Author Topic: Withdrawal Strategies  (Read 2845 times)

JHC89

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Withdrawal Strategies
« on: October 06, 2013, 04:08:26 PM »
Forgive me if this was asked already. I haven't been able to keep up with the forum lately.

I'm not anywhere close to retirement, but I'm curious if there are any advantages and disadvantages to withdrawal strategies.

For example, would there be any benefits to withdrawing the expected retirement needs annually vs quarterly vs monthly vs as needed? Would there be any tax advantages, or do they all end up with the same result? If there are no tax implications I think I would do monthly withdrawals do it becomes a form of dollar-cost averaging.

This is a separate topic, but while in retirement are there any advantages and disadvantages to reinvesting dividends and withdrawing from the stock accounts vs taking the dividends in savings accounts and only withdrawing from the stocks when needed?

Thanks in advance for your help! I really do appreciate all the advice that's given on the forum.

pom

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Re: Withdrawal Strategies
« Reply #1 on: October 10, 2013, 04:55:41 AM »
Monthy withdrawals actually result in a form of reverse dollar cost averaging. You tend to do worse than the underlying fund in term of average return. Withdrawing annually may be even worse because you forgo half a year of return in average.


JHC89

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Re: Withdrawal Strategies
« Reply #2 on: October 10, 2013, 05:46:06 AM »
Thanks Pom! That was my first thought as well but I wanted to check if there were any other views.

odput

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Re: Withdrawal Strategies
« Reply #3 on: October 10, 2013, 08:19:16 AM »
The system I've been contemplating revolves around treating each source of money separately, and bouncing withdrawals around from each source when necessary, rather than one big bucket that you draw from at some regular interval.  The easiest way to explain is with only a stocks and bonds portfolio.  If you use the standard 4% rule and a 50/50 allocation, by definition, 12.5 years of expenses are in stocks, and another 12.5 years in bonds.  When the stock portion overperforms, you make your next withdrawal only from the stock portion.  If the stock portion underperforms, or declines, you make your withdrawal from the bond portion.  Then when the stocks really overperform, you can divert some of the stock gains to refill your safety buffer of bonds.

I've been working on different stock/bond allocations to determine what is the highest percentage of stocks that is statistically safe, but I'm limited by the software I have on the current work PC.  There is also the possibility of adding more categories of money - rental real estate, REITs, Lending Club, etc. but those kinds of things really cloud up an example.

JHC89

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Re: Withdrawal Strategies
« Reply #4 on: October 10, 2013, 09:30:36 AM »
I like that strategy odput! Do you have a general range for what your analysis is saying is safe for stock/bond allocation?

The only other variable I was thinking about was withdrawing more or less in a given year to keep yourself in a lower tax bracket, but that is probably unique to each situation.

odput

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Re: Withdrawal Strategies
« Reply #5 on: October 10, 2013, 09:57:56 AM »
60/40 stocks/bonds so far has been still ending up with a growing surplus, so I would think that is a still allocation.

I am running the scenarios monte carlo style, so lots of iterations for each allocation setting.  Unfortunately each iteration has to be done manually, so I only get to do a few of them during my limited free time.  I think if done properly this can work even for as aggressive as 75/25, but I haven't been able to test that out yet...I've still got some time until retiring so right now this is more of a hobby than anything else.

J

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Re: Withdrawal Strategies
« Reply #6 on: October 13, 2013, 03:54:11 PM »
The biggest one is "only withdraw what you need".  If you can successfully live on the amount of money you can withdraw without paying any taxes on it, you're golden.