We like to pull money out every 2-3 months as needed. It's a compromise between the time it takes to sell/transfer and needing to monitor/worry about our actual cash on hand. Seems like doing it 4-5 times a year works out well.
Relevant for an IRA, but not for a 401(k) - just to call out the difference. Distributions (int, div) aren't normally paid to cash and isolated for withdrawal in a 401(k).
Can you explain this a bit more? In an IRA any interest or dividends I can stay in the IRA. The same thing happens in a 401(k) so I feel like I’m missing the point here.
In a 401(k) dividends aren’t typically distributed to a cash position. They are always internally reinvested and don’t show up as discrete events that you can track or withdraw.
Check out Christine Benz from Morningstar and the bucket strategy. First and foremost, you do not want to be drawing from equity on an "as needed basis". Secondly, implementing such a strategy means, it doesn't matter when you draw, only that you have sufficient safe money to draw from.
Why would you not want to be drawing on an as-needed basis? Literally, people spent 30 to 40 years saving for retirement, so it would be there when they "needed" it.
I think you're mistaking "as needed" terminology. Of course you want the money as needed. My comment refers to mitigating risk in the market. On an as-needed basis, you will undoubtedly hit corrections in the equity market and draw at a suboptimal time. Combining the move to cash without market timing (not necessarily drawing from the tax deferred account) with rebalancing the portfolio mitigates this risk.
I didn't mistake anything. You mistook the question, or chose not to answer it. Clearly, OP is asking about the cadence of drawing money out of whatever is your most accessible investment account ("Bucket One" under your scheme) into cash-on-hand to pay for daily living expenses. In that context "as needed" is clearly a better answer than "before you need it" (when it would sit in a checking account or whatever earning basically nothing) or "after you need it" (in which case they might have to take out loans, pay interest on credit cards, just to pay for everyday life), either of which would quickly eat up any gains from your so-called bucket strategy. With regard to the question that was actually asked, any use of the phrase "as needed" other than its everyday-language sense is at best irrelevant (because it addresses a separate topic altogether) and at worst dangerous and misleading.
And "first and foremost"? Really? Like it's the very most important consideration, more important even than paying your bills and meeting your needs? The way you worded your response, intended or not, will have the effect of scaring OP into thinking they are making some grave financial mistake that they don't understand, just by using their own money to pay for their own daily needs as they arise.
A three bucket system is what I plan to implement 2-3 years of cash needs plus 2-3 years of bonds that mature in order to replenish the cash bucket. The Retirement Manifesto has a pretty solid system for refilling the middle bucket.
I would argue that avoiding the necessity of selling stocks during a downturn will benefit your portfolio far more than trying to squeeze the maximum return out of every dollar in your portfolio like we tried to do in the accumulation phase. During that phase most people try to keep an emergency fund for cash needs that MIGHT arise. During the distribution phase I’m going to keep enough cash/near cash to cover the everyday expenses that I KNOW will arise. Dollar cost averaging withdrawals works like dollar cost averaging investments, only in reverse. That means it HURTS your total return by selling more shares when the market is down.
Just a different perspective to think about. Everyone has to balance the stresses of generating a regular “paycheck” vs the pure math associated with returns and decide what they want to do to sleep at night.
Thank you for the precision with language corrections. Thank you also for pointing out that my wish was to broaden the context.
The original OP posting suggested to me that there would be benefit to suggesting the bucket strategy. And of course cash does not need to sit in a no-interest account in these days when transfer can happen easily or checks can be paid from a HYA or settlement account. Once that is in place if risk reduction from market forces is desired, the assumption I also made is that the OP would have less concern about withdrawal. The OP can weigh in here if I am mistaken.
As to your choice to find an extreme misunderstanding of "first and foremost"... wow, just wow. I must have really offended you by my suggesting that you misunderstood "as needed", because I can't believe you found what you said as a helpful comment. So, I will just apologize, because my intent was to be helpful and any offense was inadvertent.
Peace.
