Retirees: Distributions in down markets

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namajones
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Retirees: Distributions in down markets

Post by namajones »

If you're a retiree, do you make any adjustments to distributions in down markets? Or do you just take the distributions as planned or needed and assume things will all turn out okay in the wash, over the years?

We haven't really had much in the way of down markets since 08-09, so I guess I'd be most interested in hearing from folks who were taking distributions in that period.

I'm on the cusp of retirement so I'm thinking ahead and would like to hear the experience of others. Personally, right now at least, the bulk of my retirement dough is in the Fed's TSP, and they have this crazy rule that requires distributions to be drawn proportionally from investments, so it's not possible just to draw from, say, the G fund when stocks are down. Otherwise it would obviously make sense to draw just from G or bonds when/if stocks crater in a given year. I'm not sure why TSP didn't fix this crazy rule in the recent "modernization" effort, but so it goes. May have to move some of my money after I leave, but I'd rather not because I like to keep things simple. Hence my question.

Thanks in advance.
delamer
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Re: Retirees: Distributions in down markets

Post by delamer »

You can move all money temporarily into the G fund, and then move it back to your preferred allocation after your withdrawal.
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260chrisb
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Re: Retirees: Distributions in down markets

Post by 260chrisb »

My plan is to always have 2-3 years of living expenses on the sideline in retirement. I'm retiring next April and currently have 3 years (maybe a bit less depending on how much I draw next year which may be higher than normal) and provided the market has a favorable year, will sell to cover whatever I withdraw to get me back to the 2-3 year cushion later this year. I protected money for the first time in late 2019. Don't ask me what I'll do if the market has three bad years in a row..... :o
dbr
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Re: Retirees: Distributions in down markets

Post by dbr »

namajones wrote: Tue May 04, 2021 12:29 pm If you're a retiree, do you make any adjustments to distributions in down markets? Or do you just take the distributions as planned or needed and assume things will all turn out okay in the wash, over the years?

Yes, I take what I want when I want it and then watch the washing machine as time goes on. Most retirements planned conservatively turn out to be over-funded most of the time (most meaning 90% or something).

If you want a scheme consider variable percentage withdrawal (VPW), which you can look up in the Wiki.

I can't help you with the TSP, but surely you can rebalance across assets if you are drifting in the wrong direction. An annual withdrawal is usually smaller than the needed rebalance amount year by year.
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namajones
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Re: Retirees: Distributions in down markets

Post by namajones »

260chrisb wrote: Tue May 04, 2021 12:56 pm My plan is to always have 2-3 years of living expenses on the sideline in retirement.
That's mine, too. In fact, I probably have 6 years of living expenses in CDs and savings. Not the best use of that money, for sure, but it beats seeing it possibly go down in a capital loss if I have it invested more aggressively.
260chrisb wrote: Tue May 04, 2021 12:56 pm provided the market has a favorable year, will sell to cover whatever I withdraw to get me back to the 2-3 year cushion later this year.
That's a good idea.
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namajones
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Re: Retirees: Distributions in down markets

Post by namajones »

dbr wrote: Tue May 04, 2021 12:58 pm Yes, I take what I want when I want it and then watch the washing machine as time goes on. Most retirements planned conservatively turn out to be over-funded most of the time (most meaning 90% or something).
That's what I suspect, too. Just trying to think through everything.

dbr wrote: Tue May 04, 2021 12:58 pm An annual withdrawal is usually smaller than the needed rebalance amount year by year.
I see. That's probably true.
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GerryL
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Re: Retirees: Distributions in down markets

Post by GerryL »

I keep enough in cash to cover the gap between income and expenses for several years. That means that if I need to take a distribution when the market is down, I can turn around and reinvest a chunk of it in my taxable account. So I may be selling at a low point, but I am also buying when prices are low. Dividends from the taxable account continue to grow as the account grows, so my income also rises.
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Re: Retirees: Distributions in down markets

Post by Broken Man 1999 »

The market status being "down" really doesn't make any difference to us, we need to live, and that is what our portfolio is designed for, providing our living expenses.

We withdraw from our TIRAs once a month, DW's withdrawal is from her Short-term Treasury Index mutual fund, mine from whatever is above the preferred AA percentage.

I do rebalance when an opportunity presents itself, and dividends could provide most, if not all, our expenses if we took them in cash consistently.

Retirees should have settled on an appropriate AA, if they have done so there should be no stress in using their assets for expenses.

Broken Man 1999
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Re: Retirees: Distributions in down markets

Post by GaryA505 »

Some people say that taking your distributions from cash (or bonds) when the stock market is down doesn't make any difference. I never quite understood that.

