How are you funding withdrawals from your portfolio in retirement?

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unbiased
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How are you funding withdrawals from your portfolio in retirement?

Post by unbiased »

I've done all the work, saved all the money, decided on a SWR--and now comes the hard(er?) part of figuring out what to sell and when.

So I'm real interested to hear what other people are doing before I commit. I'll be withdrawing from my portfolio in early 2024 and want to make sure I've got enough time to tweak it. I'll be an early-ish retiree (49) so I'm only focused on taxable. Unfortunately, being in a taxable account means crushing tax implications from liquidating and going to an LMP, so right now, I'm leaning towards a mix of the following:
  • Taking Dividends and Interest in cash (funds about 40% of my SWR)
  • Consume (not roll over) bonds/zeros maturing over the next decade (will be lumpy, but some years will cover about 50% of SWR)
  • Slowly rebalance "up" to a 65% equity portfolio (at 55% now) -- basically move up 0.5%/year by selling X of non-equity assets to "glide" up (10% of SWR)
  • I'll have a smattering of I Bonds as an "emergency" but I won't have enough time to make this a meaningful withdrawal source (about 2 years worth of expenses), but it can fill in any gaps from above and help with an inflation boost/bear market
  • Another 5% SWR in VTIP/VMLTX to smooth any withdrawals
And that's about all I got. If anyone is doing a glidepath and rebalancing "up" as a funding source I would be real curious to hear how you're approaching that, when you decide to sell equities, (Prime Harvesting?) etc. I really appreciate the wisdom of these boards and look forward to hearing your experiences.
Marseille07
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by Marseille07 »

I'm not sure what you mean by "40% of my SWR" or "another 5% SWR." Could you explain what you mean?
livesoft
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by livesoft »

We transfer dividends from investments in our taxable account (which is 100% equities) to our checking account and spend them.

When we need more money, then we sell shares in our taxable account that will have the least tax cost to us.

Then we rebalance in our tax-deferred account back to our desired asset allocation.

Simple example: Sell VEA in taxable. Buy SPDW in tax-deferred. Get the money to buy SPDW by selling some BND or VTI or both depending on asset allocation.
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Big Dog
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by Big Dog »

spend the quarterly dividends (Total Stock), and have a set amount sold/withdrawn on the first of every month.
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retired@50
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by retired@50 »

Marseille07 wrote: Fri Dec 09, 2022 2:41 pm I'm not sure what you mean by "40% of my SWR" or "another 5% SWR." Could you explain what you mean?
Marseille07
I think if you replace "SWR" with "spending needs" you'll get the gist.

In other words, if the OP needs $100 per year, dividends only cover $40. So the OP has to take the remaining $60 from someplace else, presumably by selling shares or by allowing individual bonds to mature and spending the cash.

OP,
I take dividends from my taxable account, and occasionally sell shares in taxable as well. Since you're under 59.5 years old, you'll either have to consume your taxable account, or get creative with accessing money from retirement accounts early.

Spending down taxable assets is fine if you've got enough to last, then you can just rebalance as needed in your retirement accounts.

Regards,
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Marseille07
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by Marseille07 »

retired@50 wrote: Fri Dec 09, 2022 2:58 pm Marseille07
I think if you replace "SWR" with "spending needs" you'll get the gist.

In other words, if the OP needs $100 per year, dividends only cover $40. So the OP has to take the remaining $60 from someplace else, presumably by selling shares or by allowing individual bonds to mature and spending the cash.
Thank you.

Then my advise is to simply spend down fixed income until they're done rising from 55% to 65% equities. This would mean they'd spend dividends, since dividends count as fixed income.
Topic Author
unbiased
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by unbiased »

Marseille07 wrote: Fri Dec 09, 2022 2:41 pm I'm not sure what you mean by "40% of my SWR" or "another 5% SWR." Could you explain what you mean?
Thanks yes you’re right I used the wrong term— these particular line items would give me that percentage of my planned yearly (safe) withdraw— for example, the dividends and interest only cover 40% of my yearly planned withdrawal —should have just said that instead. The others cover a certain percentage as well.

Edit: and thank you @retired50 for clarifying before I did
Last edited by unbiased on Fri Dec 09, 2022 3:27 pm, edited 1 time in total.
KlangFool
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by KlangFool »

OP,

You need to check out the following url.

https://www.madfientist.com/how-to-acce ... nds-early/

KlangFool
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by KlangFool »

OP,

1) Do you need to use the ACA for your health insurance?

2) What would be your annual expense?

3) What is your plan to minimize the taxes?

4) The answer to (3) is a very big deal.

5) You should start a new topic with your specific details

6) Check out this thread.

viewtopic.php?t=87471
"How to pay ZERO taxes in retirement with 6-figure expenses"

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Topic Author
unbiased
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Joined: Sat Apr 25, 2020 5:46 pm

Re: How are you funding withdrawals from your portfolio in retirement?

Post by unbiased »

KlangFool wrote: Fri Dec 09, 2022 3:27 pm OP,

You need to check out the following url.

https://www.madfientist.com/how-to-acce ... nds-early/

KlangFool
Thanks KlangFool— unfortunately, my Roth IRA is underwater, embarrassingly enough, mainly because I was unable to contribute for a lot of years, and made some foolish youthful errors back in the early 2000s. I only recently started contributing to it again after discovering the backdoor. It still has a way to go in terms of growth to take advantage of the tax free withdrawals (i would be withdrawing at a loss if I did it now!!). we will also be in too high of a tax bracket at first for converting my 401(k), although if that changes it will be well worth it. Otherwise, we will probably start that process in our 60s.

Great suggestion, though, and your sage advice is always welcome to see.
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ruralavalon
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by ruralavalon »

unbiased wrote: Fri Dec 09, 2022 2:30 pm I've done all the work, saved all the money, decided on a SWR--and now comes the hard(er?) part of figuring out what to sell and when.

