Sell bond or stock during retirement withdrawal
Sell bond or stock during retirement withdrawal
I’m sure this question has been answered elsewhere, but I wasn’t able to find it. This might be a relatively simple question but I’m a little confused on it.
You have 1 mil that you plan to withdrawal an initial 4% of the value, then add inflation to that value every year. Your portfolio is 50/50 (stock portion being 80/20 domestic/world index funds). For sake of argument, no other portfolios are being used for retirement and let’s call it a Roth IRA.
1.) When you go to pull 40k year one, do you sell 20k of stocks and 20k bonds?
2.) say stock drifted so you are at 55/45. Do you increase the amount of stock you sell to bring back to 50/50?
3.) In retirement if you don’t have a dividend focused portfolio do you still take dividends rather than reinvest? I plan to have mainly VTSAX and VTIAX as my index funds.
4.) any good resource suggestions for withdrawal strategies?
You have 1 mil that you plan to withdrawal an initial 4% of the value, then add inflation to that value every year. Your portfolio is 50/50 (stock portion being 80/20 domestic/world index funds). For sake of argument, no other portfolios are being used for retirement and let’s call it a Roth IRA.
1.) When you go to pull 40k year one, do you sell 20k of stocks and 20k bonds?
2.) say stock drifted so you are at 55/45. Do you increase the amount of stock you sell to bring back to 50/50?
3.) In retirement if you don’t have a dividend focused portfolio do you still take dividends rather than reinvest? I plan to have mainly VTSAX and VTIAX as my index funds.
4.) any good resource suggestions for withdrawal strategies?
- Noobvestor
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Re: Sell bond or stock during retirement withdrawal
1) If you're 50/50 at the time, sure.
2) Yes.
3) Dividends are unlikely to be enough alone regardless. So: assume you'll get some cash in dividends and sell stocks/bonds on top of that. Dividend-focused strategies just take control out of your hands (in taxable accounts). Basically, ignore dividends, focus on total returns/WR.
4) Plenty of threads on various strategies. My best tip is to be flexible - the 4% 'rule' gets talked about a lot, but few people follow it dogmatically. In reality, your expenses will vary from year to you. You might also adjust as retirement goes on based on how your funds are holding up.
2) Yes.
3) Dividends are unlikely to be enough alone regardless. So: assume you'll get some cash in dividends and sell stocks/bonds on top of that. Dividend-focused strategies just take control out of your hands (in taxable accounts). Basically, ignore dividends, focus on total returns/WR.
4) Plenty of threads on various strategies. My best tip is to be flexible - the 4% 'rule' gets talked about a lot, but few people follow it dogmatically. In reality, your expenses will vary from year to you. You might also adjust as retirement goes on based on how your funds are holding up.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
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Re: Sell bond or stock during retirement withdrawal
I've started a ladder of defined maturity bond funds to match what my projected withdrawals from my taxable account might be during retirement. Aim to have 5-7 years of a ladder by the time I retire (in a "few" YMMV years). Note - I also have a TIAA pension and SS which will form the major legs of the stool.
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Re: Sell bond or stock during retirement withdrawal
Inside a Roth, I would have dividends reinvested and just sell enough on one or both sides to move towards the target of 50/50. If your withdrawal is all on one side and still does not get you to the target 50/50, you might consider a rebalance at the same time. If you were invested in a single balanced fund, you not have to make any of these decisions. If the money is not in a Roth account, tax efficiency considerations would change much of this.
Last edited by Mike Scott on Sun Jul 25, 2021 11:17 am, edited 1 time in total.
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Re: Sell bond or stock during retirement withdrawal
The wiki on withdrawal: https://www.bogleheads.org/wiki/Outline ... al_methods
There is much discussion and disagreement about various methods.
There is much discussion and disagreement about various methods.
Re: Sell bond or stock during retirement withdrawal
The blog Can I Retire Yet? did a couple of posts analyzing various withdrawal strategies: https://www.caniretireyet.com/the-best- ... ng-deeper/
Might be of interest!
Might be of interest!
Re: Sell bond or stock during retirement withdrawal
Reinvest dividends and just pull needed amount, that makes sense. Yea, I know the approach would be different based on the account. Just trying to learn the general concepts first. Thanks.Mike Scott wrote: ↑Sun Jul 25, 2021 11:12 am Inside a Roth, I would have dividends reinvested and just sell enough on one or both sides to move towards the target of 50/50. If your withdrawal is all on one side and still does not get you to the target 50/50, you might consider a rebalance at the same time. If you were invested in a single balanced fund, you not have to make any of these decisions. If the money is not in a Roth account, tax efficiency considerations would change much of this.
Re: Sell bond or stock during retirement withdrawal
Thanks for the feedback. Yea, seems the 4% rule. If followed strictly, really doesn’t allow for much flexibility.Noobvestor wrote: ↑Sat Jul 24, 2021 11:55 pm 1) If you're 50/50 at the time, sure.
2) Yes.
3) Dividends are unlikely to be enough alone regardless. So: assume you'll get some cash in dividends and sell stocks/bonds on top of that. Dividend-focused strategies just take control out of your hands (in taxable accounts). Basically, ignore dividends, focus on total returns/WR.
4) Plenty of threads on various strategies. My best tip is to be flexible - the 4% 'rule' gets talked about a lot, but few people follow it dogmatically. In reality, your expenses will vary from year to you. You might also adjust as retirement goes on based on how your funds are holding up.
Re: Sell bond or stock during retirement withdrawal
There are two issues. The first is the amount of the withdrawal which it appears you have defined, the second where to obtain the withdrawal. For us, that is a time when we annually determine whether we should consider a stock/bond allocation change and determine our current stock/bond ratios. If making a change, unlikely but possible, we withdraw from stocks/bonds in amounts reaching or approaching the newly determined allocation. If rebalancing or maintaining current allocation percentages, withdrawals are made accordingly from the appropriate funds or other assets.
Tim
Tim
Re: Sell bond or stock during retirement withdrawal
We build in flexibility by identifying an annual spend ceiling and tracking how much under we are. This is our retirement equivalent to a sinking fund for future big expenses.Brianjp18 wrote: ↑Tue Jul 27, 2021 7:09 amThanks for the feedback. Yea, seems the 4% rule. If followed strictly, really doesn’t allow for much flexibility.Noobvestor wrote: ↑Sat Jul 24, 2021 11:55 pm 1) If you're 50/50 at the time, sure.
2) Yes.
3) Dividends are unlikely to be enough alone regardless. So: assume you'll get some cash in dividends and sell stocks/bonds on top of that. Dividend-focused strategies just take control out of your hands (in taxable accounts). Basically, ignore dividends, focus on total returns/WR.
4) Plenty of threads on various strategies. My best tip is to be flexible - the 4% 'rule' gets talked about a lot, but few people follow it dogmatically. In reality, your expenses will vary from year to you. You might also adjust as retirement goes on based on how your funds are holding up.