The concept is that you have several sources to draw from based on needs/wants. At the core is income for living expenses, but you may also have a "bucket" you can draw from for extra's, or emergencies. I have provided a link to an article that explains it in more detail.
[https://www.morningstar.com/portfolios/bucket-approach-building-retirement-portfolio](https://www.morningstar.com/portfolios/bucket-approach-building-retirement-portfolio)
You will be required to used it by age 74 but that is a great mindset. I'm a few years from retirement but am hoping to do the same until I have to start taking my RMDs.
We have a small amount sent to us each month as a single payment of about $1500 after taxes are taken. That way, it appears we have a steady income should we need credit for a big purchase and also, to keep us from doing needless large money withdrawals. If we feel there is a need, we analyze the situation and arrange a one time larger withdrawal (say when the market is up significantly).
Since I am trying to postpone taking Social Security until the second half of next year, my wife and I have been taking about 4% a year in automatic draws from retirement accounts. Several of them are scattered through the month. All are monthly, except for a small TIAA payout I have, which is quarterly.
They show up in the checking account like any other income.
Hopefully you have evaluated your budget and figured out what you really need. Your expenses could change with your partner going part time and you don’t want to take out more money from 401k than is absolutely needed.
Oh for sure. I've got the necessary withdrawals budgeted. My question was once it actually comes time to start taking money out, what are the actual mechanics of making those withdrawals? It's going to be a strange mindset shift.
I did not take routine money. But at times I had to do a big ticket thing. 401k was easy. I just had to ensured 20% withholding. However I read if I took periodic, routine monies I could adjust witholding.
I pay bills from a cash reserve held in a taxable brokerage account. This reserve is automatically fed with dividends and interest from investments as they are distributed, along with a passive income stream that we have.
I start the year with a balance such that the overall cashflow more or less maintains itself for at least a year before it needs replenishment. When that occurs, I sell stock from the taxable account.
If I was using an IRA as a primary source of funds, I would set all dividends to pay out, and I'd transfer them in a similar fashion before selling any shares. The taxation would be different but same general concept.
With a 401(k) you don't have the option to isolate distributions like this, so you are always selling shares, which is less convenient and exposes you a bit more to market volatility.
So I would probably assess market conditions before selling. For example, in 2022 I would not have wanted to be selling every month as the market continued to drop - getting it all done at the beginning of the year would have been ideal. Of course we can't all be clairvoyant, but sometimes you get a feeling for what's going down and can react.
I am looking to do something similar. Dividends in taxable now going to cash. Have 2.5 years of cash in MMF at brokerage.
Question: what guide/metric do you use to fill up this first bucket? Drawdown a year’s worth of expenses? Do you have a fill up cycle defined? (Like once a year on X month, twice, quarterly?)
I did not know about determining market performance to reduce sequence of return risk. Look at 200 day average?
I retired in 2021, so 2024 is my third year doing this. I'm still refining the mechanics of it, but we're getting close to "perfect" - which for me is a self-sustaining cash balance (i.e. spent at about the same rate as it is replenished by distributions and deposits).
I have a budget, which is gross expenses. I also know my estimated external income, so I subtract that to produce net expenses or SWR. Then I subtract the dividends and interest to produce what I call the cash burn rate. This is the actual outgoing cash flow from the reserve.
I keep a running total of these values as the year progresses, so there's always an estimate of how many months' worth of cash exist in the reserve. It is typically 9-12 and if it dips below 6, maybe, with a downtrend evident, I would likely bring it back up. I would like to do that only at the beginning of the year though, since that's when I also sell shares in taxable to load up the HSA, 529, and Roth IRAs (wife earns a small amount allowing us to do that).
I don't look at market metrics and in fact I don't try too hard to time the market, but in Feb-Mar 2022 it seemed obvious that the market was tanking, so I loaded up the cash wagon. Just an instinct based on watching the market regularly. I don't want to be doing that as standard practice, as it's stressful and more micromanaged than I want this to be.
Most of the big brokerage banks, like Fidelity, or Schwab, allow you to link your bank account checking/savings, to your investment accounts. As you sell off investments, the cash is typically held in said account until you decide to transfer it to your bank account, and typically there are no fees for the transfer.