I think they're assume that you rebalance right away, in which case I can see their point.
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
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namajones
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Re: Retirees: Distributions in down markets

Post by namajones »

GerryL wrote: Tue May 04, 2021 1:12 pm I keep enough in cash to cover the gap between income and expenses for several years. That means that if I need to take a distribution when the market is down, I can turn around and reinvest a chunk of it in my taxable account. So I may be selling at a low point, but I am also buying when prices are low.
Excellent point. Thanks.
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namajones
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Re: Retirees: Distributions in down markets

Post by namajones »

Broken Man 1999 wrote: Tue May 04, 2021 1:19 pm
Retirees should have settled on an appropriate AA, if they have done so there should be no stress in using their assets for expenses.

Broken Man 1999
Thanks. May I ask what AA you settled on--or the one that allows you to sleep at night? Right now I'm at 60/40, but I'm in a 2030 fund so that will glide down pretty quickly. Plus with my cash equivalents cushion, my equity allocation is really at about 45 percent.
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Re: Retirees: Distributions in down markets

Post by jebmke »

We have always simply withdrawn when and if needed, not before. In '09 we actually increased our spending quite a bit; prices for travel were too good to pass up and crowds were thin. It was also a good time to get home improvements done since contractors were available and prices were rock bottom.
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Re: Retirees: Distributions in down markets

Post by 260chrisb »

namajones wrote: Tue May 04, 2021 1:05 pm
260chrisb wrote: Tue May 04, 2021 12:56 pm My plan is to always have 2-3 years of living expenses on the sideline in retirement.
That's mine, too. In fact, I probably have 6 years of living expenses in CDs and savings. Not the best use of that money, for sure, but it beats seeing it possibly go down in a capital loss if I have it invested more aggressively.
260chrisb wrote: Tue May 04, 2021 12:56 pm provided the market has a favorable year, will sell to cover whatever I withdraw to get me back to the 2-3 year cushion later this year.
That's a good idea.
Thanks for the kind words; great minds think alike??? :happy When I was younger (God I hate saying that!!) I always wanted "the best" for my money at all times and had nearly every dollar of my net worth and savings invested. As I got older (hate saying that as well), saved for, and bought a home for the first time I understood the need for more liquidity and non invested savings. As I've got closer to retirement I understand the same future need a couple years ago. It hasn't taken me long to get over the fact that the money isn't getting the highest return and it sure makes going into retirement secure great for my mindset for the first 3-4 years knowing the money is there. The next mindset challenge is going from a saver to a spender. I think I'm there already as my plan all along has been to spend and live and not leave what I saved.
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Re: Retirees: Distributions in down markets

Post by Broken Man 1999 »

namajones wrote: Tue May 04, 2021 1:30 pm
Broken Man 1999 wrote: Tue May 04, 2021 1:19 pm
Retirees should have settled on an appropriate AA, if they have done so there should be no stress in using their assets for expenses.

Broken Man 1999
Thanks. May I ask what AA you settled on--or the one that allows you to sleep at night? Right now I'm at 60/40, but I'm in a 2030 fund so that will glide down pretty quickly. Plus with my cash equivalents cushion, my equity allocation is really at about 45 percent.
55% equities/45% bond funds. We have cash only when we sell something near end of the month and move to our credit union accounts to pay first half of the next month's bills. We receive SS benefits later in the month that covers the remainder of our expenses.

Broken Man 1999
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Re: Retirees: Distributions in down markets

Post by eyemgh »

GaryA505 wrote: Tue May 04, 2021 1:22 pm Some people say that taking your distributions from cash (or bonds) when the stock market is down doesn't make any difference. I never quite understood that.

I think they're assume that you rebalance right away, in which case I can see their point.
It's easy to logic yourself into believing this. I did. I even posted a thread on mitigating the risks of SORR. Someone replied with an example that clearly illustrated the flawed thinking for me. The lightbulb went on. It does indeed assume continued rebalancing.

viewtopic.php?p=5980678#p5980678
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Re: Retirees: Distributions in down markets

Post by Wiggums »

We reduced our AA about 3 years after I retired. At 65/35 right now, so I would have a problem selling for living expenses. we also have cash for Roth conversions, but could be used for other things.
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Re: Retirees: Distributions in down markets

Post by namajones »

260chrisb wrote: Tue May 04, 2021 1:35 pm Thanks for the kind words; great minds think alike??? :happy When I was younger (God I hate saying that!!) I always wanted "the best" for my money at all times and had nearly every dollar of my net worth and savings invested. As I got older (hate saying that as well), saved for, and bought a home for the first time I understood the need for more liquidity and non invested savings. As I've got closer to retirement I understand the same future need a couple years ago. It hasn't taken me long to get over the fact that the money isn't getting the highest return and it sure makes going into retirement secure great for my mindset for the first 3-4 years knowing the money is there. The next mindset challenge is going from a saver to a spender. I think I'm there already as my plan all along has been to spend and live and not leave what I saved.
A mindset challenge for me at the moment is actually walking away without another job in hand. It's like unlearning a behavior that has become an involuntary reflex.

