Author Topic: What's your FIRE withdraw strategy/plan?  (Read 2125 times)

Villanelle

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What's your FIRE withdraw strategy/plan?
« on: October 24, 2016, 02:47:40 AM »
I'm curious about how people plan to time withdraws during FIRE, and couldn't find a thread about it.  (Please direct me there if it already exists.  I have terrible luck with this forum's search function.)

We are still a ways from RE, and we'll almost certainly have DH's pension (inflation-adjusted) which will cover a lot of our expenses (and will probably be able to cover everything if we needed to cut back and make that happen.)  For now, we are toying with keeping 9 months of projected expenses in cash, drawing down to top that off every quarter.  The idea is that we will have three quarters we can use to delay in a down market.

So if our projected annually expenses are $60k, we'll start with $45k in the bank for a Jan 1 retirement.  Assuming the market looks decent (and assuming we've spent on pace to be at an exactly $60k/yr pace), we'll draw down $15k an April 1, and again July and Oct 1.  and so on.  However, if the market is shit on July 1, we can keep living off the $30k we have remaining from the April 1 balance of $45k (likely cutting expenses at least slightly, but let's ignore that for simplicity), and we can keep putting off withdraws until Jan 1 when we'd be more or less out of money. 

We've semi-settled on that plan because it's fairly simple (withdraw 3 months expenses at a time, with a 6-9 mo. cushion), but allows a decent amount of flexibility for avoiding withdraws in down markets, while also allows us to keep most of our dollar soldiers  at work in the market.  (As of now, I've not really defined what I consider enough of a down market to warrant putting off the withdraw.)

But I'm super open to other ideas or critiques of this plan.  I'm only just starting to consider this part of the FIRE reality, which is amazing but also a bit overwhelming.  Shifting the focus from "earn and save" to now looking at the After is wonderful, but's a whole new set of issues and decisions. 


Spork

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Re: What's your FIRE withdraw strategy/plan?
« Reply #1 on: October 24, 2016, 07:02:59 AM »
We have been fired a little more than a year...  And so much has happened unexpectedly in that year that our "plans"have already been superseded.

The original plan:
* keep about a year of expenses in cash
* income from dividends
* paper income from tIRA->rIRA conversions
* additional monies needed come from Roth principle available from withdrawal (being replaced by the tIRA conversions)

A death in the family caused both unexpected expenses and unexpected inheritance... so that plan has now been scrapped.

seattlecyclone

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Re: What's your FIRE withdraw strategy/plan?
« Reply #2 on: October 24, 2016, 10:15:00 AM »
We're expecting to retire with about half our stash in a taxable account. The other half will be split about evenly between Roth and traditional retirement accounts, with an HSA thrown in there for good measure.

The current plan is to try and keep our income just below 200% of the federal poverty level for Obamacare reasons. We'll get some dividend income from the taxable account, and will withdraw principal from there until it's exhausted (cFIREsim gives that about a 50/50 shot of ever happening). We'll do Roth conversions to fill up any remaining space under our income goal.

If and when the taxable account dries up, we'll withdraw seasoned Roth principal for our living expenses and continue making Roth conversions up to our desired income level. In this phase we'll also use HSA funds to pay any medical bills.

Of course it's impossible to make perfect decades-long plans in an environment of regular market fluctuations and tax law changes. We'll have to be flexible to adapt the plan as optimal strategies change.

arebelspy

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Re: What's your FIRE withdraw strategy/plan?
« Reply #3 on: November 05, 2016, 10:35:58 PM »
In a theoretical world, delaying withdrawals as long as possible to keep money invested as long as possible is optimal. Cash cushions create more of a drag than they help by not having to "sell low." In this theoretical world without transaction costs, your debit card would be hooked up to your investment account, and a small sale would occur each time you made a purchase.

This obviously isn't practical in the real world, but the principal applies: cash cushions don't help with the math of it.

What they DO help with is the psychology of it.  And that's important, too.  So if keeping a nine-month, or one year, or three year cash buffer makes you happy, and you still have good historical cFIREsim results, knock yourself out.  :)
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Villanelle

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Re: What's your FIRE withdraw strategy/plan?
« Reply #4 on: November 06, 2016, 11:23:25 PM »
In a theoretical world, delaying withdrawals as long as possible to keep money invested as long as possible is optimal. Cash cushions create more of a drag than they help by not having to "sell low." In this theoretical world without transaction costs, your debit card would be hooked up to your investment account, and a small sale would occur each time you made a purchase.

This obviously isn't practical in the real world, but the principal applies: cash cushions don't help with the math of it.

What they DO help with is the psychology of it.  And that's important, too.  So if keeping a nine-month, or one year, or three year cash buffer makes you happy, and you still have good historical cFIREsim results, knock yourself out.  :)

Interesting.  Probably because I'm only just now beginning to think about the post-accumulation stuff, this is new info for me.  I suppose it makes sense, in the same way that investing ASAP is more efficient than spreading it out for DCA.  Hmm.    Rethinking... 

Mother Fussbudget

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Re: What's your FIRE withdraw strategy/plan?
« Reply #5 on: November 07, 2016, 12:48:34 PM »
Planning to use taxable accounts first.  May resort to using 401k withdrawals thanks to the 'rule of 55' (withdraw penalty free from a 401k if you quit, are fired, or retire from a job with a 401K in the calendar year youl turn 55 or older) between ages 56 & 59-1/2.