Author Topic: Withdrawing / Rebalancing Investments: Oh the Agony and analysis paralysis, LOL!  (Read 1210 times)

FrugalZony

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I am in my second year of FIRE (Fired in August 2016).
In the accumulation phase I was in 90% stocks, a bit of cash and about 8% bonds.
Using the last few paychecks leading up to FIRE, I tried to get as close to my target allocation of 70% stocks / 25% bonds / 5% cash as possible and then did one final balancing act to get there before I fired.

I had a full year of living expenses plus a small efund in my bank account and the rest of the cash in Vanguard VMMX
The goal was to always have 3 years worth of expenses in easily accesible cash equivalents between those two accounts.

Planned SWR was 3-3.5%

I don't have any side hustle or other money coming in, so I fully rely on the portfolio.
(The little bit I make from piggybacking gets donated right away.)

So there really is no incoming cash flow other than dividends from Vanguard, that hit the VMMX.
Once those are deposited, the idea was to sell a little at a time to maintain the 3x expenses plus efund buffer.
Great plan, right?!

After the first year of FIRE, I was right at my planned WR (3-3.5%) using the money in the bank account and I did not feel the need to rebalance, as I was still very close to the target AA.

We recently had a bigger repair, so I needed to use most of the efund as well, which is ok, that's what it's for.

But now for the first time I actually had to replenish my cash buffer from the investment account over to the regular checking acount
AND
at the same time I had to rebalance from stocks to replenish the cash equivalents in the investment accounts.

It's really straight forward, that's what planning, asset allocation etc. are for. The funds are there, it's REALLY NO BIG DEAL!

But boy was it a tough mental hurdle to get over.

Maybe that's just me, but it took me logging in and staring at Vanguard three different times, before I finally moved some money out of VMMX into the bank account for the next few months of expenses. I expected going from net saver to net spender being hard. But seriously, that is RIDICULOUS!

Then it took me another three to four times to see which stocks to rebalance out of ..... and replenish VMMX then then from there buy CD's for some of that cash allocation.

Trigger capital gains, yes or now? Sell the poor dogs, like Jim Collins suggests even if it means paying a fee. Ex dividend date, relevant or not!? Arrrggggghh! I don't want to sell...!

I was telling myself, it's really only such a "small" amount, because the dividends replenish some of the money already, so what you have to SELL on top of that is really not all that much.
But finally hitting that stupid SELL button, it took me like three or four attempts to actually do that.

I am finally there! Yay me!
Back up at 3 years in cash equivalents between bank account and investment account, some of it in CD's as they yield more than VMMX now, but I really feel it has been more painful than it should have been.

Anybody else experience the same?


I don't know of many people who just rely on the portfolio. It seems everyone nowadays has a side hustle or blog or real estate or other gig that provides some cash flow.
It certainly has been an adjustment for me to not see anything coming in.

I do realise, I could just have the dividends deposited in the bank account, so it feels like a paycheck (DH does this), but I feel, I get a bit more for keeping them in VMMX or CD's until I need them.

Laugh at me all you want, I agree this has been ridiculous. But I still thought I'd share some of my FIRE SWR realities to see if others feel the same way ;)

Frankies Girl

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You're not being at all ridiculous.

This is serious stuff, and most folks never have to consider it. I am also completely dependent on my portfolio forEVAH...

I think the idea that we're young but expect this money to last us the rest of our life, magnifies all those tiny little decisions now (mistakes) and how they could become colossal screw ups 20 years from now... that's a whole lot of pressure, so it's like figuring out how to play chess against a grand master and trying to envision all the moves to the end of the game that are possible. It is hard work sometimes!

I'm sort of lucky as I have a hybrid account that might not be available for some; it's an inherited IRA, so I have tax sheltered account that I can pull from any time with no penalties now (well before 59.5), and yet still get some pretty big breaks on the actual taxes due to the nature of the account. I have a ginormous taxable brokerage account I hope not to have to touch to sell off for decades, but I do take all the dividend/cap gains each year so between that and the iIRA, I'm doing pretty amazing. But it's still weird sometimes. I had been using my savings for the last year, as the market dip sort of worried me, but realized that it's okay to sell now - markets are pretty darned high - so I just sold off $5k out of my iIRA today for paying for the upcoming quarterly expenses. Set it all up and then took me about 10 minutes, finger hovering over the "complete transaction" button, figuring out if I was pulling from the most obvious fund, in the best account.

