guarantees that my RMD will be covered without concern about market action.

LarryG

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Re: Retirement: Withdrawing from cash when do u replenish?

Post by KlangFool » Tue Jun 30, 2020 8:32 pm

bck63 wrote:
Tue Jun 30, 2020 7:48 pm

I like this approach. Looking at it this way, one doesn't really need much cash. Just withdraw in order to maintain your chosen asset allocation.
bck63,

A) That works as long as you do not care how much taxes you are paying.

B) If you do care how much taxes you are paying, the cash allows you to sell/withdraw from your investment whenever you pay fewer taxes.

KlangFool
Last edited by KlangFool on Tue Jun 30, 2020 8:37 pm, edited 1 time in total.

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Re: Retirement: Withdrawing from cash when do u replenish?

Post by KlangFool » Tue Jun 30, 2020 8:36 pm

sixtyforty wrote:
Tue Jun 30, 2020 8:43 am
I have a couple of questions for those that use a cash reserve (ie set aside) for withdrawing from their portfolio. I've read a number of threads during this recent downturn where people would state something to the effect "I keep 3 years in CD's, so I don't have to sell any investments " etc.

(1) What criteria do you use to determine whether to withdraw from cash or investments ?
(2) If you are withdrawing from cash, what criteria do you use to replenish (ie sell investments) those cash reserves ?

Note: The questions above don't really apply to those that have dividends or pensions covering all their expenses.
sixtyforty,

My system would be

A) Do not reinvest my dividend/distribution from my taxable account and use that to refill the cash buffer. I have to pay taxes on them every year.

B) Do whatever makes the most sense in terms of tax management to refill the cash buffer.

KlangFool

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Re: Retirement: Withdrawing from cash when do u replenish?

Post by Eagle33 » Tue Jun 30, 2020 10:07 pm

palanzo wrote:
Tue Jun 30, 2020 7:43 pm
kaneohe wrote:
Tue Jun 30, 2020 7:28 pm
read the rest of the article.......it talks about w/h from other types of income including SS.
I did.

Other Forms of Withholding – The same rules described above in regard to amounts withheld from payroll also apply to overpayments of Social Security taxes and to income taxes withheld from: supplemental unemployment compensation benefits, sick pay, pensions, annuities, investments, gambling, etc.

I don't see withholding from Social Security. Maybe I missed in earlier in the article?
From the IRS website
If you do have to pay taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS or choose to have federal taxes withheld from your benefits.
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.

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Re: Retirement: Withdrawing from cash when do u replenish?

Post by willthrill81 » Tue Jun 30, 2020 11:11 pm

This is the rub with a dynamic asset allocation strategy, which is all that a 'real'* bucket strategy is: how do you determine when to withdraw from each bucket, and how, if ever, do you replenish the bucket(s)?

It seems to me that few who employ this approach or plan to have thought through this. And it makes a big difference. Just winging it is not a wise approach. You definitely need a withdrawal policy statement every bit as much as you need an investment policy statement.

*If you have a static AA, then your so-called buckets are nothing more than mental accounting.
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by palanzo » Wed Jul 01, 2020 12:13 am

kaneohe wrote:
Tue Jun 30, 2020 8:17 pm
palanzo wrote:
Tue Jun 30, 2020 7:43 pm
kaneohe wrote:
Tue Jun 30, 2020 7:28 pm
read the rest of the article.......it talks about w/h from other types of income including SS.
I did.

Other Forms of Withholding – The same rules described above in regard to amounts withheld from payroll also apply to overpayments of Social Security taxes and to income taxes withheld from: supplemental unemployment compensation benefits, sick pay, pensions, annuities, investments, gambling, etc.

I don't see withholding from Social Security. Maybe I missed in earlier in the article?
I misread that part about SS in the quote you have .....it's talking about overpayments of SS taxes, not withholding from SS. Not sure if they phrased it that way on purpose or not. But the 1040 has this for line 17 which doesn't seem to distinguish between sources of w/h:
17 Federal income tax withheld from Forms W-2 and 1099
It does seem oddly phrased and not a social security withholding. 1099 would cover social security income. I'll have to search further.

palanzo
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by palanzo » Wed Jul 01, 2020 12:16 am

KlangFool wrote:
Tue Jun 30, 2020 8:36 pm
sixtyforty wrote:
Tue Jun 30, 2020 8:43 am
I have a couple of questions for those that use a cash reserve (ie set aside) for withdrawing from their portfolio. I've read a number of threads during this recent downturn where people would state something to the effect "I keep 3 years in CD's, so I don't have to sell any investments " etc.