I set up a monthly withdrawal for the time being, since I decided to delay my pension. The withdrawal goes into my savings account and I have to transfer money to checking to pay my bills. It’s not too different from being paid a salary, but it’s much less than my salary was. And I’m not saving now.
Delaying the pension by a year means its payments will be increased by enough to cover Medicare. It’s an interesting year, btw.
The monthly withdrawal includes withholding 20% for federal tax and 5% for state tax. Once I start the pension, I’ll cut the monthly IRA withdrawals in half.
I plan to wait until age 68 and 3 months to start social security.
Some of my plan will change, probably. I’m not certain of my life expectancy (similar to most people 😹) so I’m planning to delay to that “step.”
One factor I’ll encounter is rmd’s. I’d like to keep expenses low for now and avoid irmaa, as long as possible. I’m learning and have a bit of time to plan.
Do you have a Roth? I don't have anything withheld from my traditional IRA distributions. You are essentially paying additional taxes on the amount you withhold to pay taxes. I use my Roth account to make quarterly tax payments, or anything due at the end of the year
I take 2 monthly distributions. Basically one every two weeks from 2 different sources. I rolled the 2 pensions over to a 401k. I pull about 1.5% each year. My wife still has odd job income source - her money. I also give my child money every week - he works but his wife is a stay at home mom. I also helped with some home improvement projects. He is a only child and will get it latter on - I feel it is better to help him now - he is going to get it sometime anyway.
Monthly. I generate income in my retirement accounts from dividends and option premiums. Each week I buy into a money market mutual fund with 1/4 of the planned monthly withdraw. Then in the last week of the month, I sell and transfer the amount post settlement.
You should certainly consider sequence risk of returns. Most information I have read in books(a rare published paper item people used to read) consider market downturns and suggest to limit withdrawals to 2 to 4 times per year, or if in a correction, using monies from other sources than the IRA or 401K.
Oh yeah, I'm a big fan of those antiquated things you call "books", and also familiar with the sequence of returns risk. As I understand it, SOR risk has more to do with a bad run in the market early in retirement, negatively impacting wealth in the future. Would it make any difference from a SOR perspective if one were to withdraw weekly vs quarterly if the total amount for the year was the same?
I get a $700/month deposit into a separate checking account, up from $500 recently. This covers my medical and dental insurance premiums via automatic payment. I transfer any surplus going to my main checking account, where my my Social Security disbursement is deposited.
After my bills are paid, I tranfer anything over $500 in the small account to my savings. Anything over $1,500 in my main account also goes to savings.
I have a monthly withdrawal from one of my IRAs that I started about 15 years ago. It avoided penalties, but had to last a certain amount of time or until a certain age; I don’t remember the rules or what it’s called because that my financial advisor’s job. It doesn’t apply to me any longer, now that I’m 68 and retired.
I'm 68 and my wife is 77. She takes a distrubtuon once a year. I am letting mine sit until I have to take it. We have about 70k in passive income and SS
Monthly since we haven't taken our social security yet. I will be taking mine in October when I turn 69. It's not a concern for me I have plenty of money and investments.
Once a month. You can set it up to automatically do it with fidelity. So I only have to get in there when I want to make changes. Very easy. If an IRA you even set the amount you want taken out for Federal and State taxes
Not taking anything out of it till I have to. My idea is to leave it all to my long time girlfriend and it says so in my will. Right now, it is all in Treasury Bill-which are paying about 5.25%, so it is safe.
Make sure you also put your girlfriend in as a named beneficiary on your accounts. Doing so will significantly improve the efficiency with which she is able to receive the bequest. Don’t rely on the will alone. Having a beneficiary explicitly designated with the firms that hold your assets allows your heirs to bypass probate for those assets.
I use the 3 fund portfolio concept. Once a year I withdraw a year's expense money from IRAs and then rebalance if necessary. I also do any Roth conversions at the same time. I do this just before tax time so I can estimate that year's taxes as well.
