Question for those currently drawing on their retirement

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
schildkrote
Posts: 46
Joined: Mon May 18, 2020 10:07 pm

Question for those currently drawing on their retirement

Post by schildkrote »

I’m currently 35 and my 401k does not offer Total Stock Market, but instead the S&P 500. This influenced my decision to manually invest in small cap stocks in my Roth IRA and Taxable account to gain full exposure, I didn’t want to miss out on a segment of the market. I now own multiple small cap ETFs due to some tax loss harvesting.

I can’t help but think that my portfolio is going to be difficult to balance and draw from in retirement. For example, my taxable account is almost exclusively small cap value ETFs now, while my Roth IRA holds international small caps, and my 401k is completely S&P 500. I do not own any bonds as of yet other than I bonds.

For those that are retired, how do you choose what to sell, and from what account it comes from? It seems it would be so much easier if my 401k, Roth IRA, and Taxable only included a Total Stock Market fund like VTIAX/VTI. This would help with maintaining the appropriate allocations as well as tax brackets it seems. Did anyone choose to divest their investments to obtain an easier portfolio to manage in retirement? I also think about my wife or future family that may inherit my mess of a portfolio (it makes sense to me, but I imagine they would be quite overwhelmed with how I’ve split up my investments across my accounts).

Any experience or input is appreciated, thanks!
BarbBrooklyn
Posts: 1715
Joined: Fri Aug 24, 2018 9:33 am
Location: NYC

Re: Question for those currently drawing on their retirement

Post by BarbBrooklyn »

I'm trying to remember what my 401k looked like at 35. Very different from what it looked like at 45, 55 and 65.

You will have lots of opportunities to re-jigger before you get to retirement decumulation.
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."
User avatar
Wiggums
Posts: 7028
Joined: Thu Jan 31, 2019 7:02 am

Re: Question for those currently drawing on their retirement

Post by Wiggums »

We retired at 56. DW had a 401k with proprietary funds, so we sold everything and went with the three fund portfolio and a municipal fund. Her portfolio changed over the years as the company bought assets and the was acquired.

I held the S&P 500 with a tilt. I simplified down to the same three fund portfolio.

In retirement, we closed accounts to simplify our life. So far, we only turned off dividend reinvestment in one account and that provides us enough wiggle room to access money with least tax impact.
Last edited by Wiggums on Thu Oct 06, 2022 6:28 am, edited 2 times in total.
"I started with nothing and I still have most of it left."
livesoft
Posts: 85972
Joined: Thu Mar 01, 2007 7:00 pm

Re: Question for those currently drawing on their retirement

Post by livesoft »

I choose to sell the shares that give me the least taxes and enough money for my immediate expenses. It is not hard to decide at all.

Then if my asset allocation needs to be restored, I exchange in my largest tax-deferred account to do that. There is nothing hard about this. Are you thinking that you cannot make exchanges in your 401(k), Roth, and other accounts? You can.
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
galawdawg
Posts: 5231
Joined: Thu Dec 14, 2017 11:59 am
Location: Georgia

Re: Question for those currently drawing on their retirement

Post by galawdawg »

When you leave your employer (whether to accept another job or retire), you can just rollover your 401k to an IRA at a brokerage of your choosing. Then invest the funds as you wish, such as in a simple low-cost two or three fund Boglehead-style portfolio.

That gives you:
1. The ability to select your own brokerage to hold your retirement accounts,
2. The ability to select your own funds within your retirement accounts, and
3. The ability to consolidate multiple employer retirement accounts into a single IRA account for simplicity.

Some prefer to keep their 401k accounts after retirement either for the funds available, the fees charged or for protection of their assets. However, at the right brokerage and using the right low-cost index funds, expenses for IRA accounts are generally no higher than 401k accounts and often much less. And umbrella insurance is a very inexpensive and effective way to protect your assets.

So I recommend that retirees rollover any 401k accounts from former employers to their own IRA account.