My Plan A is to go back to Germany to teach for a couple of years, at least. Will serve a few purposes, including deferring social security for a bit longer. But if that doesn't work out as soon as I'd like, I'm likely to just quit anyway--I just have no more interest in continuing in my current job, and I recognize that the health impact of continuing to do something I no longer enjoy is not worth the extra money or perhaps not worth the sacrifice of ever-shrinking remaining healthy years of life. It's also not fair to my work, I think, not to be willing to give 100 percent, although what I do give is more than adequate. Anyway, you get the idea.
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Re: Retirees: Distributions in down markets

Post by namajones »

Broken Man 1999 wrote: Tue May 04, 2021 1:42 pm
55% equities/45% bond funds. We have cash only when we sell something near end of the month and move to our credit union accounts to pay first half of the next month's bills. We receive SS benefits later in the month that covers the remainder of our expenses.

Broken Man 1999
Okay. Interesting. We're at similar equity allocations, then.
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Re: Retirees: Distributions in down markets

Post by namajones »

eyemgh wrote: Tue May 04, 2021 1:52 pm

It's easy to logic yourself into believing this. I did. I even posted a thread on mitigating the risks of SORR. Someone replied with an example that clearly illustrated the flawed thinking for me. The lightbulb went on. It does indeed assume continued rebalancing.

viewtopic.php?p=5980678#p5980678
The post you reference is interesting because I've been grappling with this issue myself--whether to use the target date or just keep x amount of "safe" money in G and the rest in 2065, that is, to rebalance myself.

For now I've just decided to let the target date do the (daily) rebalancing for me because it's easier and, perhaps more importantly, it reduces my probable urge to tinker or check on things too often.
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Re: Retirees: Distributions in down markets

Post by namajones »

Wiggums wrote: Tue May 04, 2021 1:54 pm We reduced our AA about 3 years after I retired. At 65/35 right now, so I would have a problem selling for living expenses. we also have cash for Roth conversions, but could be used for other things.
I think I don't want to get too far out on the equity limb. 65 is probably about as far as I'd go.
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Re: Retirees: Distributions in down markets

Post by eyemgh »

namajones wrote: Tue May 04, 2021 2:18 pm
eyemgh wrote: Tue May 04, 2021 1:52 pm

It's easy to logic yourself into believing this. I did. I even posted a thread on mitigating the risks of SORR. Someone replied with an example that clearly illustrated the flawed thinking for me. The lightbulb went on. It does indeed assume continued rebalancing.

viewtopic.php?p=5980678#p5980678
The post you reference is interesting because I've been grappling with this issue myself--whether to use the target date or just keep x amount of "safe" money in G and the rest in 2065, that is, to rebalance myself.

For now I've just decided to let the target date do the (daily) rebalancing for me because it's easier and, perhaps more importantly, it reduces my probable urge to tinker or check on things too often.
It doesn't make sense...until it does, right? :D

I'm in 2025, but if I hold out a little cash to help me sleep better (I'm not right now), I'll probably switch to a LifeStrategy fund. Staying in a Target will push your AA too far away from equities over time if you also hold additional cash. LifeStrategy auto-rebalances, but doesn't change AA over time.
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Re: Retirees: Distributions in down markets

Post by tennisplyr »

Retired 10 years. I sell off from funds when I need to with an eye towards keeping my AA on target. Keep a fair amount in cash for anything wildly unexpected. Keep the faith!!
“Those who move forward with a happy spirit will find that things always work out.” -Retired 13 years 😀
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Re: Retirees: Distributions in down markets

Post by vested1 »

I've used VPW for withdrawals, taking more out in years we have a special project going with the prior year's gain in mind. I had years when I took out a bit over 8%, but our gain was more than double that. The other years have been under 4% with gains far in excess of that. All withdrawals were for extras, not necessities, as our fixed income more than meets expenses. When I reach age 70 next year and file for my own SS benefits fixed income will increase dramatically. We took out zero in 2020 and will withdraw 3.4% this year (based on today's balance) due to a remodel we are currently in the middle of.