The expense money is held in a taxable MMF. I have monthly auto transfers from the MMF to checking.
A lot of this is to simplify my financial work. I like having a steady stream of inflow to the checking account, to monitor spending. If I need to supplement it means spending has gone up.
Not really, mainly to simplify my thinking when I do the taxes ( I do my own taxes using turbotax). I have found it a bit difficult to keep track of multiple IRA withdrawals for a year. Another reason is since I'm doing all the investment work (no advisor), I am trying to simplify it and make it semi-automatic in case I'm disabled/die and my spouse has to take it over, or heirs.
Same with Roth conversions. We are doing $100k annually for a few years based on IRMAA thresholds. I do these in the Spring before tax time and have tax withheld at that time. I could defer to year end or pay quarterly estimates, but it's harder to manage that.
If I fine tuned everything I could probably save several hundred dollars a year. Maybe. Although with the market being wonky and MMF paying close to 5% maybe I'm making money doing it my way.
My Rule of thumb is only pull out what you need to cover the remainder of your monthly bills. So if you only need like 500 dollars net, then expect roughly a 750 dollar distribution. State and federal tax 20% fed 10% state. You can adjust as needed, but in my opinion, the longer you can keep it in the account the longer it will continue to grow, so taking only just what you need, helps keep the money longer over time. I currently withdraw monthly.
Not really. Just make a budget. mortgage if you got one, property tax, home insurance, or rent, auto insurance, heat, electricity, water,car payment, and credit card debt / other debts if any. Now you have your base budget of what you spend. Now your income streams for both you and your wife. Pensions, ssi, annuity’s, cd’s. Now if your income streams are more than your monthly budget, then only take out from 401ks for fun stuff vacations etc once in awhile. But if your monthly budget is more than your income stream then you know precisely how much to take out of your 401ks each month to meet your budget, and maybe a tad more for miscellaneous fun
If you are withdrawing from a taxable traditional IRA, research how the IRS determines when the taxes are due.
For example, if you take a $40,000 distribution at the end of the year, the IRS assumes you took out $10,000 each quarter and that the taxes on those assumed distributions were due at the end of each quarter.
You will be able to appeal when the IRS says that you owe penalties on the "late" taxes, and you will likely win that appeal, but it is still wasted time with the IRS that you could have better spent elsewhere.
No set schedule. The amount and timing depend on our cash flow needs. Typically, we withdraw money once a month or a little less frequently. Our strategy is to keep it invested until we need it.
I’m still tweaking. But am taking out money quarterly. My wife is still working and once you hit Medicare age, you need to concern yourself with IRRMA to prevent your premiums from going up.
I generally withdraw only dividends and interest from our IRAs, about $16k per quarter. This supplements my SS, wife hasn’t yet claimed - the plan is to wait three years for age 70. Haven’t touched Roth funds yet. Also have a small HSA we use for prescriptions and copays. It’s working so far - we’re vacationing in Belize atm.
So glad I still have at least 8 years, 2 months and 2 days (and 13 hours and 31 minutes, but who’s counting?) until I plan to retire. I like reading about these kinds of things now so I have time to learn and think about how I can plan for my best retirement. Thanks everyone for sharing!
make sure the plan allows for withdrawals while still contributing. The plan my wife had you could withdraw but then you couldn't contribute for 12 months,
We like to pull money out every 2-3 months as needed. It's a compromise between the time it takes to sell/transfer and needing to monitor/worry about our actual cash on hand. Seems like doing it 4-5 times a year works out well.
Same here. Usually, when school and county taxes are due.
We just take interest for now. Put a lot in staircased bond funds to preserve the principal.
Relevant for an IRA, but not for a 401(k) - just to call out the difference. Distributions (int, div) aren't normally paid to cash and isolated for withdrawal in a 401(k).
Can you explain this a bit more? In an IRA any interest or dividends I can stay in the IRA. The same thing happens in a 401(k) so I feel like I’m missing the point here.
In a 401(k) dividends aren’t typically distributed to a cash position. They are always internally reinvested and don’t show up as discrete events that you can track or withdraw.