(1) What criteria do you use to determine whether to withdraw from cash or investments ?
(2) If you are withdrawing from cash, what criteria do you use to replenish (ie sell investments) those cash reserves ?

Note: The questions above don't really apply to those that have dividends or pensions covering all their expenses.
sixtyforty,

My system would be

A) Do not reinvest my dividend/distribution from my taxable account and use that to refill the cash buffer. I have to pay taxes on them every year.

B) Do whatever makes the most sense in terms of tax management to refill the cash buffer.

KlangFool
+1 This advice has been given many times on various threads. I think it is the soundest approach.

palanzo
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by palanzo » Wed Jul 01, 2020 12:19 am

Eagle33 wrote:
Tue Jun 30, 2020 10:07 pm
palanzo wrote:
Tue Jun 30, 2020 7:43 pm
kaneohe wrote:
Tue Jun 30, 2020 7:28 pm
read the rest of the article.......it talks about w/h from other types of income including SS.
I did.

Other Forms of Withholding – The same rules described above in regard to amounts withheld from payroll also apply to overpayments of Social Security taxes and to income taxes withheld from: supplemental unemployment compensation benefits, sick pay, pensions, annuities, investments, gambling, etc.

I don't see withholding from Social Security. Maybe I missed in earlier in the article?
From the IRS website
If you do have to pay taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS or choose to have federal taxes withheld from your benefits.
That's the SSA website but the question remains whether by doing the withholding you are making "timely" payments and can avoid penalties that arise from not doing estimated payments.

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sixtyforty
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Re: Retirement: Withdrawing from cash when do u replenish?

Post by sixtyforty » Wed Jul 01, 2020 6:53 am

KlangFool wrote:
Tue Jun 30, 2020 8:36 pm
sixtyforty wrote:
Tue Jun 30, 2020 8:43 am
I have a couple of questions for those that use a cash reserve (ie set aside) for withdrawing from their portfolio. I've read a number of threads during this recent downturn where people would state something to the effect "I keep 3 years in CD's, so I don't have to sell any investments " etc.

(1) What criteria do you use to determine whether to withdraw from cash or investments ?
(2) If you are withdrawing from cash, what criteria do you use to replenish (ie sell investments) those cash reserves ?

Note: The questions above don't really apply to those that have dividends or pensions covering all their expenses.
sixtyforty,

My system would be

A) Do not reinvest my dividend/distribution from my taxable account and use that to refill the cash buffer. I have to pay taxes on them every year.

B) Do whatever makes the most sense in terms of tax management to refill the cash buffer.

KlangFool
Many of the replies have been geared toward re-balancing back to your set AA and then taking the proceeds into cash, which makes sense if you have separate bond and equity funds. In my case, which I should have mentioned in the original post, is I own Vanguard Balanced and some Wellesley so for the most part I don't re-balance. This approach gives me something to think about.
"Simplicity is the ultimate sophistication" - Leonardo Da Vinci

KlangFool
Posts: 16656
Joined: Sat Oct 11, 2008 12:35 pm

Re: Retirement: Withdrawing from cash when do u replenish?

Post by KlangFool » Wed Jul 01, 2020 6:59 am

sixtyforty wrote:
Wed Jul 01, 2020 6:53 am
KlangFool wrote:
Tue Jun 30, 2020 8:36 pm
sixtyforty wrote:
Tue Jun 30, 2020 8:43 am
I have a couple of questions for those that use a cash reserve (ie set aside) for withdrawing from their portfolio. I've read a number of threads during this recent downturn where people would state something to the effect "I keep 3 years in CD's, so I don't have to sell any investments " etc.

(1) What criteria do you use to determine whether to withdraw from cash or investments ?
(2) If you are withdrawing from cash, what criteria do you use to replenish (ie sell investments) those cash reserves ?

Note: The questions above don't really apply to those that have dividends or pensions covering all their expenses.
sixtyforty,

My system would be

A) Do not reinvest my dividend/distribution from my taxable account and use that to refill the cash buffer. I have to pay taxes on them every year.

B) Do whatever makes the most sense in terms of tax management to refill the cash buffer.

KlangFool
Many of the replies have been geared toward re-balancing back to your set AA and then taking the proceeds into cash, which makes sense if you have separate bond and equity funds. In my case, which I should have mentioned in the original post, is I own Vanguard Balanced and some Wellesley so for the most part I don't re-balance. This approach gives me something to think about.
The nice thing about cash is that you can separate what you need to do for rebalancing and tax management away from when to refill the cash buffer.