If we experience down years in the market I may postpone projects or will more likely look at the big picture to remind myself we're still ahead of the game. That really is the bottom line. When making a long term plan, estimate balances in the future at different dates, and compare those estimations to reality when the time comes in order to see if any adjustment is needed and how your plan has worked out so far.

When withdrawing I do so to reestablish our AA, which means withdrawing from the winners, something that took getting used to. Our AA was 60/40 at retirement but has slowly migrated to 65/35. I intend to end up at 70/30 after age 70 with the hopes of leaving a better inheritance for our three children.
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Re: Retirees: Distributions in down markets

Post by MikeG62 »

namajones wrote: Tue May 04, 2021 12:29 pm If you're a retiree, do you make any adjustments to distributions in down markets? Or do you just take the distributions as planned or needed and assume things will all turn out okay in the wash, over the years?
Our expectation is to continue to take distributions as planned. Having said that, we are following a modified version of Guyton & Klinger's withdrawal decision rules and those rules do contain guardrails which do provide for a ratchet down of spending if our portfolio falls far enough. It would have to be a much larger decline than we experienced in Feb/March of 2020 to trigger that adjustment. FWIW, we are in our 6th year of retirement and have not needed to make any downward adjustments so far. In fact, we are at the point now where we can make an upward adjustment in our spending as our spend has fallen below the lower tripwire. We have so far chosen not to make the adjustment.
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Re: Retirees: Distributions in down markets

Post by DetroitRick »

I do modestly adjust distributions in down markets. More adjustment is in terms of the asset classes where I pull from, but also to a small degree in the amounts I take.

As to where I pull distributions from, I will typically keep about 6 years of withdrawal needs outside of equities - some varying combination of bonds and cash. This gives me a fair amount of flexibility. I will still rebalance during downturns, but not as diligently as in other times, and I always first try to avoid liquidating any of the most impaired assets. I'll also do investment bargain shopping when this happens, but mainly in the stock portion of my investments (because that's where I feel most comfortable doing so and where it has worked out best for me in the past).

I also will (and have) reduce spending if downturns go beyond a year or two. Not radically, but some. In retirement I have lowered my fixed expenses, which helps in general too. But there are also discretionary spending categories where I have no problem postponing a bit if needed or to make me comfortable. Our examples have included cutting/deferring vacation spending, postponing a new car for a year or so, deferring home improvements (but not maintenance), fewer luxury purchases. Having some great hobbies that are cheap helps here for me too.

I'm not trying to optimize my financial returns, but rather to strike a balance that makes me comfortable and facilitates desired lifestyle. It seems to have worked - I've never sold in panic and never had to go without. So far, so good - knock on wood.
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Re: Retirees: Distributions in down markets

Post by 260chrisb »

MikeG62 wrote: Wed May 05, 2021 8:29 am
namajones wrote: Tue May 04, 2021 12:29 pm If you're a retiree, do you make any adjustments to distributions in down markets? Or do you just take the distributions as planned or needed and assume things will all turn out okay in the wash, over the years?
Our expectation is to continue to take distributions as planned. Having said that, we are following a modified version of Guyton & Klinger's withdrawal decision rules and those rules do contain guardrails which do provide for a ratchet down of spending if our portfolio falls far enough. It would have to be a much larger decline than we experienced in Feb/March of 2020 to trigger that adjustment. FWIW, we are in our 6th year of retirement and have not needed to make any downward adjustments so far. In fact, we are at the point now where we can make an upward adjustment in our spending as our spend has fallen below the lower tripwire. We have so far chosen not to make the adjustment.
So just between me and you.......nobody else is listening.....your portfolio must be larger now than 6 years ago? Short of somebody thinking that at retirement age they're still going to become a billionaire and you need all the worlds money, your growth has reached more than critical mass yes?
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Re: Retirees: Distributions in down markets

Post by namajones »

eyemgh wrote: Tue May 04, 2021 5:36 pm Staying in a Target will push your AA too far away from equities over time if you also hold additional cash.
I recognize that and agree. However, the target date that I'm in now (2030), combined with the cash equivalents I have outside of that account, keeps me at a 45 percent equity allocation for the next 5 years, steady. After that, it starts getting more conservative, but I can re-evaluate at that point, I figure. I may bump up to the next level (2035) if it makes sense to do that in 5 years, or I may just let my entire portfolio get more conservative. All depends on my willingness and ability to take risk at that time.
Last edited by namajones on Wed May 05, 2021 9:58 am, edited 3 times in total.
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Re: Retirees: Distributions in down markets

Post by namajones »

vested1 wrote: Wed May 05, 2021 7:15 am I've used VPW for withdrawals, taking more out in years we have a special project going with the prior year's gain in mind. I had years when I took out a bit over 8%, but our gain was more than double that. The other years have been under 4% with gains far in excess of that. All withdrawals were for extras, not necessities, as our fixed income more than meets expenses. When I reach age 70 next year and file for my own SS benefits fixed income will increase dramatically. We took out zero in 2020 and will withdraw 3.4% this year (based on today's balance) due to a remodel we are currently in the middle of.