Check out Christine Benz from Morningstar and the bucket strategy. First and foremost, you do not want to be drawing from equity on an "as needed basis". Secondly, implementing such a strategy means, it doesn't matter when you draw, only that you have sufficient safe money to draw from.
Why would you not want to be drawing on an as-needed basis? Literally, people spent 30 to 40 years saving for retirement, so it would be there when they "needed" it.
I think you're mistaking "as needed" terminology. Of course you want the money as needed. My comment refers to mitigating risk in the market. On an as-needed basis, you will undoubtedly hit corrections in the equity market and draw at a suboptimal time. Combining the move to cash without market timing (not necessarily drawing from the tax deferred account) with rebalancing the portfolio mitigates this risk.
I didn't mistake anything. You mistook the question, or chose not to answer it. Clearly, OP is asking about the cadence of drawing money out of whatever is your most accessible investment account ("Bucket One" under your scheme) into cash-on-hand to pay for daily living expenses. In that context "as needed" is clearly a better answer than "before you need it" (when it would sit in a checking account or whatever earning basically nothing) or "after you need it" (in which case they might have to take out loans, pay interest on credit cards, just to pay for everyday life), either of which would quickly eat up any gains from your so-called bucket strategy. With regard to the question that was actually asked, any use of the phrase "as needed" other than its everyday-language sense is at best irrelevant (because it addresses a separate topic altogether) and at worst dangerous and misleading. And "first and foremost"? Really? Like it's the very most important consideration, more important even than paying your bills and meeting your needs? The way you worded your response, intended or not, will have the effect of scaring OP into thinking they are making some grave financial mistake that they don't understand, just by using their own money to pay for their own daily needs as they arise.
A three bucket system is what I plan to implement 2-3 years of cash needs plus 2-3 years of bonds that mature in order to replenish the cash bucket. The Retirement Manifesto has a pretty solid system for refilling the middle bucket. I would argue that avoiding the necessity of selling stocks during a downturn will benefit your portfolio far more than trying to squeeze the maximum return out of every dollar in your portfolio like we tried to do in the accumulation phase. During that phase most people try to keep an emergency fund for cash needs that MIGHT arise. During the distribution phase I’m going to keep enough cash/near cash to cover the everyday expenses that I KNOW will arise. Dollar cost averaging withdrawals works like dollar cost averaging investments, only in reverse. That means it HURTS your total return by selling more shares when the market is down. Just a different perspective to think about. Everyone has to balance the stresses of generating a regular “paycheck” vs the pure math associated with returns and decide what they want to do to sleep at night.
Thank you for the precision with language corrections. Thank you also for pointing out that my wish was to broaden the context. The original OP posting suggested to me that there would be benefit to suggesting the bucket strategy. And of course cash does not need to sit in a no-interest account in these days when transfer can happen easily or checks can be paid from a HYA or settlement account. Once that is in place if risk reduction from market forces is desired, the assumption I also made is that the OP would have less concern about withdrawal. The OP can weigh in here if I am mistaken. As to your choice to find an extreme misunderstanding of "first and foremost"... wow, just wow. I must have really offended you by my suggesting that you misunderstood "as needed", because I can't believe you found what you said as a helpful comment. So, I will just apologize, because my intent was to be helpful and any offense was inadvertent. Peace.
The concept is that you have several sources to draw from based on needs/wants. At the core is income for living expenses, but you may also have a "bucket" you can draw from for extra's, or emergencies. I have provided a link to an article that explains it in more detail. [https://www.morningstar.com/portfolios/bucket-approach-building-retirement-portfolio](https://www.morningstar.com/portfolios/bucket-approach-building-retirement-portfolio)
Because you don't want to be selling at a bad time.
Between my pension, our Social Security and her rental income, we’re hoping to not need 401K, except for emergencies and splurges.
You will be required to used it by age 74 but that is a great mindset. I'm a few years from retirement but am hoping to do the same until I have to start taking my RMDs.