So I'm real interested to hear what other people are doing before I commit. I'll be withdrawing from my portfolio in early 2024 and want to make sure I've got enough time to tweak it. I'll be an early-ish retiree (49) so I'm only focused on taxable. Unfortunately, being in a taxable account means crushing tax implications from liquidating and going to an LMP, so right now, I'm leaning towards a mix of the following:
  • Taking Dividends and Interest in cash (funds about 40% of my SWR)
  • Consume (not roll over) bonds/zeros maturing over the next decade (will be lumpy, but some years will cover about 50% of SWR)
  • Slowly rebalance "up" to a 65% equity portfolio (at 55% now) -- basically move up 0.5%/year by selling X of non-equity assets to "glide" up (10% of SWR)
  • I'll have a smattering of I Bonds as an "emergency" but I won't have enough time to make this a meaningful withdrawal source (about 2 years worth of expenses), but it can fill in any gaps from above and help with an inflation boost/bear market
  • Another 5% SWR in VTIP/VMLTX to smooth any withdrawals
And that's about all I got. If anyone is doing a glidepath and rebalancing "up" as a funding source I would be real curious to hear how you're approaching that, when you decide to sell equities, (Prime Harvesting?) etc. I really appreciate the wisdom of these boards and look forward to hearing your experiences.
.
When I retired this is what we did at first:

(1) we sent the dividends from the stock index funds in our joint taxable account to our joint checking account to spend on monthly expenses;
(2) sold shares of the stock index funds in our joint taxable account as needed to pay for retirement spending needs each month; and
(3) rebalanced as needed by exchanging between funds in my rollover IRA.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
BabaWawa
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by BabaWawa »

Curious what the OP considers his SWR with 40+ years of potential retirement.
SGM
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by SGM »

We take dividends and interest from our taxable accounts for spending. It is rare that we have to sell any of our funds. If our checking account builds up a lot of money, we reinvest it.We occasionally put a stock or stock fund in a charitable account and distribute it as we see fit.
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by KlangFool »

unbiased wrote: Fri Dec 09, 2022 3:34 pm
KlangFool wrote: Fri Dec 09, 2022 3:27 pm OP,

You need to check out the following url.

https://www.madfientist.com/how-to-acce ... nds-early/

KlangFool
Thanks KlangFool— unfortunately, my Roth IRA is underwater, embarrassingly enough, mainly because I was unable to contribute for a lot of years, and made some foolish youthful errors back in the early 2000s. I only recently started contributing to it again after discovering the backdoor. It still has a way to go in terms of growth to take advantage of the tax free withdrawals (i would be withdrawing at a loss if I did it now!!). we will also be in too high of a tax bracket at first for converting my 401(k), although if that changes it will be well worth it. Otherwise, we will probably start that process in our 60s.

Great suggestion, though, and your sage advice is always welcome to see.
unbiased,

I do not understand how this could be true unless you have significant pension income during retirement. Are you sure that you are not making a mistake in your assumption?

KlangFool
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Houdini563
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by Houdini563 »

We have about $2,000,000 in retirement funds. I will be retiring as of January 1. (although my last day of work will be December 20th).

I have $750,000 (pretax) in Vanguard Wellesley income fund admiral shares and will pull whatever I need from it in monthly transfers to my checking account. The initial year that sum will be $5300. Range should be $5300-$10,000 monthly. The remainder of my funds will sit and grow the next 7 year until I reach 70 and start getting SS payments. At that time SS should cover all my wife and I needs ($7250/month).
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celia
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by celia »

OP, There are several problems with spending just from Taxable:
* The Taxable balance may decrease while the Tax-deferred and Roth balances grow.
* As you keep selling the assets with the lowest gains, in the following years, you will have to sell assets with likely even larger gains to get the cash you need.
* You are unnecessarily paying taxes on gains when the assets could get a step-up in value as of date of death instead.

Spending from all three tax categories will give you better control of your taxes. Before you say “I have to wait until 59.5, else there will be 10% early withdrawal penalties from withdrawals from Tax-deferred”, I will suggest you start building a Roth Conversion Ladder. Convert enough to cover your expenses in 5 years (that won’t be covered by dividends). Put each year’s conversion in a separate Roth and after 5 years, you can spend this year’s converted amount (tax-free), but not it’s growth. And if you convert this year (NOW), the 5-year clock started last January, so you really have to only wait 4 years and a month before withdrawing.

While you are at it, convert more than that in the years you have low Taxable income. Try to level out your taxes each year. It is usually better to have level income (and taxes) over all your years instead of a few years of low income (and taxes) followed by many years of higher-than necessary income (and taxes) once SS and RMDs start.

In other words, think long term. Building a spreadsheet or two that projects all your expected income from various sources will be your guidebook.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
Topic Author
unbiased
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by unbiased »

BabaWawa wrote: Fri Dec 09, 2022 3:40 pm Curious what the OP considers his SWR with 40+ years of potential retirement.
3.5%

I could start a whole other thread on this number, but most of the research seems to point to mid 3s as a safe(r) rate for long-ish retirements. I do plan to have some guardrails and allow variability, too. Crazily, some have argued that I could go higher because I'm "only" 20 years away from max Social Security benefits (although my family might benefit from me taking it earlier due to a longer-working spouse--a whole 'nother thread!) And no need to do that here--since I have over a year left, I do plan to "check the math" several times, run some numbers with the CAPE-based withdrawal strategies, Guyton-Klinger, VPW, etc.

Sorry, hope my longer response will not get us off topic. I could start another one on this, but would feel more comfortable after finishing up my homework on some of the other variable withdrawal strategies out there.
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unbiased
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by unbiased »

KlangFool wrote: Fri Dec 09, 2022 3:59 pm
unbiased wrote: Fri Dec 09, 2022 3:34 pm
KlangFool wrote: Fri Dec 09, 2022 3:27 pm OP,

You need to check out the following url.

https://www.madfientist.com/how-to-acce ... nds-early/

KlangFool
Thanks KlangFool— unfortunately, my Roth IRA is underwater, embarrassingly enough, mainly because I was unable to contribute for a lot of years, and made some foolish youthful errors back in the early 2000s. I only recently started contributing to it again after discovering the backdoor. It still has a way to go in terms of growth to take advantage of the tax free withdrawals (i would be withdrawing at a loss if I did it now!!). we will also be in too high of a tax bracket at first for converting my 401(k), although if that changes it will be well worth it. Otherwise, we will probably start that process in our 60s.

Great suggestion, though, and your sage advice is always welcome to see.
unbiased,

I do not understand how this could be true unless you have significant pension income during retirement. Are you sure that you are not making a mistake in your assumption?