Hope that helps!
goblue100
Posts: 1714
Joined: Sun Dec 01, 2013 9:31 am

Re: Question for those currently drawing on their retirement

Post by goblue100 »

BarbBrooklyn wrote: Thu Oct 06, 2022 2:21 am I'm trying to remember what my 401k looked like at 35. Very different from what it looked like at 45, 55 and 65.

You will have lots of opportunities to re-jigger before you get to retirement decumulation.
This. Once I retired I moved my 401k to a rollover IRA at Fidelity which allows me access to pretty much anything I want to invest in. Who know what will be available in 20 or 30 years?
"Confusion has its cost" - Crosby, Stills and Nash
go2run
Posts: 159
Joined: Wed Mar 08, 2017 12:34 pm

Re: Question for those currently drawing on their retirement

Post by go2run »

livesoft wrote: Thu Oct 06, 2022 6:12 am I choose to sell the shares that give me the least taxes and enough money for my immediate expenses. It is not hard to decide at all.

Then if my asset allocation needs to be restored, I exchange in my largest tax-deferred account to do that. There is nothing hard about this. Are you thinking that you cannot make exchanges in your 401(k), Roth, and other accounts? You can.
I was confused about the thinking too. We adjust allocations in accounts that don't trigger taxable events (IRA, Roth IRA, 401k, etc.) and execute transactions that have the least tax impact (taxable brokerage account).
User avatar
Stinky
Posts: 14088
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Question for those currently drawing on their retirement

Post by Stinky »

BarbBrooklyn wrote: Thu Oct 06, 2022 2:21 am I'm trying to remember what my 401k looked like at 35. Very different from what it looked like at 45, 55 and 65.

You will have lots of opportunities to re-jigger before you get to retirement decumulation.
I agree with this. Lots of things can happen between age 35 and retirement. Maybe you’ll change jobs (maybe multiple times) and have different 401k options. Maybe your employer will change 401k providers or funds (maybe multiple times).

I would encourage OP to not overthink this. Keep plowing money into accumulation accounts. Strive for broad equity market diversification. Don’t worry about the little nits of investing - they will take care of themselves over time.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
stickstickly
Posts: 16
Joined: Tue Apr 28, 2015 4:02 pm

Re: Question for those currently drawing on their retirement

Post by stickstickly »

schildkrote wrote: Thu Oct 06, 2022 1:49 am For example, my taxable account is almost exclusively small cap value ETFs now
I think this is the part that will give you headaches in the future since you can't easily sell this to rebalance.
schildkrote wrote: Thu Oct 06, 2022 1:49 am It seems it would be so much easier if my 401k, Roth IRA, and Taxable only included a Total Stock Market fund like VTIAX/VTI.
You are thinking along the right lines here. The S&P 500 and Total Stock Market funds are 99.9% correlated, basically no difference in returns. I also only have S&P 500 fund in my 401k and I am fine using that in place of Total Stock Market without separate small cap exposure. This frees me up to only have VTI in my taxable account, and makes tax loss harvesting a lot easier.
smitcat
Posts: 13227
Joined: Mon Nov 07, 2016 9:51 am

Re: Question for those currently drawing on their retirement

Post by smitcat »

livesoft wrote: Thu Oct 06, 2022 6:12 am I choose to sell the shares that give me the least taxes and enough money for my immediate expenses. It is not hard to decide at all.

Then if my asset allocation needs to be restored, I exchange in my largest tax-deferred account to do that. There is nothing hard about this. Are you thinking that you cannot make exchanges in your 401(k), Roth, and other accounts? You can.
"I choose to sell the shares that give me the least taxes and enough money for my immediate expenses. It is not hard to decide at all."
What is your long-term plan for shares with higher appreciation?
dbr
Posts: 46137
Joined: Sun Mar 04, 2007 8:50 am

Re: Question for those currently drawing on their retirement

Post by dbr »

One thing to notice in this is that a person should think ahead about what they buy in taxable accounts because changing later on can be costly. Investments in tax protected accounts can be changed around any time at no cost though there is a long term effect of what the size of those accounts becomes and what the tax cost is to withdraw from them, also allowing for RMDs. I think S&P 500 is close enough that it is unnecessary to feel obligated to add small caps even if that would be theoretically indicated.

