Tapping into retirement savings question

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Tapping into retirement savings question

Post by Bogletoon » Mon Jan 14, 2019 4:07 pm

Dear Bogleheads community,

I intend to retire next year at 63. I understand that when retiring one can best tap into the following: pension and/or annuity first followed by dividends & interest from taxable accounts. When that is not sufficient to cover expenses I believe the next thing to tap would be either my cash bucket (in case the market is down) or selling stocks/bonds from my taxable brokerage account (in case the market is up).

My question is: When is the market considered to be down or up? Do I simply compare the total value of all my stock/bonds on Dec 31st and compare that to the total value on Dec 31st of the previous year and if it shows a decline I need to tap my cash bucket to cover the coming year (and if up, I need to sell some of my stock/bonds from my taxable account)? If this is basically how this should be done, would you recommend I do this only once per year (and based on that determine what my next year's pay check should be) or review how the market behaved more frequent basis, for instance quarterly (and determine my pay check for the next quarter based on market's being up or down)?

Thank you very much for your insights!

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Re: Tapping into retirement savings question

Post by RadAudit » Mon Jan 14, 2019 4:46 pm

Bogletoon wrote:
Mon Jan 14, 2019 4:07 pm
My question is: When is the market considered to be down or up?
Excellent question. I don't do buckets. But, I do RMDs. So, I guess that could be considered to be withdrawing from retirement savings. May be this will help.

I withdraw from the bond side of the portfolio. If, the stock value is higher than it was when I started withdrawing funds (adjusted for inflation plus a 20% buffer), I rebalance inside the IRA back to my AA. The general idea is not to invade the inflation adjusted initial value of the stocks in the retirement portfolio - except as a last resort - and rebalance when the stocks are up beyond that point. That way, I don't necessarily care if the markets are up or down. I let the value of the portfolio dictate the necessary actions.

There are other withdrawal strategies.

YMMV. Best of luck. The phase where you start taking funds out of retirement can be a little stressful.
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Re: Tapping into retirement savings question

Post by livesoft » Mon Jan 14, 2019 5:14 pm

I tap into my taxable account whether the investments are up or down. It just doesn't matter. I do not get money out early (so I have no extra cash sitting around most of the time), but only sell equity funds in a "just-in-time" fashion as needed.

I'll give a recent example: In a taxable account I had to sell some Vanguard Total Stock Market Index fund (VTI) in December in order to pay a big credit card bill from a November family vacation. So I just sold shares. Then in an IRA I exchanged some bond fund shares into VTI. Do you see how with double trade that it didn't matter what price for VTI that I sold at as long as I bought at the same price or lower? Also I didn't have to pay any taxes on the gains in VTI realized from selling because I had earlier carryover losses from selling shares back in 2009.
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Re: Tapping into retirement savings question

Post by 22twain » Mon Jan 14, 2019 5:48 pm

I currently have a target of 45% stocks in my portfolio. If I'm above that percentage, I sell stocks. If I'm below it, I sell bonds. I don't split the withdrawal to try to make the percentage come out exactly right. At any time, if the percentage is off by more than 5% (i.e. above 50% or below 40%), I rebalance back to 45% in a separate step.

When I "sell bonds", I also use livesoft's trick of selling stocks in my taxable account, then exchanging bonds to stocks in a tax-deferred account.
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Re: Tapping into retirement savings question

Post by MnD » Mon Jan 14, 2019 7:03 pm

Cash buckets and various withdraw from cash distribution schemes have been demonstrated to lower portfolio return and hence increase the probability of portfolio failure in retirement.

I withdraw a fixed percentage of annual balance proportionally from our taxable and retirement accounts for income over and above what is provided by a pension, maintaining an overall fixed AA and rebalancing if and only if rebalancing bands are exceeded. So essentially no change from my accumulation strategy other than a small negative cash flow from accounts versus a small positive cash flow into accounts while working.

Our taxable investment account is small relative to the sum of tax-preferenced accounts so we are just drawing proportionally from it. It would be rapidly depleted if that was tapped first and I like having it around. Non-retirement account funds come in handy in a number of specific situations and I don't want to wipe it out.

I found it exceedingly easy to switch from accumulation to distribution and am immensely enjoying getting two "paychecks" a month, one from a pension and one from decades of accumulated savings and investments while skipping the whole go to work part. :mrgreen:

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Re: Tapping into retirement savings question

Post by Bogletoon » Mon Jan 14, 2019 10:55 pm

Thank you all for your insights! Much appreciated!

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Re: Tapping into retirement savings question

Post by elainet7 » Tue Jan 15, 2019 12:38 pm

think as well to do partial roth conversions

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