KlangFool
My spouse is still working and I'll have a smallish pension that covers about 1/3 of my old paycheck. We also have health insurance for life -- assuming my company stays solvent of course but the benefit is funded through a VEBA and the numbers say it is self-sustaining (we'll hope!). They do NOT cover LTC though. My investments are covering the rest of our expenses. However, we're also in a HCOL area and are up there enough in taxable rate where timing will be key on when to convert. I don't know when my spouse may stop working -- could be in two years or ten years who knows. I'm also continuing to work part-time at something I enjoy (teaching a class or two at a local university) but this income is variable and LOW--will probably just use that job to pay taxes.
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by brad.clarkston »

Great a new thread to sub to. I'm 10 years out still but now I have something new to worry about :?
I've never given a thought about how to take money out of the pot, just how to put it in.
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Topic Author
unbiased
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by unbiased »

ruralavalon wrote: Fri Dec 09, 2022 3:38 pm
.
When I retired this is what we did at first:

(1) we sent the dividends from the stock index funds in our joint taxable account to our joint checking account to spend on monthly expenses;
(2) sold shares of the stock index funds in our joint taxable account as needed to pay for retirement spending needs each month; and
(3) rebalanced as needed by exchanging between funds in my rollover IRA.
[/quote]

Thank you -- much appreciated. What was (is) your AA for your retirement?
KlangFool
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by KlangFool »

unbiased wrote: Fri Dec 09, 2022 4:25 pm
KlangFool wrote: Fri Dec 09, 2022 3:59 pm
unbiased wrote: Fri Dec 09, 2022 3:34 pm
KlangFool wrote: Fri Dec 09, 2022 3:27 pm OP,

You need to check out the following url.

https://www.madfientist.com/how-to-acce ... nds-early/

KlangFool
Thanks KlangFool— unfortunately, my Roth IRA is underwater, embarrassingly enough, mainly because I was unable to contribute for a lot of years, and made some foolish youthful errors back in the early 2000s. I only recently started contributing to it again after discovering the backdoor. It still has a way to go in terms of growth to take advantage of the tax free withdrawals (i would be withdrawing at a loss if I did it now!!). we will also be in too high of a tax bracket at first for converting my 401(k), although if that changes it will be well worth it. Otherwise, we will probably start that process in our 60s.

Great suggestion, though, and your sage advice is always welcome to see.
unbiased,

I do not understand how this could be true unless you have significant pension income during retirement. Are you sure that you are not making a mistake in your assumption?

KlangFool
My spouse is still working and I'll have a smallish pension that covers about 1/3 of my old paycheck. We also have health insurance for life -- assuming my company stays solvent of course but the benefit is funded through a VEBA and the numbers say it is self-sustaining (we'll hope!). They do NOT cover LTC though. My investments are covering the rest of our expenses. However, we're also in a HCOL area and are up there enough in taxable rate where timing will be key on when to convert. I don't know when my spouse may stop working -- could be in two years or ten years who knows. I'm also continuing to work part-time at something I enjoy (teaching a class or two at a local university) but this income is variable and LOW--will probably just use that job to pay taxes.
unbiased,

1) If you and your spouse are working, why do you need to withdraw from your portfolio? You could spend from the income. You are paying taxes on it. Why do you choose to pay more taxes by withdrawing from your taxable account?

2) Or, spend your taxable account and contribute to you and your spouse's Roth IRA/401K account with income.

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chris319
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by chris319 »

The earlier you retire, the longer your nest egg will have to last.

If you chip away at your nest egg little by little, how many years will it last? The answer is, you don't know. If you retire at age 50 and live until age 90, that's 40 years. How will you replace the shares you sell if at all?

We actually had a boglehead who used the phrase "plan to die". Really? Do you know anybody who plans to die on a specific date? Seriously? This was part of a discussion that had all kinds of double talk about longevity. Some financial planners would have you spend your last dollar as you heave your last sigh. That's just unrealistic.

Consider that if there is a bear market or serious downturn, you'll have to sell more shares from your nest egg at lower prices to cover your monthly expenses. This could throw a great big wrench into your SWR planning.

You're too young for soc sec and you didn't say anything about a pension or retirement plan.

One thing you could aim for is setting up an income-focused portfolio which gives you a somewhat steady income stream from dividends and distributions, withdrawing as little as possible from your nest egg as others have suggested in previous posts.

We are in the midst of an ETF explosion. There are scads of ETF's with high yields. Some involve dividend-paying stocks and covered-call strategies. Examples are SCHD, DIVO and JEPQ.

The other thing you could think about is a SPIA (Single-Premium Immediate Annuity). This will give you a lifetime income stream. So will soc sec, if it's still around. Soc sec has COLA's (cost-of-living adjustments) but many annuities do not. You can get annuities with fixed-percentage annual increases.

You need to think about the sustainability of your portfolio.
Financial decisions based on emotion often turn out to be bad decisions.
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ruralavalon
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by ruralavalon »

unbiased wrote: Fri Dec 09, 2022 4:34 pm
ruralavalon wrote: Fri Dec 09, 2022 3:38 pm When I retired this is what we did at first:

(1) we sent the dividends from the stock index funds in our joint taxable account to our joint checking account to spend on monthly expenses;
(2) sold shares of the stock index funds in our joint taxable account as needed to pay for retirement spending needs each month; and
(3) rebalanced as needed by exchanging between funds in my rollover IRA.
Thank you -- much appreciated. What was (is) your AA for your retirement?
The asset allocation of our portfolio when I retired at age 65 was 50/50.

I am currently age 77. My current asset allocation is 60/40.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
unbiased
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by unbiased »

KlangFool wrote: Fri Dec 09, 2022 3:27 pm

unbiased,

1) If you and your spouse are working, why do you need to withdraw from your portfolio? You could spend from the income. You are paying taxes on it. Why do you choose to pay more taxes by withdrawing from your taxable account?

2) Or, spend your taxable account and contribute to you and your spouse's Roth IRA/401K account with income.

KlangFool
Klangfool,

Thanks for taking a great interest and for your questions.