If we experience down years in the market I may postpone projects or will more likely look at the big picture to remind myself we're still ahead of the game. That really is the bottom line. When making a long term plan, estimate balances in the future at different dates, and compare those estimations to reality when the time comes in order to see if any adjustment is needed and how your plan has worked out so far.

When withdrawing I do so to reestablish our AA, which means withdrawing from the winners, something that took getting used to. Our AA was 60/40 at retirement but has slowly migrated to 65/35. I intend to end up at 70/30 after age 70 with the hopes of leaving a better inheritance for our three children.
This all makes sense to me, and your longterm AA roughly aligns with what I expect for myself. A move up the equity scale will be dependent upon my having more than enough in safe assets at that time. In other words, like you, I would essentially be investing for heirs.

What is VPW?

I also, btw, anticipate taking out more in years that outperform, with an eye toward having more than I need for those down years.
Last edited by namajones on Wed May 05, 2021 9:59 am, edited 1 time in total.
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Re: Retirees: Distributions in down markets

Post by namajones »

DetroitRick wrote: Wed May 05, 2021 9:37 am I do modestly adjust distributions in down markets. More adjustment is in terms of the asset classes where I pull from, but also to a small degree in the amounts I take.

As to where I pull distributions from, I will typically keep about 6 years of withdrawal needs outside of equities - some varying combination of bonds and cash. This gives me a fair amount of flexibility. I will still rebalance during downturns, but not as diligently as in other times, and I always first try to avoid liquidating any of the most impaired assets. I'll also do investment bargain shopping when this happens, but mainly in the stock portion of my investments (because that's where I feel most comfortable doing so and where it has worked out best for me in the past).

I also will (and have) reduce spending if downturns go beyond a year or two. Not radically, but some. In retirement I have lowered my fixed expenses, which helps in general too. But there are also discretionary spending categories where I have no problem postponing a bit if needed or to make me comfortable. Our examples have included cutting/deferring vacation spending, postponing a new car for a year or so, deferring home improvements (but not maintenance), fewer luxury purchases. Having some great hobbies that are cheap helps here for me too.

I'm not trying to optimize my financial returns, but rather to strike a balance that makes me comfortable and facilitates desired lifestyle. It seems to have worked - I've never sold in panic and never had to go without. So far, so good - knock on wood.
Sounds very reasonable. Thanks for sharing.

I do wonder what will happen to stocks when bond rates start going materially higher (a 70s-plus scenario). We seem to be in such uncharted territory, at least in our lifetimes, that I tend to get wary of going too far into equities and become more concerned about having enough safe assets for a decades-long downturn.
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Re: Retirees: Distributions in down markets

Post by dbr »

namajones wrote: Wed May 05, 2021 9:56 am

I do wonder what will happen to stocks when bond rates start going materially higher (a 70s-plus scenario). We seem to be in such uncharted territory, at least in our lifetimes, that I tend to get wary of going too far into equities and become more concerned about having enough safe assets for a decades-long downturn.
The waters are always uncharted. If you want more certainty in outcome you have to invest in more predictable assets. Past a certain point that is not possible. In any case the trade off for more certainty is less probability of more return. Which is actually "safer" depends on your objectives. Investing $10,000 at a certain return of 5% will absolutely certainly fail to produce $50,000 in 30 years. That is the ultimate in "not safe." A more uncertain investment with a higher expected return at least has a non-zero probability of reaching that objective.
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Re: Retirees: Distributions in down markets

Post by WillRetire »

namajones wrote: Tue May 04, 2021 12:29 pm If you're a retiree, do you make any adjustments to distributions in down markets? Or do you just take the distributions as planned or needed and assume things will all turn out okay in the wash, over the years?

We haven't really had much in the way of down markets since 08-09, so I guess I'd be most interested in hearing from folks who were taking distributions in that period.

I'm on the cusp of retirement so I'm thinking ahead and would like to hear the experience of others. Personally, right now at least, the bulk of my retirement dough is in the Fed's TSP, and they have this crazy rule that requires distributions to be drawn proportionally from investments, so it's not possible just to draw from, say, the G fund when stocks are down. Otherwise it would obviously make sense to draw just from G or bonds when/if stocks crater in a given year. I'm not sure why TSP didn't fix this crazy rule in the recent "modernization" effort, but so it goes. May have to move some of my money after I leave, but I'd rather not because I like to keep things simple. Hence my question.