There is no general answer to where one sources asset sales for income because it depends on the relative sizes of the different accounts, the asset allocation, the amount to be withdrawn, and one's tax situation, which is also affected by how much taxable income one has from non-investment sources such as Social Security, pensions, annuities, rents, etc.

If you want to know, I collect and spend dividends on stocks in taxable and I sell bonds to take RMDs from a 401k. Sometimes we spend more by selling stocks in taxable and sometimes the taxable account accumulates some cash or even has a little go back into stocks. We haven't rebalanced since 2010 until now, but we did it last year by giving away some stocks. Everyone is different.
livesoft
Posts: 85972
Joined: Thu Mar 01, 2007 7:00 pm

Re: Question for those currently drawing on their retirement

Post by livesoft »

smitcat wrote: Thu Oct 06, 2022 8:29 am"I choose to sell the shares that give me the least taxes and enough money for my immediate expenses. It is not hard to decide at all."
What is your long-term plan for shares with higher appreciation?
I am either
(a) Going to die,
(b) Give them away,
(c) Offset realized gains with realized losses, or
(d) withdraw from my Roth account and pay no tax.

What is your long-term plan? Thanks!
Wiki This signature message sponsored by sscritic: Learn to fish.
pkcrafter
Posts: 15461
Joined: Sun Mar 04, 2007 11:19 am
Location: CA
Contact:

Re: Question for those currently drawing on their retirement

Post by pkcrafter »

schildkrote wrote: Thu Oct 06, 2022 1:49 am I’m currently 35 and my 401k does not offer Total Stock Market, but instead the S&P 500. This influenced my decision to manually invest in small cap stocks in my Roth IRA and Taxable account to gain full exposure, I didn’t want to miss out on a segment of the market. I now own multiple small cap ETFs due to some tax loss harvesting.
What % of your total portfolio is in small caps? What funds/etfs are you using?


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
smitcat
Posts: 13227
Joined: Mon Nov 07, 2016 9:51 am

Re: Question for those currently drawing on their retirement

Post by smitcat »

livesoft wrote: Thu Oct 06, 2022 8:55 am
smitcat wrote: Thu Oct 06, 2022 8:29 am"I choose to sell the shares that give me the least taxes and enough money for my immediate expenses. It is not hard to decide at all."
What is your long-term plan for shares with higher appreciation?
I am either
(a) Going to die,
(b) Give them away,
(c) Offset realized gains with realized losses, or
(d) withdraw from my Roth account and pay no tax.

What is your long-term plan? Thanks!
Your higher appreciated accounts will always fall within step-up basis, charity, or within a low/acceptable tax range then?
Onlineid3089
Posts: 771
Joined: Thu Jan 02, 2020 2:47 pm

Re: Question for those currently drawing on their retirement

Post by Onlineid3089 »

stickstickly wrote: Thu Oct 06, 2022 7:37 am
schildkrote wrote: Thu Oct 06, 2022 1:49 am For example, my taxable account is almost exclusively small cap value ETFs now
I think this is the part that will give you headaches in the future since you can't easily sell this to rebalance.
schildkrote wrote: Thu Oct 06, 2022 1:49 am It seems it would be so much easier if my 401k, Roth IRA, and Taxable only included a Total Stock Market fund like VTIAX/VTI.
You are thinking along the right lines here. The S&P 500 and Total Stock Market funds are 99.9% correlated, basically no difference in returns. I also only have S&P 500 fund in my 401k and I am fine using that in place of Total Stock Market without separate small cap exposure. This frees me up to only have VTI in my taxable account, and makes tax loss harvesting a lot easier.
I agree that OP is over thinking this. The difference between a sp500 fund and a total stock market fund is so insignificant that it isn't worth worrying about. Just hold sp500 in your tax advantaged and total stock market in your taxable and be done with it.
User avatar
tuningfork
Posts: 884
Joined: Wed Oct 30, 2013 8:30 pm