1) When I leave my current career after 25 years late next year, our household will be taking a significant pay cut that will not be made whole by my "enjoyment" job (teaching a class or two -- which is unpredictable, low pay) + modest pension. My spouse fortunately will be contributing to her work's 401(K), but she is 20 years away from being able to access it. On taxes, I own a healthy dose of muni bonds and vanguard muni bond funds for my state, which helps the tax bite. Most of the dividends from the equities are qualified, too. I hear you, though, on the taxes. I'm just not sure of a better way to avoid the taxman except by slowly moving up to a higher equity allocation by selling shares in bond funds over time since they don't have much capital gains (although I guess they could in a couple years if interest rates go down again). Maybe once I settle on a decumulation plan that is sustainable I'll also run it by my CPA to make sure there aren't any other tax traps I'll inadvertently step into.

2). I need to look at the rules again for Roth contribution as I think even after my pay hit we'll still be over the limit -- the backdoor may still be necessary.
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unbiased
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by unbiased »

chris319 wrote: Fri Dec 09, 2022 4:44 pm
The other thing you could think about is a SPIA (Single-Premium Immediate Annuity). This will give you a lifetime income stream. So will soc sec, if it's still around. Soc sec has COLA's (cost-of-living adjustments) but many annuities do not. You can get annuities with fixed-percentage annual increases.

You need to think about the sustainability of your portfolio.
I do get a (very) modest pension that has a COLA -- but the COLA doesn't kick in for another 12 years (the nominal pension is immediate) I also have social security, luckily, which would exceed my nominal initial withdrawal amount at my normal retirement age--but by the time I get there I'm sure inflation will have eaten that up.

And I appreciate you bringing up the SPIA. I've got the option with my pension to get a refund of my contributions (which would reduce the monthly pension by about 15%) and I could roll that into a 401(K), avoid being taxed, and buy a deferred fixed annuity that would kick in when I'm 60. The numbers aren't terrible if I buy a deferred fixed one this early, even a graded one, and it would at least give the household a "raise" in 10 years--and it would nominally be worth more than the 15% hit to my pension. But if inflation is crazy, that stlll may not be enough and I would have missed out on possible equity growth. I think this is a tougher call that has no right answer but just a decision on what risks I want to solve for. I also don't necessarily have to decide on the annuity right now, but I do have to decide on whether to take a refund of my contributions next year. We could spend a whole OTHER thread kicking that around!
BabaWawa
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by BabaWawa »

unbiased wrote: Fri Dec 09, 2022 4:14 pm
BabaWawa wrote: Fri Dec 09, 2022 3:40 pm Curious what the OP considers his SWR with 40+ years of potential retirement.
3.5%

I could start a whole other thread on this number, but most of the research seems to point to mid 3s as a safe(r) rate for long-ish retirements. I do plan to have some guardrails and allow variability, too. Crazily, some have argued that I could go higher because I'm "only" 20 years away from max Social Security benefits (although my family might benefit from me taking it earlier due to a longer-working spouse--a whole 'nother thread!) And no need to do that here--since I have over a year left, I do plan to "check the math" several times, run some numbers with the CAPE-based withdrawal strategies, Guyton-Klinger, VPW, etc.

Sorry, hope my longer response will not get us off topic. I could start another one on this, but would feel more comfortable after finishing up my homework on some of the other variable withdrawal strategies out there.
Don't you think you could get more valuable feedback by giving a complete picture of your financial situation? You only want to talk about taxable. How much in taxable vs tax deferred vs tax free. Asset allocation, asset location, expenses? You want to know how other retirees here are handling their withdrawal, but majority here likely did not retire at 50, and their current plan likely includes withdrawal of retirement assets as well as taxable assets in the most tax advantaged manner. And most don't have to plan for a 40 year retirement.
Count de Monet
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by Count de Monet »

Transitioning to full retirement, I'm:
1) taxable is almost all stock, I'm using the quarterly dividends to pay quarterly est. taxes
2) extra from dividends goes into "savings account" (VWEAX, junk bond fund) (I know, I know)
3) due to VWEAX being underwater ~ 8%, I will continue to add to it until it's at break even or above, then I'll convert it to a bond fund with less downside risk, and I can retire as it'll have enough to fund a few years of living expenses.
4) for my last months of work, I'm turning off 401(k) contributions to accumulate more in cash and VWEAX.
5) that cash and bonds should last until I could either start to sell stock, or be old enough to turn on SS if the market is still well below current all time highs
Roth Conversion Disorder.
sailaway
Posts: 8215
Joined: Fri May 12, 2017 1:11 pm

Re: How are you funding withdrawals from your portfolio in retirement?

Post by sailaway »

Count de Monet wrote: Fri Dec 09, 2022 8:34 pm Transitioning to full retirement, I'm:
1) taxable is almost all stock, I'm using the quarterly dividends to pay quarterly est. taxes
2) extra from dividends goes into "savings account" (VWEAX, junk bond fund) (I know, I know)
3) due to VWEAX being underwater ~ 8%, I will continue to add to it until it's at break even or above, then I'll convert it to a bond fund with less downside risk, and I can retire as it'll have enough to fund a few years of living expenses.
4) for my last months of work, I'm turning off 401(k) contributions to accumulate more in cash and VWEAX.
5) that cash and bonds should last until I could either start to sell stock, or be old enough to turn on SS if the market is still well below current all time highs
Interesting. We upped our contributions to get the maximum match prior to leaving (matched on a per contribution basis, rather than salary %), as well as the tax savings. That won't be as much as usual with the lower income, but it still makes sense for us.
funxional
Posts: 290
Joined: Thu Oct 27, 2022 4:29 pm

Re: How are you funding withdrawals from your portfolio in retirement?

Post by funxional »

celia wrote: Fri Dec 09, 2022 4:09 pm I will suggest you start building a Roth Conversion Ladder. Convert enough to cover your expenses in 5 years (that won’t be covered by dividends). Put each year’s conversion in a separate Roth and after 5 years, you can spend this year’s converted amount (tax-free), but not it’s growth.
Using different Roth accounts is to simplify bookkeeping, right? I have seen the discussions about the order of operations on withdrawals from Roth and am tracking my contributions and conversions but only using a single account.
movinonup
Posts: 11
Joined: Fri Jun 30, 2017 7:28 pm

Re: How are you funding withdrawals from your portfolio in retirement?