KlangFool

kaneohe
Posts: 6502
Joined: Mon Sep 22, 2008 12:38 pm

Re: Retirement: Withdrawing from cash when do u replenish?

Post by kaneohe » Wed Jul 01, 2020 8:35 am

palanzo wrote:
Wed Jul 01, 2020 12:13 am
kaneohe wrote:
Tue Jun 30, 2020 8:17 pm
palanzo wrote:
Tue Jun 30, 2020 7:43 pm
.........................................................

I did.

Other Forms of Withholding – The same rules described above in regard to amounts withheld from payroll also apply to overpayments of Social Security taxes and to income taxes withheld from: supplemental unemployment compensation benefits, sick pay, pensions, annuities, investments, gambling, etc.

I don't see withholding from Social Security. Maybe I missed in earlier in the article?
I misread that part about SS in the quote you have .....it's talking about overpayments of SS taxes, not withholding from SS. Not sure if they phrased it that way on purpose or not. But the 1040 has this for line 17 which doesn't seem to distinguish between sources of w/h:
17 Federal income tax withheld from Forms W-2 and 1099
It does seem oddly phrased and not a social security withholding. 1099 would cover social security income. I'll have to search further.
if you're ambitious that link w/ the odd phrasing has a "contact us" link where you can send an e-mail to the horse's mouth and ask them directly............

Fishing50
Posts: 410
Joined: Tue Sep 27, 2016 1:18 am

Re: Retirement: Withdrawing from cash when do u replenish?

Post by Fishing50 » Wed Jul 01, 2020 8:45 am

sixtyforty wrote:
Tue Jun 30, 2020 8:43 am
I have a couple of questions for those that use a cash reserve (ie set aside) for withdrawing from their portfolio. I've read a number of threads during this recent downturn where people would state something to the effect "I keep 3 years in CD's, so I don't have to sell any investments " etc.

(1) What criteria do you use to determine whether to withdraw from cash or investments ?
(2) If you are withdrawing from cash, what criteria do you use to replenish (ie sell investments) those cash reserves ?

Note: The questions above don't really apply to those that have dividends or pensions covering all their expenses.
If you are satisfied with your annual expense multiple and asset allocation, your done: just make monthly withdrawals to cover the bills.

Big ERN Safe Withdrawal Series helped inform our strategy. https://earlyretirementnow.com/start-here/

Analysis of monthly data in the Sequence of Return Risk (SRR) articles helped us increase our target allocation to ensure our portfolio keeps up with inflation if our pension diminishes in value over the long run which a major concern as I depart the workforce at 52 yrs old (the peak of my earning years!) Rising equity glidepath is a solution for SRR. Big ERN argues Kites and Pfau have the bond tent initially correct, reduce risk as you approach retirement. Later in retirement, he argues increased equity glidepath reduces SRR.

Long story to say, I couldn't find the correct article. Big ERN analysis showed spending the initial cash cushion in early retirement is beneficial to increasing equity exposure and decreasing SRR early in retirement. Now that I write that, the discussion might be in the 'flexibility' myth articles.
It's perfectly legal, go ask the IRS, they'll say the same thing. I actually feel stupid telling you this, I'm sure you would've investigated the matter yourself. Andy Dufresne

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David Jay
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Location: Michigan

Re: Retirement: Withdrawing from cash when do u replenish?

Post by David Jay » Wed Jul 01, 2020 8:50 am

I'm new at this (only retired for 18mo) but I withdraw from my portfolio twice a year, just for simplicity in calculating tax liability and withholding levels. The withdrawal goes into a cash brokerage account and I do monthly ACH "paychecks" to our checking account.

I maintain one year's cash on hand, so I have the ability to not withdraw from funds in an emergency, but I have not yet had that level of emergency. I expect having to make a timing decision perhaps 1 or 2 times over the length of my retirement, I am not going to time the market in "normal" times (normal times for me includes the Flash Crash, the dot com bubble and the financial crisis).
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

bck63
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Joined: Fri Sep 28, 2018 4:59 pm

Re: Retirement: Withdrawing from cash when do u replenish?

Post by bck63 » Wed Jul 01, 2020 9:09 am

KlangFool wrote:
Tue Jun 30, 2020 8:32 pm
bck63 wrote:
Tue Jun 30, 2020 7:48 pm

I like this approach. Looking at it this way, one doesn't really need much cash. Just withdraw in order to maintain your chosen asset allocation.
bck63,

A) That works as long as you do not care how much taxes you are paying.

B) If you do care how much taxes you are paying, the cash allows you to sell/withdraw from your investment whenever you pay fewer taxes.