Re: Question for those currently drawing on their retirement

Post by tuningfork »

Onlineid3089 wrote: Thu Oct 06, 2022 9:17 am
stickstickly wrote: Thu Oct 06, 2022 7:37 am
schildkrote wrote: Thu Oct 06, 2022 1:49 am For example, my taxable account is almost exclusively small cap value ETFs now
I think this is the part that will give you headaches in the future since you can't easily sell this to rebalance.
schildkrote wrote: Thu Oct 06, 2022 1:49 am It seems it would be so much easier if my 401k, Roth IRA, and Taxable only included a Total Stock Market fund like VTIAX/VTI.
You are thinking along the right lines here. The S&P 500 and Total Stock Market funds are 99.9% correlated, basically no difference in returns. I also only have S&P 500 fund in my 401k and I am fine using that in place of Total Stock Market without separate small cap exposure. This frees me up to only have VTI in my taxable account, and makes tax loss harvesting a lot easier.
I agree that OP is over thinking this. The difference between a sp500 fund and a total stock market fund is so insignificant that it isn't worth worrying about. Just hold sp500 in your tax advantaged and total stock market in your taxable and be done with it.
^^^ This. OP has 20+ years until retirement to simplify their allocations if desired. Funds in 401k and Roth can be exchanged at any time tax free. The small cap ETFs in taxable can either be left alone (just don't buy any more if you don't really want them anymore), or convert them to total stock market over a number of years as the tax situation permits. Unless it's a very large number of shares held for a very long time, the capital gains are probably relatively small, especially if some tax loss harvesting has been done recently.
livesoft
Posts: 85972
Joined: Thu Mar 01, 2007 7:00 pm

Re: Question for those currently drawing on their retirement

Post by livesoft »

smitcat wrote: Thu Oct 06, 2022 9:06 amYour higher appreciated accounts will always fall within step-up basis, charity, or within a low/acceptable tax range then?
I hope so, but ask me again when I am 104 years old.
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
ruralavalon
Posts: 26297
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Question for those currently drawing on their retirement

Post by ruralavalon »

schildkrote wrote: Thu Oct 06, 2022 1:49 am I’m currently 35 and my 401k does not offer Total Stock Market, but instead the S&P 500. This influenced my decision to manually invest in small cap stocks in my Roth IRA and Taxable account to gain full exposure, I didn’t want to miss out on a segment of the market. I now own multiple small cap ETFs due to some tax loss harvesting.

I can’t help but think that my portfolio is going to be difficult to balance and draw from in retirement. For example, my taxable account is almost exclusively small cap value ETFs now, while my Roth IRA holds international small caps, and my 401k is completely S&P 500. I do not own any bonds as of yet other than I bonds.

For those that are retired, how do you choose what to sell, and from what account it comes from? It seems it would be so much easier if my 401k, Roth IRA, and Taxable only included a Total Stock Market fund like VTIAX/VTI. This would help with maintaining the appropriate allocations as well as tax brackets it seems. Did anyone choose to divest their investments to obtain an easier portfolio to manage in retirement? I also think about my wife or future family that may inherit my mess of a portfolio (it makes sense to me, but I imagine they would be quite overwhelmed with how I’ve split up my investments across my accounts).

Any experience or input is appreciated, thanks!
In my opinion a S&P 500 index fund is good enough by itself for investing in the U.S. stock market. It covers over 80% of the U.S. stock market investing in stocks of selected large-cap and mid-cap U.S. companies. In the 30 years since the creation of the first total stock market index fund the two types of funds have had almost identical performance. Portfolio Visualizer, 1993-2022.

There is plenty of time between now and retirement to rearrange your portfolio.

If you change your employer then you can rollover your current 401k account into an IRA at a low cost provider like Vanguard, Fidelity or Schwab. Or you could rollover the old 401k account into your new employer's plan if good funds with low expense ratios are offered.