Post by movinonup »

Count de Monet wrote: Fri Dec 09, 2022 8:34 pm Transitioning to full retirement, I'm:
1) taxable is almost all stock, I'm using the quarterly dividends to pay quarterly est. taxes
2) extra from dividends goes into "savings account" (VWEAX, junk bond fund) (I know, I know)
3) due to VWEAX being underwater ~ 8%, I will continue to add to it until it's at break even or above, then I'll convert it to a bond fund with less downside risk, and I can retire as it'll have enough to fund a few years of living expenses.
4) for my last months of work, I'm turning off 401(k) contributions to accumulate more in cash and VWEAX.
5) that cash and bonds should last until I could either start to sell stock, or be old enough to turn on SS if the market is still well below current all time highs
I would keep contributing to the 401(k) if there is a match. I'm not sure I get the logic of continuing to contribute to VWEAX until it's breakeven. Take the loss and move on if there's another investment that you expect to be more productive.

-movinonup
KlangFool
Posts: 31525
Joined: Sat Oct 11, 2008 12:35 pm

Re: How are you funding withdrawals from your portfolio in retirement?

Post by KlangFool »

unbiased wrote: Fri Dec 09, 2022 7:09 pm
KlangFool wrote: Fri Dec 09, 2022 3:27 pm

unbiased,

1) If you and your spouse are working, why do you need to withdraw from your portfolio? You could spend from the income. You are paying taxes on it. Why do you choose to pay more taxes by withdrawing from your taxable account?

2) Or, spend your taxable account and contribute to you and your spouse's Roth IRA/401K account with income.

KlangFool
Klangfool,

Thanks for taking a great interest and for your questions.

1) When I leave my current career after 25 years late next year, our household will be taking a significant pay cut that will not be made whole by my "enjoyment" job (teaching a class or two -- which is unpredictable, low pay) + modest pension. My spouse fortunately will be contributing to her work's 401(K), but she is 20 years away from being able to access it. On taxes, I own a healthy dose of muni bonds and vanguard muni bond funds for my state, which helps the tax bite. Most of the dividends from the equities are qualified, too. I hear you, though, on the taxes. I'm just not sure of a better way to avoid the taxman except by slowly moving up to a higher equity allocation by selling shares in bond funds over time since they don't have much capital gains (although I guess they could in a couple years if interest rates go down again). Maybe once I settle on a decumulation plan that is sustainable I'll also run it by my CPA to make sure there aren't any other tax traps I'll inadvertently step into.

2). I need to look at the rules again for Roth contribution as I think even after my pay hit we'll still be over the limit -- the backdoor may still be necessary.
unbiased,

"On taxes, I own a healthy dose of muni bonds and vanguard muni bond funds for my state, which helps the tax bite."

"2). I need to look at the rules again for Roth contribution as I think even after my pay hit we'll still be over the limit -- the backdoor may still be necessary."

It is obvious to me that there are major flaws in your plan. But, no one can help you until you provide more information. Good luck to you.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
funxional
Posts: 290
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by funxional »

unbiased wrote: Fri Dec 09, 2022 3:34 pm Thanks KlangFool— unfortunately, my Roth IRA is underwater, embarrassingly enough, mainly because I was unable to contribute for a lot of years, and made some foolish youthful errors back in the early 2000s.
Count de Monet wrote: Fri Dec 09, 2022 8:34 pm 3) due to VWEAX being underwater ~ 8%, I will continue to add to it until it's at break even or above, then I'll convert it to a bond fund with less downside risk, and I can retire as it'll have enough to fund a few years of living expenses.
Both of you use the term 'underwater' here and I don't think it's appropriate. If this is in a taxable account you might want to pay attention to the tax impact but from an investment standpoint you have X% NW in fund Y. You should not be trying to figure out when your fund will reach a certain balance or arbitrary point before changing it; that smacks of trying to time the market.

If it's not part of your AA change it now. If you want the upside and are ok with the risk then keep it until you want to reduce your risk.

Back to unbiased if your Roth is 'underwater' that means you only have contributions left. You already paid taxes on them and can take them out at any time. However, you might be better served leaving the funds in to grow for the future. Read the posts about thinking long-term and planning your income through your entire retirement. I am in a fairly similar situation (planning to retire in the near future at a similar age). I have a spreadsheet that calculates my income by each source (retirement savings, SS, etc) and estimated expenses through 2070. You want to be REALLY sure that you don't hamstring your retirement by reducing growth or eating into principal too early. You are looking at a 50-60 year retirement horizon not the 30 years that the 4% SWR was based on.
Topic Author
unbiased
Posts: 195
Joined: Sat Apr 25, 2020 5:46 pm

Re: How are you funding withdrawals from your portfolio in retirement?

Post by unbiased »

funxional wrote: Fri Dec 09, 2022 9:30 pm
Back to unbiased if your Roth is 'underwater' that means you only have contributions left. You already paid taxes on them and can take them out at any time. However, you might be better served leaving the funds in to grow for the future. Read the posts about thinking long-term and planning your income through your entire retirement. I am in a fairly similar situation (planning to retire in the near future at a similar age). I have a spreadsheet that calculates my income by each source (retirement savings, SS, etc) and estimated expenses through 2070. You want to be REALLY sure that you don't hamstring your retirement by reducing growth or eating into principal too early. You are looking at a 50-60 year retirement horizon not the 30 years that the 4% SWR was based on.
Klangfool was suggesting I look into the 72(t) withdrawals for my Roth (or contribution withdrawals)--which could be a great strategy for an earlier retiree who may have had a lot of growth in their Roth. That person is not me--my Roth is worth LESS than my contributions because when I was younger, less wise, and making less $$ (thus eligible to directly contribute) I got smoked by the mid-2000s commodity crash + GFC--but was already over the income limit to contribute for another decade or so until Congress "blessed" the backdoor Roth practice in 2017. I didn't want to go there until I was certain the IRS wouldn't claw it back (with penalty) at some point--so I've only been putting new money in for a few years. Unfortunately, my Roth is just not big enough to make much of a difference for planning. And it makes me sad looking at all that tax-free growth I never got and all those long-term losses I can't claim. Hopefully I'll feel better in 20 years since that new money has been more soundly invested in low cost index funds.
Topic Author
unbiased
Posts: 195
Joined: Sat Apr 25, 2020 5:46 pm

Re: How are you funding withdrawals from your portfolio in retirement?