Thanks in advance.
We look at our withdrawals in retirement as being in 2 parts: (1) RMDs, and (2) other = not mandated.

We take the RMDs once per year, late in the year, from relatively stable sources like bonds or money market funds, even if stocks are up. I.e. we don't use RMDs as an AA rebalancing tool. And we don't take more than the minimum required. We don't have TSP accounts, so we don't have the restriction that you describe. If we did, I'd be tempted to take RMDs once per year 1 day after shifting everything into the G fund or a conservative target date fund, then shift back as soon as the plan allows. Alternatively, you could time your RMDs on really good days (RGDs).

We take other non-RMD distributions as needed from cash accounts that are backfilled periodically by selling equities from taxable accounts on really good days.
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Re: Retirees: Distributions in down markets

Post by SevenBridgesRoad »

namajones wrote: Wed May 05, 2021 9:52 am
...What is VPW?...
Variable Percentage Withdrawal. Good explanation in the Wiki and several good threads to search and review. It is an entire method or plan, not just a percentage.
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Re: Retirees: Distributions in down markets

Post by MikeG62 »

260chrisb wrote: Wed May 05, 2021 9:45 am
MikeG62 wrote: Wed May 05, 2021 8:29 am
namajones wrote: Tue May 04, 2021 12:29 pm If you're a retiree, do you make any adjustments to distributions in down markets? Or do you just take the distributions as planned or needed and assume things will all turn out okay in the wash, over the years?
Our expectation is to continue to take distributions as planned. Having said that, we are following a modified version of Guyton & Klinger's withdrawal decision rules and those rules do contain guardrails which do provide for a ratchet down of spending if our portfolio falls far enough. It would have to be a much larger decline than we experienced in Feb/March of 2020 to trigger that adjustment. FWIW, we are in our 6th year of retirement and have not needed to make any downward adjustments so far. In fact, we are at the point now where we can make an upward adjustment in our spending as our spend has fallen below the lower tripwire. We have so far chosen not to make the adjustment.
So just between me and you.......nobody else is listening.....your portfolio must be larger now than 6 years ago?
Yes.
260chrisb wrote: Wed May 05, 2021 9:45 am
Short of somebody thinking that at retirement age they're still going to become a billionaire and you need all the worlds money, your growth has reached more than critical mass yes?
The markets have been quite kind over the last four years - with growth obviously outstripping our withdrawals.
Last edited by MikeG62 on Wed May 05, 2021 5:29 pm, edited 1 time in total.
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Re: Retirees: Distributions in down marketsth

Post by Broken Man 1999 »

Just like any other financial decision, every retiree must determine the AA that lets them SWAN (sleep well at night).

There is no one size that fits all retirees.

Recent retirees have enjoyed a booming stock market, hopefully they haven’t forgotten the market can take back substantial amounts of their gains just as quick as they were given.

Our baseline expenses haven’t risen in lock-step, but we have knocked out a lot of “one of” home projects given our portfolio growth. We are done with the high-ticket ones; a new fence and painting of upstairs are the only ones we are doing this year. I think we have a few more years on our roof’s life, plus our vehicle. If not, we will spend whatever is needed, when it is needed.

So far our retirement has been very smooth.

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Re: Retirees: Distributions in down markets

Post by GaryA505 »

Broken Man 1999 wrote: Wed May 05, 2021 4:57 pm Just like any other financial decision, every retiree must determine the AA that lets them SWAN (sleep well at night).

There is no one size that fits all retirees.

Broken Man 1999
It seems as I learn about markets and investing, my risk tolerance increases. I no longer even flinch when the value of my retirement accounts drops 5% in a day. I know this is going to happen, and I also know there will be much, much worse days, and I have to accept this fact if I want my retirement savings to last. In March 2020 my reaction was, yeah, that's going to happen, and I did nothing.

