Frequency of withdrawal

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rich4768
Posts: 3
Joined: Tue Feb 13, 2024 10:56 am

Frequency of withdrawal

Post by rich4768 »

I think most of us are agreed that the dollar/pound (I'm in the UK) cost averaging approach makes most sense when accumulating, but now I'm a year or two away from retirement I'm starting to think about the best strategy when it comes to withdrawal.

Essentially, is it better to make a single withdrawal every year, based on your needs and the safe amount you can take from the portfolio, or is it better to spread the withdrawals throughout the year, say monthly?

I can see pros and cons of both.

Annual: You can determine a safe withdrawal at the time you make it, and don't need to worry about valuations till the next year. The downside might be that the amount you can take, or the impact on your portfolio, depends on the market valuation on the day you make the withdrawal - you don't benefit from averaging through the year.

Monthly: Here I'm thinking of determining the amount to withdraw once a year, but spreading the withdrawals across the 12 months. The benefit is that market fluctuations are averaged out across the year. The downside might be that if the markets drop during the year, the withdrawals would have a bigger impact on your portfolio.

It seems to me that the psychology of withdrawal is very different to accumulation. Dollar cost averaging is basically a no brainer when accumulating, but it's a more difficult decision when withdrawing.

Is there a concensus about this? What is the experience of current retirees?

Richard
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LiveSimple
Posts: 2465
Joined: Thu Jan 03, 2013 6:55 am

Re: Frequency of withdrawal

Post by LiveSimple »

My plan is to calculate the yearly withdrawal and withdraw monthly...

This will allow not to withdraw for a month, if there are already sufficient funds in the account for expenses...

Same can be done for yearly withdrawal as well, if there are already sufficient funds in the account for expenses...reduce the next yearly withdrawal...

Just go with the flow no need to think too much, yearly, every six months, every quarter, every month... every day...too. All automatic withdrawals.
Invest when you have the money, sell when you need the money, for real life expenses...
xxd091
Posts: 579
Joined: Sun Aug 21, 2011 4:41 am
Location: UK

Re: Frequency of withdrawal

Post by xxd091 »

Retired 20+ years-now 78
I take a yearly withdrawal (I use Total Return investment plan) and then top up a 2+ years cash living expenses fund
Simple and easy to manage
Flexible system and soon settles down to a reasonably regular withdrawal amount as your retirement spending becomes established
Worked for me-so far!
xxd091
dcabler
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Location: TX

Re: Frequency of withdrawal

Post by dcabler »

There isn't a consensus about a lot of things on this forum, except in very, very broad terms. :D

I make my withdrawals quarterly. I do so because it aligns nicely with the fact that my stock funds make their distributions quarterly, towards the end of each quarter. So the distribution at the end of the prior quarter is accounted for in the withdrawal from the current quarter.

After the withdrawal is made, 1/3 of it goes to my checking account. The remainder is moved to an ultrashort bond fund. The next month, half of that is withdrawn and moved to checking. In month #3 the remainder is withdrawn and moved to checking. Then it starts all over again.

I use an ultrashort bond fund for the buffer account so that the withdrawal can earn a little bit while it's waiting to be spent. My checking account is a HY account but only for the first $10K and really not all that "HY" in the end.

With a large portion of my withdrawals covered by TIPS + SS, I can withstand a lot of shocks from the stock portion of my portfolio. So I have no need to have a large, possibly multi-year buffer for that. 3 months is just fine with the only purpose being to earn a little more while it's sitting around.

Edit: I would also add that what I calculate as a withdrawal and what I actually withdraw are two different things. The calculations are a "max" that I can withdraw. If I don't need that much, I withdraw less. I don't hold a fixed AA at this point, so not only do I have discretion as to how much to withdraw, I also have discretion as to where the withdrawals come from. So far in retirement, I have yet to withdraw the full amount that I calculate. And each time I do that, there is additional margin for the future.

Cheers.
Last edited by dcabler on Wed Oct 30, 2024 6:09 am, edited 1 time in total.
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livesoft
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Re: Frequency of withdrawal

Post by livesoft »

I just withdraw the amount of money I need to pay bills for the next few weeks. I may not even need to sell any shares to do so since quarterly dividends are paid quarterly. But if I have to sell shares, then I sell shares on no fixed schedule.
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MathWizard
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Joined: Tue Jul 26, 2011 1:35 pm

Re: Frequency of withdrawal

Post by MathWizard »

Dollar cost averaging is the same in retirement as it is in
the accumulation stage, just in reverse.

I withdraw monthly for regular expenses, just like a regular paycheck when I was working. For any large expenses,
like a new roof, I withdraw as needed.
Vinny_in_NJ
Posts: 290
Joined: Fri Jan 12, 2024 5:01 pm

Re: Frequency of withdrawal

Post by Vinny_in_NJ »

I just retired in June and I withdraw monthly. I'm trying to treat it as a paycheck getting it monthly vs every 2 weeks. I am not using my stock portion to live on at this point but I figure even getting a little bit more of money in MM or T Bills is not a bad thing. I didn't think of it as dollar cost averaging in reverse but I like that idea!
Topic Author
rich4768
Posts: 3
Joined: Tue Feb 13, 2024 10:56 am

Re: Frequency of withdrawal

Post by rich4768 »

Thanks all for the replies. I just noticed someone else has asked a similar question recently, so sorry for repeating it.
I’ll search a bit more in future before posting!
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22twain
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Re: Frequency of withdrawal

Post by 22twain »

While I was in my "bridge" period between full retirement at 63 and starting Social Security at 70 (at the beginning of this year), I wanted monthly deposits to my checking account because I was accustomed to them while working.

However, I couldn't do this conveniently with my taxable investments, which use ETFs. Each month, I would have had to sell a few shares, then wait a couple of days for the trade to settle, then transfer the proceeds to my checking account. I didn't want to do that two-step dance every month.

Instead, I turned off automatic dividend reinvestment, so I had some cash flowing into my settlement (money market) fund, which covered part of my annual expenses. Once per year, I sold enough shares to cover the rest of the following year's expenses, and left the proceeds in the settlement fund. Once per month, I transferred a pseudo-paycheck from the settlement fund to my checking account. This was a fixed amount that occasionally increased because of inflation, or new expenses such as Medicare premiums at 65. I could have set up an automatic transfer, but I did it by hand every month instead because it took only about a minute using my brokerage's iPad app, and I could check that everything looked OK while I was logged in. Sometimes I skipped a transfer because I had enough of a cushion left over in my checking account.

If I had had any really large additional expenses such as a new car, i would have sold more shares as a one-off event, but I never needed to do this.

So far since starting SS at the beginning of this year, it's been enough to cover my share of our expenses, so I haven't had to pull any money from my taxable investments or my 403(b) retirement account.
Principal, not principle. Roth, not ROTH. IRMAA, not IRRMA or IRMMA.
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