At retirement we held only very tax-efficient stock index funds (total stock market total international stock) in our joint taxable account, held funds of all asset types (total stock market, total international and an intermediate-term bond index) in my rollover IRA, and stock index funds in our Roth IRAs.

At retirement my rollover IRA was about 85% of our portfolio. All rebalancing has been done by exchanging between funds inside my rollover IRA.

When I first retired I funded retirement spending with a combination of Social Security benefits and by selling shares of stock index funds in our joint taxable account.

When Required Minimum Distributions (RMDs) started I funded our retirement spending by a combination of Social Security benefits and the RMDs from my rollover IRA.

I hope that this helps.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
schildkrote
Posts: 46
Joined: Mon May 18, 2020 10:07 pm

Re: Question for those currently drawing on their retirement

Post by schildkrote »

Thank you everyone, this makes me feel a bit better and it appears I am probably overthinking things. I will stick with the S&P 500 since it is closely correlated with the Total Stock Market and keep up with separate small cap contributions as needed. I was worried about the taxable account I have where it is harder to make changes for obvious tax implications and curious how people that have actually retired have their accounts set up to keep them balanced.

Again for those pulling from their retirement. I guess it depends on how large your accounts actually are, but do you find that you even need to sell anything generally, or are the dividends/Social Security sufficient to live off of?

Also, there was someone who asked what my ETFs were so here is a basic view of my portfolio allocations spread across several accounts:
50% S&P 500
20% AVDV/VSS (Avantis International Developed Small Cap Value/Vanguard ex-US small cap)
20% AVUV/IJS (Avantis/iShares U.S. Small Cap Value)
10% REITs
I also have some I-Bonds which I'm more treating as cash right now, no other bonds.
ruralavalon wrote: Thu Oct 06, 2022 11:56 am
At retirement my rollover IRA was about 85% of our portfolio. All rebalancing has been done by exchanging between funds inside my rollover IRA.

When I first retired I funded retirement spending with a combination of Social Security benefits and by selling shares of stock index funds in our joint taxable account.

When Required Minimum Distributions (RMDs) started I funded our retirement spending by a combination of Social Security benefits and the RMDs from my rollover IRA.

I hope that this helps.
This helps tremendously , thank you. I like the idea of delaying distributions and pulling from the taxable account.
dbr
Posts: 46137
Joined: Sun Mar 04, 2007 8:50 am

Re: Question for those currently drawing on their retirement

Post by dbr »

schildkrote wrote: Thu Oct 06, 2022 12:22 pm Again for those pulling from their retirement. I guess it depends on how large your accounts actually are, but do you find that you even need to sell anything generally, or are the dividends/Social Security sufficient to live off of?
That is going to vary all over the place with individual situations. The usual planning model is to estimate needed or wanted spending, subtract income streams such as Social Security, pensions, and annuities from that and then see how large your withdrawals would be to spend what you want. Studies of what you can spend from a portfolio typically come in around the infamous 4% inflation indexed of original portfolio amount. If you are getting dividends in the 2% area typical of stocks these days and that is sufficient then arguably you have more wealth than you need. Interest from bonds is highly variable. At one point we had wailing and gnashing of teeth when CDs paying 5% could only be renewed at 1% and now interest rates are back closer to 5% than 1% except with terrible inflation to undercut everything.

For me personally withdrawal rates have ranged from 5% to -1% and spending is highly variable. But we also had very good luck with massive stock market returns from 2010-2020 and very low inflation then. So, yes, we have sold things for spending and also had years when we didn't.
User avatar
RetirementClass2021
Posts: 115
Joined: Sun Feb 06, 2022 6:34 pm

Re: Question for those currently drawing on their retirement

Post by RetirementClass2021 »

schildkrote wrote: Thu Oct 06, 2022 1:49 am I’m currently 35 and my 401k does not offer Total Stock Market, but instead the S&P 500. This influenced my decision to manually invest in small cap stocks in my Roth IRA and Taxable account to gain full exposure, I didn’t want to miss out on a segment of the market. I now own multiple small cap ETFs due to some tax loss harvesting.