So yeah, Totally understand. :)

dude

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I'm super grateful that I'll have a pension that will cover all basic living expenses, so that if a big crash or even couple down years should happen, I'd just have to tighten up the belt on luxury spending (primarily travel) and just enjoy trips close to home. But I have pulled a few hairs trying to figure out how best to take withdrawals/rebalance and such. My 401k, the federal TSP, does not allow one to direct from which funds money is to be withdrawn. It comes from all funds proportional to the amount invested in each. My plan is to make a lump-sum withdrawal each year on or around Jan 1, then put that money into a cash equivalent fund to pay myself monthly from. After each withdrawal, I'll have to go back in and re-allocate (for example, if the market is slightly down or flat, I can effectuate selling only bonds by going in right after the withdrawal and moving money from bonds to stocks to recover those stocks at the price I sold them for).

Hikester

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Frugal Zony you are not alone in your situation and what you just did is early on in your FIRE life so it feels like a really unpleasant exercise. But the next time you have to sell it will be a bit easier. I find it that as long as I stick to the 4% or below I feel better. It will get easier.

lhamo

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I feel your pain.  Or I will.  Once I actually get stuff invested.  I am still sitting on a ridiculously large amount in cash IN EXCESS of our planned cash reserves while I wait for DH to be ok with me putting it into something at vanguard.

It will be ok.  We still have tons in the market in our retirement accounts.  DH can tap his without penalty and a big portion of mine are in Roths (thank you Roth 403b....) if we want to maximize tax/ACA planning. DH could start taking SS (+ dependent allowance for me for about a year and DD for 4) in less than two years.

I think when the time comes I may need to schedule regular withdrawals to top up the div/cap gains income.  That helps take some of the emotion/urge to market time out of the equation.

erutio

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My 401k, the federal TSP, does not allow one to direct from which funds money is to be withdrawn. It comes from all funds proportional to the amount invested in each. My plan is to make a lump-sum withdrawal each year on or around Jan 1, then put that money into a cash equivalent fund to pay myself monthly from.

I thought the TSP only allows for one partial withdrawal, after which you must make a full withdrawal. 

dude

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My 401k, the federal TSP, does not allow one to direct from which funds money is to be withdrawn. It comes from all funds proportional to the amount invested in each. My plan is to make a lump-sum withdrawal each year on or around Jan 1, then put that money into a cash equivalent fund to pay myself monthly from.

I thought the TSP only allows for one partial withdrawal, after which you must make a full withdrawal.

Currently, that is correct.  However, the new TSP withdrawal rules are slated to go in effect in Sept. 2019 (and by no later than Dec 31, 2019). I will retire in May 2019, so I only need to wait 3 months, and then I can take unlimited partial withdrawals.

markbike528CBX

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PTF.  This is a relevant thread to me, as I'll have to do this soon.
Currently spending cash savings from my former job.
Fortunately, I have some experience in withdrawing  from my taxable account as I've done so to payoff the mortgage (25K) just prior to FIRE.

My plan (if/when DW retires) to SEPP 72(t) withdraw from an tIRA to replace that income and lower future RMD.

The taxable account ( 50/50 small cap value/ US Total stock index) will be with drawn in approximate equal proportion.

Acastus

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My 401k, the federal TSP, does not allow one to direct from which funds money is to be withdrawn. It comes from all funds proportional to the amount invested in each.

You can rebalance after the withdrawal so that the money effectively comes out of the fund(s) you prefer. It is just a bit of a mental shift to let go of the constraint and fix it afterwards.

dude

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My 401k, the federal TSP, does not allow one to direct from which funds money is to be withdrawn. It comes from all funds proportional to the amount invested in each.

You can rebalance after the withdrawal so that the money effectively comes out of the fund(s) you prefer. It is just a bit of a mental shift to let go of the constraint and fix it afterwards.

Right, once the new rules go into effect.  As the rules currently stand, it would be cumbersome and to do with monthly withdrawals, since you can only allocate percentages, not sell individual shares. With a bigger (annual) withdrawal, it'll make more sense, and that's what I plan to do.

RedmondStash

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You're not alone. We're recently FIREd, and I handle our investments, so I definitely relate to analysis paralysis. Right now I'm assuaging my anxiety by keeping a higher percentage in fixed income and cash, to reduce the odds of sequence-of-returns problems if we hit a recession soon. And yeah, I know I'm missing out on potential gains too. But it helps me sleep at night.

It is unnerving to watch the totals going down instead of up. When they're going up, there's no forced end date. When they're going down, it feels like there is -- and it's a race to see who gets there first, pennilessness or death. I've got a OMY itch in my brain, though I'm fighting it. I don't want to go back to work, at least not yet.

Add to that unusually high spending since we FIREd, because we're taking care of things we'd been putting off: electrical work, house painting, gardening supplies, exercise equipment, a new grill for our leisurely summers, etc. So that's making me nervous too, even though these are mostly one-time purchases and we're making most of them relatively cheaply.

I have to rely on the math, and on knowing that we can hustle up some income if we have to.

I think it will get easier over time. But we haven't hit that new normal yet.