KlangFool
Hi KlangFool - Could you explain further if you have the time? Thanks. -- Brian

KlangFool
Posts: 16656
Joined: Sat Oct 11, 2008 12:35 pm

Re: Retirement: Withdrawing from cash when do u replenish?

Post by KlangFool » Wed Jul 01, 2020 9:48 am

bck63 wrote:
Wed Jul 01, 2020 9:09 am
KlangFool wrote:
Tue Jun 30, 2020 8:32 pm
bck63 wrote:
Tue Jun 30, 2020 7:48 pm

I like this approach. Looking at it this way, one doesn't really need much cash. Just withdraw in order to maintain your chosen asset allocation.
bck63,

A) That works as long as you do not care how much taxes you are paying.

B) If you do care how much taxes you are paying, the cash allows you to sell/withdraw from your investment whenever you pay fewer taxes.

KlangFool
Hi KlangFool - Could you explain further if you have the time? Thanks. -- Brian
bck63,

1) Let's assume that you have 2 years of expense in CASH.

2) Then, you can spend from CASH without doing any withdrawal.

3) Let's say that if you refill the CASH buffer in 2020, it will cost you $5,000 in taxes. But, if you refill the CASH buffer in 2021, you pay $0 in taxes. You can refill your CASH buffer in 2021.

4) If you have zero CASH, you have no choice but pay $5,000 in taxes in 2020.

KlangFool

bck63
Posts: 1168
Joined: Fri Sep 28, 2018 4:59 pm

Re: Retirement: Withdrawing from cash when do u replenish?

Post by bck63 » Wed Jul 01, 2020 10:02 am

KlangFool wrote:
Wed Jul 01, 2020 9:48 am
bck63 wrote:
Wed Jul 01, 2020 9:09 am
KlangFool wrote:
Tue Jun 30, 2020 8:32 pm
bck63 wrote:
Tue Jun 30, 2020 7:48 pm

I like this approach. Looking at it this way, one doesn't really need much cash. Just withdraw in order to maintain your chosen asset allocation.
bck63,

A) That works as long as you do not care how much taxes you are paying.

B) If you do care how much taxes you are paying, the cash allows you to sell/withdraw from your investment whenever you pay fewer taxes.

KlangFool
Hi KlangFool - Could you explain further if you have the time? Thanks. -- Brian
bck63,

1) Let's assume that you have 2 years of expense in CASH.

2) Then, you can spend from CASH without doing any withdrawal.

3) Let's say that if you refill the CASH buffer in 2020, it will cost you $5,000 in taxes. But, if you refill the CASH buffer in 2021, you pay $0 in taxes. You can refill your CASH buffer in 2021.

4) If you have zero CASH, you have no choice but pay $5,000 in taxes in 2020.

KlangFool
Thank you KlangFool. Aren't you just deferring taxes to 2021?

KlangFool
Posts: 16656
Joined: Sat Oct 11, 2008 12:35 pm

Re: Retirement: Withdrawing from cash when do u replenish?

Post by KlangFool » Wed Jul 01, 2020 10:08 am

bck63 wrote:
Wed Jul 01, 2020 10:02 am
KlangFool wrote:
Wed Jul 01, 2020 9:48 am
bck63 wrote:
Wed Jul 01, 2020 9:09 am
KlangFool wrote:
Tue Jun 30, 2020 8:32 pm
bck63 wrote:
Tue Jun 30, 2020 7:48 pm

I like this approach. Looking at it this way, one doesn't really need much cash. Just withdraw in order to maintain your chosen asset allocation.
bck63,

A) That works as long as you do not care how much taxes you are paying.

B) If you do care how much taxes you are paying, the cash allows you to sell/withdraw from your investment whenever you pay fewer taxes.

KlangFool
Hi KlangFool - Could you explain further if you have the time? Thanks. -- Brian
bck63,

1) Let's assume that you have 2 years of expense in CASH.

2) Then, you can spend from CASH without doing any withdrawal.

3) Let's say that if you refill the CASH buffer in 2020, it will cost you $5,000 in taxes. But, if you refill the CASH buffer in 2021, you pay $0 in taxes. You can refill your CASH buffer in 2021.

4) If you have zero CASH, you have no choice but pay $5,000 in taxes in 2020.

KlangFool
Thank you KlangFool. Aren't you just deferring taxes to 2021?
No. If you have not studied the following thread in great detail, you should. It could make a lot of money for you.

viewtopic.php?t=87471
<<How to pay ZERO taxes in retirement with 6-figure expenses>>

KlangFool

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