I can’t help but think that my portfolio is going to be difficult to balance and draw from in retirement. For example, my taxable account is almost exclusively small cap value ETFs now, while my Roth IRA holds international small caps, and my 401k is completely S&P 500. I do not own any bonds as of yet other than I bonds.

For those that are retired, how do you choose what to sell, and from what account it comes from? It seems it would be so much easier if my 401k, Roth IRA, and Taxable only included a Total Stock Market fund like VTIAX/VTI. This would help with maintaining the appropriate allocations as well as tax brackets it seems. Did anyone choose to divest their investments to obtain an easier portfolio to manage in retirement? I also think about my wife or future family that may inherit my mess of a portfolio (it makes sense to me, but I imagine they would be quite overwhelmed with how I’ve split up my investments across my accounts).

Any experience or input is appreciated, thanks!
Retirement Class 2021 here.

The first week of January I rolled over my 401k into my T-IRA. I then allocated it into my desired portfolio (As shown in my Signature below). I will begin to withdraw from this IRA for my living expense starting January 2023. I plan to withdraw monthly through re-balancing. For example as of today my 40% bond allocation is at 41.25%. Therefore my first withdraw(s) will be my bond funds in order to re-allocate back to 40%. After that if I am at my desired 60/40 allocation I will withdraw equal proportions from each fund. This way I am always "allocation balanced" or very close to it.
VTI 52% VXUS 13% BND 10.5% BNDX 7% SCHP 17.5% | Globally diversified low-cost passive index fund portfolio | “Forget the needle, buy the haystack.” - John C. Bogle
1moreyr
Posts: 459
Joined: Sun Jan 12, 2020 6:10 pm

Re: Question for those currently drawing on their retirement

Post by 1moreyr »

OP You didn't say if you were married.

if and when you take that leap, this gives you 2 401k/IRA investment vehicles. I treat it all as one portfolio and it helps to look at what funds are available to pull from to balance the portfolio
User avatar
LilyFleur
Posts: 3497
Joined: Fri Mar 02, 2018 9:36 pm

Re: Question for those currently drawing on their retirement

Post by LilyFleur »

galawdawg wrote: Thu Oct 06, 2022 6:22 am When you leave your employer (whether to accept another job or retire), you can just rollover your 401k to an IRA at a brokerage of your choosing. Then invest the funds as you wish, such as in a simple low-cost two or three fund Boglehead-style portfolio.

That gives you:
1. The ability to select your own brokerage to hold your retirement accounts,
2. The ability to select your own funds within your retirement accounts, and
3. The ability to consolidate multiple employer retirement accounts into a single IRA account for simplicity.

Some prefer to keep their 401k accounts after retirement either for the funds available, the fees charged or for protection of their assets. However, at the right brokerage and using the right low-cost index funds, expenses for IRA accounts are generally no higher than 401k accounts and often much less. And umbrella insurance is a very inexpensive and effective way to protect your assets.

So I recommend that retirees rollover any 401k accounts from former employers to their own IRA account.

Hope that helps!
Some of us on the forum moved money from total bond index funds to stable value funds in 2020, and that has given us an asset to withdraw from this year that is not significantly down. Stable value funds are not available in IRAs. A stable value fund is a good option for withdrawals in a market in which both stocks and bonds are down.
epictetus
Posts: 796
Joined: Sat Mar 10, 2007 5:43 pm

Re: Question for those currently drawing on their retirement

Post by epictetus »

S&P 500 in 401k
Total stock market in taxable
if you want small cap separately and REIT separately put it in Roth. if not just use S&P 500 in Roth.

this simplifies tax-loss harvesting.

also, if you want to simplify later out of holding small cap and REIT separately you could do so without worrying about tax issues.

just a thought
Focus on what you can control
Post Reply