Basic withdraw question

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jnevada
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Basic withdraw question

Post by jnevada »

I will be 62 at end of year. Single . No debt. Reside in California. My portfolio is 2.5 million and Social security will give me 24000 a year. My AA is 30% equities and 70% fixed. Looking to live on 100k to 120k per year. Is it reasonable to withdraw 4% a year for the first 4 or 5 years and then do a 3 to 3.5% withdraw from there on? I am a little nervous about the low Bond yields. Thanks
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David Jay
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Re: Basic withdraw question

Post by David Jay »

Welcome to the forum!

If you need to withdraw 4% (or even a bit more) for a few years until you claim SS, no problem. Remember, the 4% number is based on the worst of times, so the vast majority of individuals will end up with a pile of money if they withdraw at-or-below 4% over their retirement years. The studies on the 4% SWR (sustainable withdrawal rate) were looking for a safe number, not a typical number.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
sycamore
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Re: Basic withdraw question

Post by sycamore »

Welcome to the forum jnevada.

I agree with David Jay's reply - those withdrawal rates are reasonable.

Also, note that the next few years may be a good time to withdraw from one type of account versus another in order to help minimize taxes as well as IRMAA. A lot depends on what type of accounts you have: taxable, Traditional IRA, Roth IRA; and how much you have in each type.

For example, if most of your portfolio is in a traditional IRA, your RMDs may likely be substantial once you turn 72. It might be a good idea to make some Roth conversions before you claim Social Security so you can bring down the trad IRA balance. If you'd like to examine that idea further, please post your portfolio according to the Asking Portfolio Questions thread.
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jnevada
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Re: Basic withdraw question

Post by jnevada »

Thanks for the replies. I would have 1.4 million in a traditional employer 401k, 50k roth, 50k tradtional IRA, and then I will take lumps sum of pension in 6 months at 900kand and I have 100k in cash/savings. I use the 3 fund portfolio plus a MMfund for cash. I plan on taking my SS at 62.I have been a fairly conservative investor. I also will probably work some in retirement up till affects me being taxed on my SS. .I am 30% equities and 70% fixed using the 3 fund portfolio. 25% international in my equities. Thanks
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Artsdoctor
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Re: Basic withdraw question

Post by Artsdoctor »

jnevada wrote: Wed Jun 16, 2021 5:14 pm Thanks for the replies. I would have 1.4 million in a traditional employer 401k, 50k roth, 50k tradtional IRA, and then I will take lumps sum of pension in 6 months at 900kand and I have 100k in cash/savings. I use the 3 fund portfolio plus a MMfund for cash. I plan on taking my SS at 62.I have been a fairly conservative investor. I also will probably work some in retirement up till affects me being taxed on my SS. .I am 30% equities and 70% fixed using the 3 fund portfolio. 25% international in my equities. Thanks
Just doing a little math on the back of an envelope, you might be further ahead spending from your tax-deferred accounts and perhaps your Roth for a few years and delay social security. It would mean that you're taking a bit more out of your savings but you'd also be getting a bit more later in social security income.
bltn
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Re: Basic withdraw question

Post by bltn »

jnevada wrote: Wed Jun 16, 2021 5:14 pm Thanks for the replies. I would have 1.4 million in a traditional employer 401k, 50k roth, 50k tradtional IRA, and then I will take lumps sum of pension in 6 months at 900kand and I have 100k in cash/savings. I use the 3 fund portfolio plus a MMfund for cash. I plan on taking my SS at 62.I have been a fairly conservative investor. I also will probably work some in retirement up till affects me being taxed on my SS. .I am 30% equities and 70% fixed using the 3 fund portfolio. 25% international in my equities. Thanks
I presume the 900k lump sum from the pension is after taxes. If so, I would limit my spending to 100k annually, before taxes, and delay social security withdrawals for a few years.
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David Jay
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Re: Basic withdraw question

Post by David Jay »

Artsdoctor wrote: Wed Jun 16, 2021 5:20 pmJust doing a little math on the back of an envelope, you might be further ahead spending from your tax-deferred accounts and perhaps your Roth for a few years and delay social security. It would mean that you're taking a bit more out of your savings but you'd also be getting a bit more later in social security income.
This makes even more sense because you appear to have a rather conservative asset allocation (30/70). If you were “swinging for the fences” it might make sense to take SS early and invest the extra money in the market. In this case, spending down some bonds (especially at today’s low interest rates) to “buy” a larger inflation-protected Social Security benefit may be the better option.