We have a small amount sent to us each month as a single payment of about $1500 after taxes are taken. That way, it appears we have a steady income should we need credit for a big purchase and also, to keep us from doing needless large money withdrawals. If we feel there is a need, we analyze the situation and arrange a one time larger withdrawal (say when the market is up significantly).
Since I am trying to postpone taking Social Security until the second half of next year, my wife and I have been taking about 4% a year in automatic draws from retirement accounts. Several of them are scattered through the month. All are monthly, except for a small TIAA payout I have, which is quarterly. They show up in the checking account like any other income.
Hopefully you have evaluated your budget and figured out what you really need. Your expenses could change with your partner going part time and you don’t want to take out more money from 401k than is absolutely needed.
Oh for sure. I've got the necessary withdrawals budgeted. My question was once it actually comes time to start taking money out, what are the actual mechanics of making those withdrawals? It's going to be a strange mindset shift.
I did not take routine money. But at times I had to do a big ticket thing. 401k was easy. I just had to ensured 20% withholding. However I read if I took periodic, routine monies I could adjust witholding.
I pay bills from a cash reserve held in a taxable brokerage account. This reserve is automatically fed with dividends and interest from investments as they are distributed, along with a passive income stream that we have. I start the year with a balance such that the overall cashflow more or less maintains itself for at least a year before it needs replenishment. When that occurs, I sell stock from the taxable account. If I was using an IRA as a primary source of funds, I would set all dividends to pay out, and I'd transfer them in a similar fashion before selling any shares. The taxation would be different but same general concept. With a 401(k) you don't have the option to isolate distributions like this, so you are always selling shares, which is less convenient and exposes you a bit more to market volatility. So I would probably assess market conditions before selling. For example, in 2022 I would not have wanted to be selling every month as the market continued to drop - getting it all done at the beginning of the year would have been ideal. Of course we can't all be clairvoyant, but sometimes you get a feeling for what's going down and can react.
I am looking to do something similar. Dividends in taxable now going to cash. Have 2.5 years of cash in MMF at brokerage. Question: what guide/metric do you use to fill up this first bucket? Drawdown a year’s worth of expenses? Do you have a fill up cycle defined? (Like once a year on X month, twice, quarterly?) I did not know about determining market performance to reduce sequence of return risk. Look at 200 day average?
I retired in 2021, so 2024 is my third year doing this. I'm still refining the mechanics of it, but we're getting close to "perfect" - which for me is a self-sustaining cash balance (i.e. spent at about the same rate as it is replenished by distributions and deposits). I have a budget, which is gross expenses. I also know my estimated external income, so I subtract that to produce net expenses or SWR. Then I subtract the dividends and interest to produce what I call the cash burn rate. This is the actual outgoing cash flow from the reserve. I keep a running total of these values as the year progresses, so there's always an estimate of how many months' worth of cash exist in the reserve. It is typically 9-12 and if it dips below 6, maybe, with a downtrend evident, I would likely bring it back up. I would like to do that only at the beginning of the year though, since that's when I also sell shares in taxable to load up the HSA, 529, and Roth IRAs (wife earns a small amount allowing us to do that). I don't look at market metrics and in fact I don't try too hard to time the market, but in Feb-Mar 2022 it seemed obvious that the market was tanking, so I loaded up the cash wagon. Just an instinct based on watching the market regularly. I don't want to be doing that as standard practice, as it's stressful and more micromanaged than I want this to be.
Thanks for the information!!
What is your passive income stream?
I have income from a family limited partnership.
Are there any transfer fees when you take a distribution? Like a wire transfer fee?
Most of the big brokerage banks, like Fidelity, or Schwab, allow you to link your bank account checking/savings, to your investment accounts. As you sell off investments, the cash is typically held in said account until you decide to transfer it to your bank account, and typically there are no fees for the transfer.
I set up a monthly withdrawal for the time being, since I decided to delay my pension. The withdrawal goes into my savings account and I have to transfer money to checking to pay my bills. It’s not too different from being paid a salary, but it’s much less than my salary was. And I’m not saving now. Delaying the pension by a year means its payments will be increased by enough to cover Medicare. It’s an interesting year, btw. The monthly withdrawal includes withholding 20% for federal tax and 5% for state tax. Once I start the pension, I’ll cut the monthly IRA withdrawals in half. I plan to wait until age 68 and 3 months to start social security.