I wonder if others have experienced the same thing.
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
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Re: Retirees: Distributions in down markets

Post by grabiner »

namajones wrote: Tue May 04, 2021 12:29 pm I'm on the cusp of retirement so I'm thinking ahead and would like to hear the experience of others. Personally, right now at least, the bulk of my retirement dough is in the Fed's TSP, and they have this crazy rule that requires distributions to be drawn proportionally from investments, so it's not possible just to draw from, say, the G fund when stocks are down. Otherwise it would obviously make sense to draw just from G or bonds when/if stocks crater in a given year. I'm not sure why TSP didn't fix this crazy rule in the recent "modernization" effort, but so it goes. May have to move some of my money after I leave, but I'd rather not because I like to keep things simple. Hence my question.
The rule doesn't hurt you; it just requires an extra step. If you take a withdrawal from a stock fund when you wanted to take it from a bond fund, you can immediately reallocate your TSP to move money from bond funds to stock funds.
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Re: Retirees: Distributions in down markets

Post by jpdion »

grabiner wrote: Wed May 05, 2021 9:23 pm
namajones wrote: Tue May 04, 2021 12:29 pm I'm on the cusp of retirement so I'm thinking ahead and would like to hear the experience of others. Personally, right now at least, the bulk of my retirement dough is in the Fed's TSP, and they have this crazy rule that requires distributions to be drawn proportionally from investments, so it's not possible just to draw from, say, the G fund when stocks are down. Otherwise it would obviously make sense to draw just from G or bonds when/if stocks crater in a given year. I'm not sure why TSP didn't fix this crazy rule in the recent "modernization" effort, but so it goes. May have to move some of my money after I leave, but I'd rather not because I like to keep things simple. Hence my question.
The rule doesn't hurt you; it just requires an extra step. If you take a withdrawal from a stock fund when you wanted to take it from a bond fund, you can immediately reallocate your TSP to move money from bond funds to stock funds.
I moved my entire TSP to Vanguard when I retired in 2015, prior to the new flexible withdrawal rules, primarily for withdrawal flexibility and greater choice in funds. Also wanted keep Congress out of potentially screwing around with my retirement portfolio. Happy on all accounts.
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Re: Retirees: Distributions in down markets

Post by GaryA505 »

eyemgh wrote: Tue May 04, 2021 1:52 pm
GaryA505 wrote: Tue May 04, 2021 1:22 pm Some people say that taking your distributions from cash (or bonds) when the stock market is down doesn't make any difference. I never quite understood that.

I think they're assume that you rebalance right away, in which case I can see their point.
It's easy to logic yourself into believing this. I did. I even posted a thread on mitigating the risks of SORR. Someone replied with an example that clearly illustrated the flawed thinking for me. The lightbulb went on. It does indeed assume continued rebalancing.

viewtopic.php?p=5980678#p5980678
Apparently all those people who keep a few years in cash/bonds and the remainder in stock, with the idea of withdrawing from the cash side when the market takes a downturn are just fooling themselves. I've seen several post that as their plan.
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
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Re: Retirees: Distributions in down markets

Post by eyemgh »

GaryA505 wrote: Thu May 06, 2021 2:26 pm
eyemgh wrote: Tue May 04, 2021 1:52 pm
GaryA505 wrote: Tue May 04, 2021 1:22 pm Some people say that taking your distributions from cash (or bonds) when the stock market is down doesn't make any difference. I never quite understood that.

I think they're assume that you rebalance right away, in which case I can see their point.
It's easy to logic yourself into believing this. I did. I even posted a thread on mitigating the risks of SORR. Someone replied with an example that clearly illustrated the flawed thinking for me. The lightbulb went on. It does indeed assume continued rebalancing.

viewtopic.php?p=5980678#p5980678
Apparently all those people who keep a few years in cash/bonds and the remainder in stock, with the idea of withdrawing from the cash side when the market takes a downturn are just fooling themselves. I've seen several post that as their plan.
I certainly was! It's easy logic to get wrong until either you or someone else goes through the math.
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Re: Retirees: Distributions in down markets

Post by Marseille07 »

eyemgh wrote: Thu May 06, 2021 2:36 pm
GaryA505 wrote: Thu May 06, 2021 2:26 pm
eyemgh wrote: Tue May 04, 2021 1:52 pm
GaryA505 wrote: Tue May 04, 2021 1:22 pm Some people say that taking your distributions from cash (or bonds) when the stock market is down doesn't make any difference. I never quite understood that.

I think they're assume that you rebalance right away, in which case I can see their point.
It's easy to logic yourself into believing this. I did. I even posted a thread on mitigating the risks of SORR. Someone replied with an example that clearly illustrated the flawed thinking for me. The lightbulb went on. It does indeed assume continued rebalancing.

viewtopic.php?p=5980678#p5980678
Apparently all those people who keep a few years in cash/bonds and the remainder in stock, with the idea of withdrawing from the cash side when the market takes a downturn are just fooling themselves. I've seen several post that as their plan.
I certainly was! It's easy logic to get wrong until either you or someone else goes through the math.
You guys realize the linked example is contrived, right? Try it with "You need $50 cash" instead of $10 and you should see it, hopefully.
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Re: Retirees: Distributions in down markets

Post by bengal22 »

I pull it out as needed, regardless of market going up or down. There is a cost for having cash on the sideline. It's kind of a reverse dollar cost averaging. If you have faith in the long term vitality of the market then that's the way to go
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Re: Retirees: Distributions in down markets

Post by ruralavalon »

namajones wrote: Tue May 04, 2021 12:29 pm If you're a retiree, do you make any adjustments to distributions in down markets? Or do you just take the distributions as planned or needed and assume things will all turn out okay in the wash, over the years?