Remember, filing for SS benefits is a month-by-month decision. Your benefit amount goes up for every month that you delay, so you can begin by waiting and change your mind at any time.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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WoodSpinner
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Re: Basic withdraw question

Post by WoodSpinner »

David Jay wrote: Wed Jun 16, 2021 2:46 pm Welcome to the forum!

If you need to withdraw 4% (or even a bit more) for a few years until you claim SS, no problem. Remember, the 4% number is based on the worst of times, so the vast majority of individuals will end up with a pile of money if they withdraw at-or-below 4% over their retirement years. The studies on the 4% SWR (sustainable withdrawal rate) were looking for a safe number, not a typical number.
David,

To be clear, the 4% Rule of Thumb does NOT use a 30/70 AA.

That said, OP, you might want to take a closer look at VPW and TPAW models for spending. I suspect you will be fine, but I like these models since they help me figure out a reasonable approach for spending more now versus a fixed 4% Real. They do a good job of quantifying the future income streams of SS, pensions etc. and their impact on current spending.

I would also question your decision to take the lump-sum rather than the pension.

Why did you decide on this approach.

WoodSpinner
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David Jay
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Re: Basic withdraw question

Post by David Jay »

WoodSpinner wrote: Thu Jun 17, 2021 8:56 am
David Jay wrote: Wed Jun 16, 2021 2:46 pm Welcome to the forum!

If you need to withdraw 4% (or even a bit more) for a few years until you claim SS, no problem. Remember, the 4% number is based on the worst of times, so the vast majority of individuals will end up with a pile of money if they withdraw at-or-below 4% over their retirement years. The studies on the 4% SWR (sustainable withdrawal rate) were looking for a safe number, not a typical number.
David,

To be clear, the 4% Rule of Thumb does NOT use a 30/70 AA.

...

WoodSpinner
The OP does not intend to hold 4% for all of retirement, see the original post. 4% for a few years, tapering down to something under 3.5%. Easily sustainable.

Heck, I am withdrawing over 7% of portfolio for the first 8 years of retirement (until filing for SS benefits).
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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WoodSpinner
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Re: Basic withdraw question

Post by WoodSpinner »

David Jay wrote: Thu Jun 17, 2021 9:10 am
WoodSpinner wrote: Thu Jun 17, 2021 8:56 am
David Jay wrote: Wed Jun 16, 2021 2:46 pm Welcome to the forum!

If you need to withdraw 4% (or even a bit more) for a few years until you claim SS, no problem. Remember, the 4% number is based on the worst of times, so the vast majority of individuals will end up with a pile of money if they withdraw at-or-below 4% over their retirement years. The studies on the 4% SWR (sustainable withdrawal rate) were looking for a safe number, not a typical number.
David,

To be clear, the 4% Rule of Thumb does NOT use a 30/70 AA.

...

WoodSpinner
The OP does not intend to hold 4% for all of retirement, see the original post. 4% for a few years, tapering down to something under 3.5%. Easily sustainable.

Heck, I am withdrawing over 7% of portfolio for the first 8 years of retirement (until filing for SS benefits).
I think we are almost in agreement….. spending more earlier is why I referenced VPW and TPAW.

That said, a 3.5% withdrawal rate on a 30/70 portfolio will have a different probability of success than a 50/50 portfolio. As you know this is a key deviation, that significantly changes the risk factors.

WoodSpinner
RyeBourbon
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Re: Basic withdraw question

Post by RyeBourbon »

I would consider delaying SS and not taking the pension as a lump sum.

Is the 100 to 120k target before or after taxes?

You should map out different scenarios based on starting SS and your pension at different points. How much will the pension pay out monthly at 62? at 64? at 66?