Post by unbiased »

sailaway wrote: Fri Dec 09, 2022 8:46 pm
Count de Monet wrote: Fri Dec 09, 2022 8:34 pm Transitioning to full retirement, I'm:
1) taxable is almost all stock, I'm using the quarterly dividends to pay quarterly est. taxes
2) extra from dividends goes into "savings account" (VWEAX, junk bond fund) (I know, I know)
3) due to VWEAX being underwater ~ 8%, I will continue to add to it until it's at break even or above, then I'll convert it to a bond fund with less downside risk, and I can retire as it'll have enough to fund a few years of living expenses.
4) for my last months of work, I'm turning off 401(k) contributions to accumulate more in cash and VWEAX.
5) that cash and bonds should last until I could either start to sell stock, or be old enough to turn on SS if the market is still well below current all time highs
Interesting. We upped our contributions to get the maximum match prior to leaving (matched on a per contribution basis, rather than salary %), as well as the tax savings. That won't be as much as usual with the lower income, but it still makes sense for us.
Yes I also agree this is interesting. I am planning to do the same "max" plus catch-up contributions since I'll turn 50 in the same year I'm leaving -- and put most in the 401(K) stable value fund as "cash." If I need to fund a withdrawal from taxable that's not covered otherwise, I can then sell some equities in taxable (hopefully at a loss) and then "rebalance" by adding the same $$ (or more since I want to glide up) to equities in the 401(K).
Topic Author
unbiased
Posts: 195
Joined: Sat Apr 25, 2020 5:46 pm

Re: How are you funding withdrawals from your portfolio in retirement?

Post by unbiased »

BabaWawa wrote: Fri Dec 09, 2022 8:12 pm
Don't you think you could get more valuable feedback by giving a complete picture of your financial situation? You only want to talk about taxable. How much in taxable vs tax deferred vs tax free. Asset allocation, asset location, expenses? You want to know how other retirees here are handling their withdrawal, but majority here likely did not retire at 50, and their current plan likely includes withdrawal of retirement assets as well as taxable assets in the most tax advantaged manner. And most don't have to plan for a 40 year retirement.
KlangFool wrote: Fri Dec 09, 2022 9:29 pm
It is obvious to me that there are major flaws in your plan. But, no one can help you until you provide more information. Good luck to you.

KlangFool
I appreciate the desire to help, and I have seen how much this community will go the extra mile to help someone who puts out a full, detailed, long retirement plan -- listing all assets, net worth, accounts, pensions, SS, etc. It is (almost) like getting a free financial planning session.

But I think that's too big an ask of the community's time while I'm still ruminating on some of these particulars and haven't even finished researching this thread's specific decumulation question. I only had a more limited goal of hearing how others handle the logistics of what they sell, etc. to fund regular withdrawals to give me ideas to explore. Of course, I thought it only fair to share my current thinking but maybe that's not fair without giving the whole picture and more information. So I see my more modest goal has collided with the community's greater desire to offer wholistic, precise, practical advice. So I thank you for that and I'm looking forward to your feedback on a (more) developed plan after this research is complete (flaws and all).
chris319
Posts: 1659
Joined: Thu Jan 28, 2021 5:04 pm

Re: How are you funding withdrawals from your portfolio in retirement?

Post by chris319 »

I waited until my Full Retirement Age, 66 and 2 months, to retire with full soc sec benefits. I am also extremely lucky to have been grandfathered into a defined-benefit pension in the form of a "life annuity", so I have both ss and the pension coming in.

The income stability of the annuity is great, and between the two I don't have to touch my nest egg — the pension and ss more than cover my living expenses. The problem is, the annuity lacks a COLA, so I'm casting about for ways to supplement the income stream of my annuity as inflation chips away at its buying power.

At the moment I've got it set up so that distributions from an ETF cover my property-tax bill which is about $3,500 per year. That's about $300 per month that I don't have to take from annuity/soc sec. The ETF I use for this purpose is DIVO which gets a lot of dividends from the stocks it holds and augments those dividends with a covered-call strategy. It sounds exotic but a covered-call strategy is considered fairly conservative. DIVO is yielding 4.86% at this writing.

https://finance.yahoo.com/quote/DIVO?p= ... c=fin-srch

The one caveat I would give is to stay away from QYLD. There are reasons you don't want to own it.
Financial decisions based on emotion often turn out to be bad decisions.
Count de Monet
Posts: 77
Joined: Sat Sep 03, 2022 5:11 pm

Re: How are you funding withdrawals from your portfolio in retirement?

Post by Count de Monet »

movinonup wrote: Fri Dec 09, 2022 9:19 pm
Count de Monet wrote: Fri Dec 09, 2022 8:34 pm Transitioning to full retirement, I'm:
1) taxable is almost all stock, I'm using the quarterly dividends to pay quarterly est. taxes
2) extra from dividends goes into "savings account" (VWEAX, junk bond fund) (I know, I know)
3) due to VWEAX being underwater ~ 8%, I will continue to add to it until it's at break even or above, then I'll convert it to a bond fund with less downside risk, and I can retire as it'll have enough to fund a few years of living expenses.
4) for my last months of work, I'm turning off 401(k) contributions to accumulate more in cash and VWEAX.
5) that cash and bonds should last until I could either start to sell stock, or be old enough to turn on SS if the market is still well below current all time highs
I would keep contributing to the 401(k) if there is a match. I'm not sure I get the logic of continuing to contribute to VWEAX until it's breakeven. Take the loss and move on if there's another investment that you expect to be more productive.

-movinonup
Unfortunately, I no longer officially qualify for the match as a part time employee.
Re: VWEAX: Years ago, I suppose out of fear, I stopped contributing to a different junk bond fund during a couple of years that the NAV was down. After it fully recovered, I kicked myself for missing the opportunity to buy shares cheap. This time, I'm continuing to reinvest the monthly dividend, and adding new money as well. That way, I'm not only earning a nice dividend (nearly 7% at the current NAV), I'll also earn a ~10% cap gain on those new dollars assuming the NAV fully recovers.
Last edited by Count de Monet on Sat Dec 10, 2022 6:51 pm, edited 1 time in total.
Roth Conversion Disorder.
Topic Author
unbiased
Posts: 195
Joined: Sat Apr 25, 2020 5:46 pm

Re: How are you funding withdrawals from your portfolio in retirement?