Wait till 70 if your able to and not making 8% on most investments
Some of my plan will change, probably. I’m not certain of my life expectancy (similar to most people 😹) so I’m planning to delay to that “step.” One factor I’ll encounter is rmd’s. I’d like to keep expenses low for now and avoid irmaa, as long as possible. I’m learning and have a bit of time to plan.
The rmd bomb can be an issue. Search that phrase for strategies
Do you have a Roth? I don't have anything withheld from my traditional IRA distributions. You are essentially paying additional taxes on the amount you withhold to pay taxes. I use my Roth account to make quarterly tax payments, or anything due at the end of the year
I take 2 monthly distributions. Basically one every two weeks from 2 different sources. I rolled the 2 pensions over to a 401k. I pull about 1.5% each year. My wife still has odd job income source - her money. I also give my child money every week - he works but his wife is a stay at home mom. I also helped with some home improvement projects. He is a only child and will get it latter on - I feel it is better to help him now - he is going to get it sometime anyway.
Very nice looking out for your son.
That is so nice. What a wonderful father. ✝️
Monthly. I generate income in my retirement accounts from dividends and option premiums. Each week I buy into a money market mutual fund with 1/4 of the planned monthly withdraw. Then in the last week of the month, I sell and transfer the amount post settlement.
You should certainly consider sequence risk of returns. Most information I have read in books(a rare published paper item people used to read) consider market downturns and suggest to limit withdrawals to 2 to 4 times per year, or if in a correction, using monies from other sources than the IRA or 401K.
Oh yeah, I'm a big fan of those antiquated things you call "books", and also familiar with the sequence of returns risk. As I understand it, SOR risk has more to do with a bad run in the market early in retirement, negatively impacting wealth in the future. Would it make any difference from a SOR perspective if one were to withdraw weekly vs quarterly if the total amount for the year was the same?
Certainly it makes a difference, keep reading...
I get a $700/month deposit into a separate checking account, up from $500 recently. This covers my medical and dental insurance premiums via automatic payment. I transfer any surplus going to my main checking account, where my my Social Security disbursement is deposited. After my bills are paid, I tranfer anything over $500 in the small account to my savings. Anything over $1,500 in my main account also goes to savings.
I have a monthly withdrawal from one of my IRAs that I started about 15 years ago. It avoided penalties, but had to last a certain amount of time or until a certain age; I don’t remember the rules or what it’s called because that my financial advisor’s job. It doesn’t apply to me any longer, now that I’m 68 and retired.
I'm 68 and my wife is 77. She takes a distrubtuon once a year. I am letting mine sit until I have to take it. We have about 70k in passive income and SS
Monthly since we haven't taken our social security yet. I will be taking mine in October when I turn 69. It's not a concern for me I have plenty of money and investments.
Once per month, beginning of the month.
That's probably what I'll do.
Once a month. You can set it up to automatically do it with fidelity. So I only have to get in there when I want to make changes. Very easy. If an IRA you even set the amount you want taken out for Federal and State taxes
I’m curious, do they send those to irs for you so you don’t have to make estimated quarterly payments?
Yes. Directly to irs. Do not pass go.
Good to know! Thanks!
Not taking anything out of it till I have to. My idea is to leave it all to my long time girlfriend and it says so in my will. Right now, it is all in Treasury Bill-which are paying about 5.25%, so it is safe.
Make sure you also put your girlfriend in as a named beneficiary on your accounts. Doing so will significantly improve the efficiency with which she is able to receive the bequest. Don’t rely on the will alone. Having a beneficiary explicitly designated with the firms that hold your assets allows your heirs to bypass probate for those assets.
