Author Topic: When cashing out money for annual expenses, should I do it in one lump sum?  (Read 3159 times)

meteor

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Every year I cash out  a set amount of $ from mutual funds to live off of.  I have a tendency to think you should always dollar cost average (in and out) when it comes to mutual funds.  A Vanguard advisor said it's better to do it all at once (when withdrawing).  Any opinion?  I find it hard just to pick a random day to cash out money.  In fact I was going to do it this week until I saw the dramatic drop. I thought of waiting or maybe setting up an auto exchange once a month. Thanks.
« Last Edit: February 06, 2018, 02:15:51 PM by meteor »

bluebelle

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I'm not there yet, but my plan was to do an automatic withdrawal monthly or quarterly.  The only reason I can think of doing it yearly is because of fees?  The reason I want to set it for some kind of automatic disperment is I know my tendancy to dither about whether I should wait a day to withdraw etc.

Ask the vanguard advisor why they think that.....other than it's easier for them.

jim555

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You could do it quarterly.  That way the money keeps working for you longer than doing it yearly.

terran

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It seems to me that for the same reason lump sum investing is superior to dollar cost averaging into the market (according to Vanguard), taking money out as needed would be superior to taking it all out at once. That is, if we believe that the market goes up on average, then we should believe that keeping money invested should be better than not having it invested, on average.

Then again, there could be something to be said for the simplicity of only doing one transaction per year, perhaps at the very end of the year to be sure to optimize your tax situation.

Villanelle

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I'm a ways out, but I intend to do quarterly withdraws.  Whether I will withdraw money for Q2 on the last week/day of Q1 or if I will keep a small cushion (6 mo?) so that I can push my withdraw dates a bit and spend from the cushion remains to be seen.  If I do the latter, if would be with specific parameters. (If market is down more than x% from last withdraw day, don't withdraw until either i need the cash or the market is back to within 2%, replenish cushion over the next 2 withdraws--for example. But this looks suspiciously like market timing, and we know that's evil, so...)

Also, this is assuming there is no fee for sales/withdraws. 

Rubic

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My plan will be to withdraw funds annually, possibly reallocating assets
at the same time.  Monthly withdrawals seem a bit like over-engineering
to me, though I'd never criticize anyone's preference in that regard.

DS

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The Trinity Study used monthly withdrawals.

Financial.Velociraptor

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I withdraw monthly.

Fishindude

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I won't need mine for a while, but will likely do monthly draws so the balance remains invested and working.

FIRE Artist

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I always thought I would do it quarterly in conjunction with the divident payouts I get from my Vanguard funds. 

El Marinero

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That is, if we believe that the market goes up on average, then we should believe that keeping money invested should be better than not having it invested, on average.


Sums it up for me.

Gimesalot

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I plan on using quarterly withdrawals because I expect our spending to be pretty lumpy.  We will be buying some of our groceries in bulk and will have months where we spend significantly for travel.   The idea is that I take the full amount of our quarterly budget out, and then top-off when the next quarter starts.

dude

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I'd planned on an annual lump sum deposited in a money market account or the like. Primarily because my decision to withdraw will come at the end of the year when I take stock of how the market performed the previous year. If it's up, I withdraw; if it's down, I don't. Wouldn't be psyched if 6 months later, my portfolio has dropped 20% and I need to sell stocks to meet my spending needs. Just simpler and cleaner in my mind.

AlwaysBeenASaver

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I withdraw quarterly. In December when doing the withdraw for the next quarter, I often have some funds left over from my budget that I didn't spend, in which case I do a smaller withdraw for the next quarter. I don't want to be bothered withdrawing every month but also don't want a large sum sitting in an account all year with less potential earnings then it has in my investment accounts.

Livingthedream55

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I plan to set up automatic monthly withdrawals from the bond portion of my stache so I will have my pension and my Vanguard disbursement hit my account each month.

dandarc

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DCAing works against you when you're putting in, and for you when you're taking out - market goes up in general, so leaving the money invested longer helps you on average. 