If you put them both off until FRA, you might not have to draw much from your accounts to meet your spending requirements. If you spend your taxable, and tax deferred moneys until then, you should still have over a million and be able to pull out 30 to 40k, added to the 30k SS and 50k? pension.
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jnevada
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Re: Basic withdraw question

Post by jnevada »

I plan on taking the lump sum bc of my history of always being in control of my money. I come from depression era parents. There is no one I have met in a long time who is more disciplined with money than me. I am in a profession that historically does not make a lot of money put put 3 kids through college with no debt and implemented a boglehead investment plan many years ago and stuck with it through thick and thin. So basically I will not piss the money away and not sure what the health of the company will be like in the future. Kind of like I dont have confidence SS will be around in my 70's and 80's.
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jnevada
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Re: Basic withdraw question

Post by jnevada »

To be clear, the 4% Rule of Thumb does NOT use a 30/70 AA.

That said, OP, you might want to take a closer look at VPW and TPAW models for spending. I suspect you will be fine, but I like these models since they help me figure out a reasonable approach for spending more now versus a fixed 4% Real. They do a good job of quantifying the future income streams of SS, pensions etc. and their impact on current spending.

I would also question your decision to take the lump-sum rather than the pension.

Why did you decide on this approach.
Pardon me but what are VPW and TPAW
miket29
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Re: Basic withdraw question

Post by miket29 »

You might want to explore the calculator at https://smartasset.com/retirement/calif ... ment-taxes which gives fed and CA tax estimates.

When I put in 4% withdrawal (100K) and 24K of Social Security it gives taxes of $25,745 so your after-tax income would be about 98K.
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jnevada
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Re: Basic withdraw question

Post by jnevada »

Thank you for the calculator link. That helps quite a bit. I would like to keep this all simple and avoid complex models if I can help it. I probably will eventually go with a response from Taylor a while back. He takes what he needs on a monthly basis. If his portfolio decreases than he tightens his belt and takes less. If the portfolio increases he spends a little more. Everyone's situation is different obviously but keeping it simple works best for most I believe.
printer86
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Re: Basic withdraw question

Post by printer86 »

I was able to take my pension in a lump sum and roll it directly into my IRA, thus avoiding taxes on the distribution. Are you able to do the same? If so, you will be in a better position to manage your income (and, therefore taxes) in subsequent years.

Also, seriously consider delaying Social Security for no other reason than allowing yourself more time to do Roth conversions before you finally claim. And yes, welcome to the forum.
Last edited by printer86 on Thu Jun 17, 2021 3:48 pm, edited 1 time in total.
Topic Author
jnevada
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Re: Basic withdraw question

Post by jnevada »

Yes I can roll it over. And I will do it. Taking social security is something I will give a lot of thought to but it may not be there in the future as promised. Thank you all for the welcome to the forum but the funny thing is I have been on the forum since its inception at Morningstar. I forgot my name and user password and quite frankly it was an old email that I could not recall so I just started new. I love this board and usually if I search the board I will find the question I am thinking about has been discussed on a previous post. I am a worrier when It comes to finance and money and I think this can be a good thing. I work with may people who are not concerned at all with this stuff. I watched my father who come out of WW2 and was a tradesman and raised 5 children , my mother stayed home and he paid his home off in 7 years. I tell some of the 20 to 40 year olds this and their heads explode. I just watched him and learned. He did not tell me much about money except dont buy anything you cant pay off by the end of the month.
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Artsdoctor
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Re: Basic withdraw question

Post by Artsdoctor »

^ I don't claim to be a social security expert although I've not encountered anyone in the field who is worried that someone now in his/her 60s will have it taken away. I would be a bit more concerned if I were in my 30s or 40s that social security might be structured a bit differently in the future, but I would encourage you to make decisions regarding social security benefits based on today's rules.

If you haven't had a chance to read Mike Piper's book, it's definitely worth your time. He's terrific and the book could not be clearer.

https://www.amazon.com/Social-Security- ... B07RL8CL5T
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