Post by unbiased »

chris319 wrote: Fri Dec 09, 2022 11:36 pm
DIVO is yielding 4.86% at this writing.

https://finance.yahoo.com/quote/DIVO?p= ... c=fin-srch
Thank you for sharing your strategy. I took a peek at DIVO and am pleased to see that it has not yet evidenced any typical NAV erosion (like QYLD as you said—and many other of the high yielding option strategies). It seems like one of the better “options” in this space.

While I’ve dabbled with some high yielders over the years, I’ve usually soured on them due to tax inefficiency, NAV erosion, and just a general feeling that I always have to monitor these strategies more closely than a generic index fund. I know there is no free lunch and that yield is coming from somewhere—usually total return. But I will take a look and thanks again.
Count de Monet
Posts: 77
Joined: Sat Sep 03, 2022 5:11 pm

Re: How are you funding withdrawals from your portfolio in retirement?

Post by Count de Monet »

funxional wrote: Fri Dec 09, 2022 9:30 pm
unbiased wrote: Fri Dec 09, 2022 3:34 pm Thanks KlangFool— unfortunately, my Roth IRA is underwater, embarrassingly enough, mainly because I was unable to contribute for a lot of years, and made some foolish youthful errors back in the early 2000s.
Count de Monet wrote: Fri Dec 09, 2022 8:34 pm 3) due to VWEAX being underwater ~ 8%, I will continue to add to it until it's at break even or above, then I'll convert it to a bond fund with less downside risk, and I can retire as it'll have enough to fund a few years of living expenses.
Both of you use the term 'underwater' here and I don't think it's appropriate. If this is in a taxable account you might want to pay attention to the tax impact but from an investment standpoint you have X% NW in fund Y. You should not be trying to figure out when your fund will reach a certain balance or arbitrary point before changing it; that smacks of trying to time the market.

If it's not part of your AA change it now. If you want the upside and are ok with the risk then keep it until you want to reduce your risk.
I'm sure this is good general advice (re: how to approach an investment that's "underwater"). Rather than "timing the market", I believe that I'm "timing my retirement". To avoid derailing the thread with all of my reasoning and details, I'll try to stay on topic by saying that I've found out the hard way that the worst time to retire is right before a bear market. Although not a guarantee, I figure that the best way to minimize this risk is to retire right after a bear market. Please note, this is not a SORR (sequence of return risk) issue. It definitely means one less bear market I'll have to survive in retirement vs. had I retired earlier. That has to be a good thing, no?
Roth Conversion Disorder.
KlangFool
Posts: 31525
Joined: Sat Oct 11, 2008 12:35 pm

Re: How are you funding withdrawals from your portfolio in retirement?

Post by KlangFool »

OP,

My system which may not have any relevance to you.

I separate my spending needs from my withdrawal.

A) Keep 2 to 3 years of expense in cash. Spending from the cash. This is my buffer,

Refill the buffer with

1) Taxable account dividend and distribution.

2) Roth IRA contribution

Generate taxable income as needed by

1) Capital gain harvesting.

2) Roth conversion.

The system is designed for me to spend any amount at any year and generate any level of taxable income at any year as needed.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
chris319
Posts: 1659
Joined: Thu Jan 28, 2021 5:04 pm

Re: How are you funding withdrawals from your portfolio in retirement?

Post by chris319 »

Thank you for sharing your strategy. I took a peek at DIVO and am pleased to see that it has not yet evidenced any typical NAV erosion (like QYLD as you said—and many other of the high yielding option strategies). It seems like one of the better “options” in this space.
I had originally purchased QYLD for the yield, but decided to sell after watching this video by "Mikey Millions". He explains very clearly his rationale for dumping QYLD:

https://www.youtube.com/watch?v=XRIua6ac__A&t=4s

I looked at many, many covered-call ETF's and SCHD which does not utilize covered calls. I settled on DIVO because I think it has a nice balance of stock dividends and covered-call income, allowing for some (limited) capital appreciation. You know going in that any covered call strategy is going to have limited upside; you buy it for the income. Mikey makes this clear in his video, saying that if you want growth, there are much better growth vehicles available.

I also have smaller positions in JEPQ and SCHD, as well as some individual stocks, mainly to make my portfolio less boring. Any dividends paid by the stocks, JEPQ and SCHD are reinvested in my "core" fund. The income from DIVO pays my annual property tax bill.

Here are my main dividend-paying stocks. I hold very small positions in each.

DVN
ET
KMI
LUMN
MAIN
PXD
SPG
T
VZ
Financial decisions based on emotion often turn out to be bad decisions.
chris319
Posts: 1659
Joined: Thu Jan 28, 2021 5:04 pm

Re: How are you funding withdrawals from your portfolio in retirement?

Post by chris319 »

I've found out the hard way that the worst time to retire is right before a bear market. Although not a guarantee, I figure that the best way to minimize this risk is to retire right after a bear market.
Consider that, in order to meet your monthly "nut", you'll have to sell more shares when prices are depressed. This accelerates your erosion of capital.

Say you need $1,000 per month to buy groceries, pay the electric bill, etc. It's simple arithmetic that you'll have to sell more shares when prices are low to reap your $1,000. I'd rather use dividends and distributions for this, on the theory that they're more stable than share prices.
Financial decisions based on emotion often turn out to be bad decisions.
Grt2bOutdoors
Posts: 25625
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: How are you funding withdrawals from your portfolio in retirement?

Post by Grt2bOutdoors »

chris319 wrote: Sat Dec 10, 2022 11:15 pm
Thank you for sharing your strategy. I took a peek at DIVO and am pleased to see that it has not yet evidenced any typical NAV erosion (like QYLD as you said—and many other of the high yielding option strategies). It seems like one of the better “options” in this space.
I had originally purchased QYLD for the yield, but decided to sell after watching this video by "Mikey Millions". He explains very clearly his rationale for dumping QYLD:

https://www.youtube.com/watch?v=XRIua6ac__A&t=4s

I looked at many, many covered-call ETF's and SCHD which does not utilize covered calls. I settled on DIVO because I think it has a nice balance of stock dividends and covered-call income, allowing for some (limited) capital appreciation. You know going in that any covered call strategy is going to have limited upside; you buy it for the income. Mikey makes this clear in his video, saying that if you want growth, there are much better growth vehicles available.

I also have smaller positions in JEPQ and SCHD, as well as some individual stocks, mainly to make my portfolio less boring. Any dividends paid by the stocks, JEPQ and SCHD are reinvested in my "core" fund. The income from DIVO pays my annual property tax bill.