We haven't really had much in the way of down markets since 08-09, so I guess I'd be most interested in hearing from folks who were taking distributions in that period.

I'm on the cusp of retirement so I'm thinking ahead and would like to hear the experience of others. Personally, right now at least, the bulk of my retirement dough is in the Fed's TSP, and they have this crazy rule that requires distributions to be drawn proportionally from investments, so it's not possible just to draw from, say, the G fund when stocks are down. Otherwise it would obviously make sense to draw just from G or bonds when/if stocks crater in a given year. I'm not sure why TSP didn't fix this crazy rule in the recent "modernization" effort, but so it goes. May have to move some of my money after I leave, but I'd rather not because I like to keep things simple. Hence my question.

Thanks in advance.
Age 75, our only portfolio withdrawals are monthly Required Minimum Distributions (RMDs) proportionally from each fund from my rollover IRA. These are not adjusted according to what the market is doing.

We generally have just a couple of months worth of living expenses, net of Social Security, in our joint checking account. The amount varies.

Social Security benefits and RMDs cover our monthly expenses. The excess is periodically invested in our joint taxable account.

Required Minimum Distributions (RMDs) proportionally from each fund from my rollover IRA has worked fund for us. This tends to keep our portfolio asset allocation on target.

I have both stock and bond funds, and both domestic and international stock funds, in my rollover IRA. Every so often I will rebalance by exchanging between funds inside my rollover IRA to keep our desired asset allocation. This last 12 months, in spite of all the market volati!ity, I only had to rebalance twice.

In my opinion RMDs proportionally from all funds is not a bad feature at all. I would not move money out of the Thrift Savings Plan (TSP).
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Re: Retirees: Distributions in down markets

Post by eyemgh »

Marseille07 wrote: Thu May 06, 2021 2:51 pm
eyemgh wrote: Thu May 06, 2021 2:36 pm
GaryA505 wrote: Thu May 06, 2021 2:26 pm
eyemgh wrote: Tue May 04, 2021 1:52 pm
GaryA505 wrote: Tue May 04, 2021 1:22 pm Some people say that taking your distributions from cash (or bonds) when the stock market is down doesn't make any difference. I never quite understood that.

I think they're assume that you rebalance right away, in which case I can see their point.
It's easy to logic yourself into believing this. I did. I even posted a thread on mitigating the risks of SORR. Someone replied with an example that clearly illustrated the flawed thinking for me. The lightbulb went on. It does indeed assume continued rebalancing.

viewtopic.php?p=5980678#p5980678
Apparently all those people who keep a few years in cash/bonds and the remainder in stock, with the idea of withdrawing from the cash side when the market takes a downturn are just fooling themselves. I've seen several post that as their plan.
I certainly was! It's easy logic to get wrong until either you or someone else goes through the math.
You guys realize the linked example is contrived, right? Try it with "You need $50 cash" instead of $10 and you should see it, hopefully.
In your example though that means you'd need HALF of your entire portfolio in a single draw. If that's the case, there are probably bigger issues. :shock:
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Re: Retirees: Distributions in down markets

Post by dbr »

eyemgh wrote: Thu May 06, 2021 3:17 pm
You guys realize the linked example is contrived, right? Try it with "You need $50 cash" instead of $10 and you should see it, hopefully.
In your example though that means you'd need HALF of your entire portfolio in a single draw. If that's the case, there are probably bigger issues. :shock:
[/quote]

It is true that taking out half your portfolio at once is differently affected by luck of the market than is taking out 4% a year or something like that. It is also true that taking out half your portfolio at once is a case that would be managed differently than just willy-nilly cashing in half one's assets.

Possibly a practical case in real life is retiring on delayed Social Security where the withdrawal rate drops from a high rate that depletes a significant fraction of the portfolio to a low one. People in that situation would provide a low volatility set of assets for the initial spending. A 10% withdrawal for five years is basically depleting half the portfolio intentionally. The situation also depends on the alignment of just a certain set of numbers that is probably not common.
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