Author Topic: 4% withdrawal timing difference  (Read 2198 times)

factor22

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4% withdrawal timing difference
« on: December 30, 2015, 06:40:36 PM »
I am still new to the site so apologize for asking questions which are undoubtedly in the forum somewhere. My question is that once I have my principal set up to generate the income I need to cover my costs there will some time difference in when dividends are paid, rent is paid, lending clubs payments are received etc. With this scenario do I just have some cash as a buffer in my bank account or use a home equity loan to handle this. Or do I withdraw some of the Príncipe and if so how might I determine the best place to withdraw this, knowing that I'll have the cash to replenish the principal within the same year. Hope this makes sense. Thanks Peter

seattlecyclone

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Re: 4% withdrawal timing difference
« Reply #1 on: December 30, 2015, 07:27:24 PM »
It's okay to withdraw principal. Part of the return from your investments will be in the form of direct payments (interest, dividends, rent, etc.). It's fine to spend both types! Just keep your total withdrawals at or below your planned withdrawal rate and you should be fine.

maizefolk

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Re: 4% withdrawal timing difference
« Reply #2 on: December 30, 2015, 07:48:09 PM »
The original trinity study that arrived at the 4% rule was based on withdrawing cash once per month.

In practice what that would mean is if you have bond interest or dividends greater than what you're supposed to withdraw for the month they'd get reinvested, and if you don't have enough you'd sell stocks/bonds to make up the difference.

In months when you'd need to sell something, you'd choose whichever you have too much of in your portfolio. For example, if your target asset allocation was 90% stocks/10% bonds, but stocks were having a bad month and bonds a good one, your actual ratio might be 88% stocks and 12% bonds, so you'd only sell bonds that month.

MDM

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Re: 4% withdrawal timing difference
« Reply #3 on: December 30, 2015, 07:53:01 PM »
...just have some cash as a buffer in my bank account
That will take care of most issues: food, monthly rent/mortgage, and the like.  Just watch for the large, infrequent bills: insurance, property tax (if not escrowed), etc., and ensure you don't bounce any checks.

factor22

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Re: 4% withdrawal timing difference
« Reply #4 on: January 08, 2016, 10:17:35 PM »
thanks everyone