So in withdrawal phase, absent fee and tax considerations, you'd want to withdraw only when necessary - seems monthly or quarterly would be a good compromise between excessive transactions and leaving your money in as long as possible.

Mmm_Donuts

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The Trinity Study used monthly withdrawals.

Interesting, didn't know that.

Cfiresim assumes yearly withdrawals, with the year's spending being withdrawn at the beginning of every year.

rosarugosa

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I retired late last year, so this was a critical question for me in 2018.  Although I liked the idea of keeping as much money working in the market for me for as long as possible, I ended up going with a single withdrawal at the beginning of the year.  My rationale was that I was pretty heavily invested in stocks, so having the next year's living expenses in cash felt more comfortable (I have also re-balanced my asset allocation since that was overdue).  Given the recent market volatility, I am glad I made the choice I did because I suspect I might otherwise be fairly obsessive about market downturns on a daily/weekly/monthly basis.  I think the single withdrawal allows me to sleep better at night.

dude

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I plan to set up automatic monthly withdrawals from the bond portion of my stache so I will have my pension and my Vanguard disbursement hit my account each month.

In FedWorld, we don't have this option -- withdrawals come from all funds proportionally to the amount invested in them. By taking my withdrawal one time, I can re-allocate right away to in essence withdraw from bonds if that's my goal (i.e., move bond money over to stocks immediately). With monthly withdrawals, because they're so small, and in the TSP we can only reallocate percentages, not numbers of shares, it would be clumsy to do the re-allocation monthly. A minor flaw of the TSP that's tolerable because of its other great features.

Villanelle

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I plan to set up automatic monthly withdrawals from the bond portion of my stache so I will have my pension and my Vanguard disbursement hit my account each month.

In FedWorld, we don't have this option -- withdrawals come from all funds proportionally to the amount invested in them. By taking my withdrawal one time, I can re-allocate right away to in essence withdraw from bonds if that's my goal (i.e., move bond money over to stocks immediately). With monthly withdrawals, because they're so small, and in the TSP we can only reallocate percentages, not numbers of shares, it would be clumsy to do the re-allocation monthly. A minor flaw of the TSP that's tolerable because of its other great features.

Interesting.  I didn't know this, and some of our stache is in TSP (military) so that's good to know. I'm still figuring out out plan as far as what to withdraw from when (so many accounts, but they are about as consolidated as they can be for now), but I'll file this for when I start coming up with a specific plan.

peabody58

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I've been taking yearly lump-sums from my taxable Vanguard funds for the past 3 years.  Trying to optimize the fed tax savings on capital gains (I pay 0%) while minimizing state taxes (biggest impact). 

Dragonswan

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I'm not there yet either but when I am I'll have 2 monthly checks (pension and SS) that will cover basic living expenses.  I plan an annual withdrawal for the I want to do more than watch TV everyday extras from the TSP traditional bucket (by the time I retire this will be an option).  Then from the rollover Roth bucket I will make an annual withdrawal to fund my extravagant travel plans. 

Much Fishing to Do

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This has turned into a very interesting thread and has at least made me better think thru all the variables as I am now approaching FIRE.  Looks like this has brought out two distinct but related discussions, 1) how much cash to keep on hand and then 2) how often to replenish that cash (with the frequency of #2 definitely affecting the degree of variance of #1).  And then one comment even raises the active versus passive replenishment of this cash (the extreme passive example being having equity dividends and bond interest payments all being distributed to the cash account instead of being reinvested and those being enough to fully replenish over time).  Active replenishment can be done with the other intent of rebalancing ones portfolio, which effectively is selling off the winners and hanging onto the losers (so you're never really selling anything low unless everything is low)

I've always thought I would keep around 1 years expenses in cash and replenish every quarter, and not include that cash account in all my SWR and Allocation calculations.  But am going to start looking into all this now more closely.

« Last Edit: March 04, 2018, 09:15:07 AM by Strick »

soccerluvof4

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I keep an eye on my savings account and when I am about 2 months +/- I started looking for a nice up day. But I only take it if I need it as i try to always beat my budget. In addition I keep 3 years of expenses in a cash basically so I have that i could pull from if it makes sense.