Here are my main dividend-paying stocks. I hold very small positions in each.

DVN
ET
KMI
LUMN
MAIN
PXD
SPG
T
VZ
Your individual equities are mainly oil, midstream mlp and telecom companies.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Wannaretireearly
Posts: 4880
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by Wannaretireearly »

Tag. Interesting responses!
I’m hoping dividend income is the lion share in ER!
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
CuriousTacos
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by CuriousTacos »

chris319 wrote: Sat Dec 10, 2022 11:37 pm
I've found out the hard way that the worst time to retire is right before a bear market. Although not a guarantee, I figure that the best way to minimize this risk is to retire right after a bear market.
Consider that, in order to meet your monthly "nut", you'll have to sell more shares when prices are depressed. This accelerates your erosion of capital.

Say you need $1,000 per month to buy groceries, pay the electric bill, etc. It's simple arithmetic that you'll have to sell more shares when prices are low to reap your $1,000. I'd rather use dividends and distributions for this, on the theory that they're more stable than share prices.
The number of shares you own (even over time) is not something to focus on. If your portfolio grows, it grows, and if it shrinks, it shrinks. Whether the return comes in the form of dividends or price appreciation makes no difference, and dividends do not confer any advantage in a down market unless the total return (after accounting for dividends and price change) is better or experiences less volatility.

More specifically, dividend funds are often similar to some combination of factors like value, quality, profitability, size, etc. As a result, they may sometimes have a slightly lower volatility than a total market fund, but then so do various factor funds, and those generally don't have much higher dividends than the total market.
ryman554
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by ryman554 »

unbiased wrote: Fri Dec 09, 2022 11:18 pm
BabaWawa wrote: Fri Dec 09, 2022 8:12 pm
Don't you think you could get more valuable feedback by giving a complete picture of your financial situation? You only want to talk about taxable. How much in taxable vs tax deferred vs tax free. Asset allocation, asset location, expenses? You want to know how other retirees here are handling their withdrawal, but majority here likely did not retire at 50, and their current plan likely includes withdrawal of retirement assets as well as taxable assets in the most tax advantaged manner. And most don't have to plan for a 40 year retirement.
KlangFool wrote: Fri Dec 09, 2022 9:29 pm
It is obvious to me that there are major flaws in your plan. But, no one can help you until you provide more information. Good luck to you.

KlangFool
I appreciate the desire to help, and I have seen how much this community will go the extra mile to help someone who puts out a full, detailed, long retirement plan -- listing all assets, net worth, accounts, pensions, SS, etc. It is (almost) like getting a free financial planning session.

But I think that's too big an ask of the community's time while I'm still ruminating on some of these particulars and haven't even finished researching this thread's specific decumulation question. I only had a more limited goal of hearing how others handle the logistics of what they sell, etc. to fund regular withdrawals to give me ideas to explore. Of course, I thought it only fair to share my current thinking but maybe that's not fair without giving the whole picture and more information. So I see my more modest goal has collided with the community's greater desire to offer wholistic, precise, practical advice. So I thank you for that and I'm looking forward to your feedback on a (more) developed plan after this research is complete (flaws and all).
It's absolutely not a big ask for this community. We want to help (or learn by watching!), so if you simply list your household assets you could use to live (potentially including home equity), segmented by taxable/pretax/alreqdy-tax (ie, Roth)/and any after-tax stuff you might have in your ira/401k. You probably have a ton of it if you were not contributing to Roth. List your income (spouse, yours (for next year) and pensions. List your expenses -- including health care before and after early retirement. And, of course, the big one is desired fun expenses in retirement or planned outlays (like kids college) The standard format requests percentages, but I find it easier to think in absolute dollars.

Then we can get to the heart of the question.

We'll certainly posit if expenses could be lowered. We'll probably probe about spousal 401k stuff. We'll ask asset allocation and location questions. Probably suggest some stuff you hadn't considered.

Take the time and post it.
chris319
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by chris319 »

The number of shares you own (even over time) is not something to focus on.
If you run your share balance down to zero, or close to it, through continuous withdrawals without replacing the withdrawn shares, then you've got a problem.

The vaunted 4% rule is based on a 30-year expectancy. If funds are needed for more than 30 years, that throws the 4% rule out of kilter.
Financial decisions based on emotion often turn out to be bad decisions.
User avatar
galawdawg
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Location: Georgia

Re: How are you funding withdrawals from your portfolio in retirement?

Post by galawdawg »

You may wish to research total-return approach vs. income approach. Unless your holdings in your desired asset allocation will generate sufficient dividends to cover all of your retirement spending not funded by social security or pension income, then you will have to sell assets anyway. So before you jump into the dividend income approach, take a look at the different approaches.

This article may be a good starting point: https://investor.vanguard.com/investor- ... -investors and there are many other threads here on the subject.
nolesrule
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Re: How are you funding withdrawals from your portfolio in retirement?

Post by nolesrule »

chris319 wrote: Sun Dec 11, 2022 6:53 am
The number of shares you own (even over time) is not something to focus on.
If you run your share balance down to zero, or close to it, through continuous withdrawals without replacing the withdrawn shares, then you've got a problem.
"If you spend all your money, you've got a problem."

Shares are an arbitrary unit that describes the amount of money you have invested in a specific investment. But it's still an arbitrary unit. If a stock splits, you have twice the number of shares as you used to, but the amount of money in the shares is the same. Shares themselves only matter in limited circumstances.

What matters is dollars and changes in value expressed as a percentage. Thinking about share count isn't a useful exercise. if you make a withdrawal when values are down, the withdrawal represents a larger percentage of your portfolio than when values are up. After you make a withdrawal future changes in value will have a smaller impact because your portfolio is smaller. In other words, withdrawing from the portfolio affects future growth. It's not a share count thing, it's a value thing.
chris319
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Joined: Thu Jan 28, 2021 5:04 pm

Re: How are you funding withdrawals from your portfolio in retirement?

Post by chris319 »

As I have said many, many times,
If you run your share balance down to zero, or close to it, through continuous withdrawals without replacing the withdrawn shares, then you've got a problem.
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Suppose you own a condominium building with 10 units. One by one you sell 10 units to 10 buyers.

Now what do you own?
Financial decisions based on emotion often turn out to be bad decisions.
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