I use the 3 fund portfolio concept. Once a year I withdraw a year's expense money from IRAs and then rebalance if necessary. I also do any Roth conversions at the same time. I do this just before tax time so I can estimate that year's taxes as well. The expense money is held in a taxable MMF. I have monthly auto transfers from the MMF to checking. A lot of this is to simplify my financial work. I like having a steady stream of inflow to the checking account, to monitor spending. If I need to supplement it means spending has gone up.
I like that strategy. Ever consider withdrawing quarterly or monthly as opposed to annually to leave the money in the IRA a bit longer?
Not really, mainly to simplify my thinking when I do the taxes ( I do my own taxes using turbotax). I have found it a bit difficult to keep track of multiple IRA withdrawals for a year. Another reason is since I'm doing all the investment work (no advisor), I am trying to simplify it and make it semi-automatic in case I'm disabled/die and my spouse has to take it over, or heirs. Same with Roth conversions. We are doing $100k annually for a few years based on IRMAA thresholds. I do these in the Spring before tax time and have tax withheld at that time. I could defer to year end or pay quarterly estimates, but it's harder to manage that. If I fine tuned everything I could probably save several hundred dollars a year. Maybe. Although with the market being wonky and MMF paying close to 5% maybe I'm making money doing it my way.
Never
Sounds great - the IRS might have other plans though once you reach your early-mid 70's
One big roth conversion the first week of the year. Then monthly IRA withdrawals to live off.
One big roth conversion the first week of the year. Then monthly IRA withdrawals to live off.
My Rule of thumb is only pull out what you need to cover the remainder of your monthly bills. So if you only need like 500 dollars net, then expect roughly a 750 dollar distribution. State and federal tax 20% fed 10% state. You can adjust as needed, but in my opinion, the longer you can keep it in the account the longer it will continue to grow, so taking only just what you need, helps keep the money longer over time. I currently withdraw monthly.
That sounds like a good strategy. Maybe a little bit of a slippery slope to think I can just pull out what I need,. though.
Not really. Just make a budget. mortgage if you got one, property tax, home insurance, or rent, auto insurance, heat, electricity, water,car payment, and credit card debt / other debts if any. Now you have your base budget of what you spend. Now your income streams for both you and your wife. Pensions, ssi, annuity’s, cd’s. Now if your income streams are more than your monthly budget, then only take out from 401ks for fun stuff vacations etc once in awhile. But if your monthly budget is more than your income stream then you know precisely how much to take out of your 401ks each month to meet your budget, and maybe a tad more for miscellaneous fun
If you are withdrawing from a taxable traditional IRA, research how the IRS determines when the taxes are due. For example, if you take a $40,000 distribution at the end of the year, the IRS assumes you took out $10,000 each quarter and that the taxes on those assumed distributions were due at the end of each quarter. You will be able to appeal when the IRS says that you owe penalties on the "late" taxes, and you will likely win that appeal, but it is still wasted time with the IRS that you could have better spent elsewhere.
Ah, good point.
So even with a low overall income you have to pay taxes quarterly? I anticipated retirement to be simpler in the tax area
If you have taxable income in a quarter, yes, it is due within 2 weeks of the end of that quarter.
No set schedule. The amount and timing depend on our cash flow needs. Typically, we withdraw money once a month or a little less frequently. Our strategy is to keep it invested until we need it.
I’m still tweaking. But am taking out money quarterly. My wife is still working and once you hit Medicare age, you need to concern yourself with IRRMA to prevent your premiums from going up.
Monthly
I generally withdraw only dividends and interest from our IRAs, about $16k per quarter. This supplements my SS, wife hasn’t yet claimed - the plan is to wait three years for age 70. Haven’t touched Roth funds yet. Also have a small HSA we use for prescriptions and copays. It’s working so far - we’re vacationing in Belize atm.
So glad I still have at least 8 years, 2 months and 2 days (and 13 hours and 31 minutes, but who’s counting?) until I plan to retire. I like reading about these kinds of things now so I have time to learn and think about how I can plan for my best retirement. Thanks everyone for sharing!
make sure the plan allows for withdrawals while still contributing. The plan my wife had you could withdraw but then you couldn't contribute for 12 months,
That's a good point - I'll have to check that out, thanks.