When to pull money you need from investments

[TheFrenchCat]

My husband and I are in the process of buying a piece of land we want to build our primary residence on.  We plan to build it ourselves with help from experienced family members, and possibly a small amount of contracted work.  We have about 110k that's currently invested that we're planning to put toward building.  We're going to close on the lot by the end of this year.  We don't have a firm time line on how long it will take us to build, especially since our rent is low and we're not in a huge rush.  But we'd definitely like it to be done in the next year or two. 

My question is, when would you pull this money from the investments?  Also, if you'd pull it before it's immediately needed, where would you put it?  Our current bank is convenient, especially in terms of ATMs, but it doesn't give a great interest rate.  If that matters that much in this case.

[Kl285528]

I guess it depends on what other funds you have. Where are you if your 110K goes down to 70K - are you stuck, or are you ok? I am building a house, and sold some equity investments several months ago and put it in short term bonds to make sure I had enough cash to finish the house if the equity market got worse. In hindsight, I would have been fine, but I hate having to sell at an inopportune time because I need to pay the contractor. 

[pdxvandal]

If you need this money within the next few months, I'd pull it now. Is this $$ invested with a brokerage like Fidelity, Vanguard or Schwab? I would park it in a money-market account that will get higher interest than your regular bank. When you need the cash, it typically takes 2-3 days to transfer the money to your linked bank account.

[terran]

Money you need in the next 5 years shouldn't be invested IMO. Whether you NEED this money depends on other factors like whether you could cash flow the costs if you tightened belts, stopped investing, took out a loan, etc or if you'd put of the project if the market crashed. If you have everything dialed in without extra money from income to put towards the project and you've committed to the project then I'd sell the investments now.

[Catbert]

Money you need in December should be pulled out now and don't worry about the interest rate.  100K at 2% is 2K for a year.  For two months that's $333.  "Losing" 2% interest compared to a possible stock market drop is worth the risk.

[Villanelle]

If I planned on using the money in December, I likely would have started pulling it out last year, or not later than Jan., in sort of a reverse DCA.  Given that you are now only about 3 months out, I'd probably pull it now.  Sure, you could lose a couple months of growth, but it sounds like you can live without that.  If the market tanks 30% or more in a week though, you could be in a bad position.  Far more risk than reward, so take it out now.

But it's not entirely clear for me that you actually do need all the money now, since you mention build time.  Surely you have some estimate of total time.  If that's less than about 2 years, I'd take it all now.  Longer than that and I might that most now (maybe 65-85%) and then do a monthly withdraw for the next ~6 months, if that  is more comfortable.  I'd still likely opt for all now, but if that's a mental hurdle for you, you can placate yourself with something like that.

Also, depending on that timeline, you might look into a CD ladder, or just a longer term CD with some of the money.  Rates till suck, but if the timeline is long enough and you feel comfortable committing to not needing some of that money for a long enough time, it might do slightly better than a money market or savings account.

[yachi]

Money you need in the next 5 years shouldn't be invested IMO. Whether you NEED this money depends on other factors like whether you could cash flow the costs if you tightened belts, stopped investing, took out a loan, etc or if you'd put of the project if the market crashed. If you have everything dialed in without extra money from income to put towards the project and you've committed to the project then I'd sell the investments now.

Do you make an exception for withdrawals for living expenses during retirement?  I'm just thinking $40,000 would be a 4% withdrawal rate on $1M in invested assets, but a 5% withdrawal rate on invested assets if you have to keep 5 years ($200,000) of it un-invested. 

[cool7hand]

To the extent that liquidating investments will create a tax event, consider spreading the profits between 2020 and 2021 by breaking up how much you liquidate and when.

[terran]

Money you need in the next 5 years shouldn't be invested IMO. Whether you NEED this money depends on other factors like whether you could cash flow the costs if you tightened belts, stopped investing, took out a loan, etc or if you'd put of the project if the market crashed. If you have everything dialed in without extra money from income to put towards the project and you've committed to the project then I'd sell the investments now.

Do you make an exception for withdrawals for living expenses during retirement?  I'm just thinking $40,000 would be a 4% withdrawal rate on $1M in invested assets, but a 5% withdrawal rate on invested assets if you have to keep 5 years ($200,000) of it un-invested.

At least in the beginning I'd have a good bit in bonds. See https://earlyretirementnow.com/safe-withdrawal-rate-series/, parts 19 and 20 in particular, which suggests starting with a 60/40 stock/bond allocation and spending down bonds in the beginning to combat sequence of return risk. It also suggests a somewhat lower withdrawal rate, but at 4% that would be 10 years in less-volatile investments at the start of retirement.

[TheFrenchCat]

Thanks all.  The money we're using this year is already pulled out, so that's ready to go.  That was a good suggestion to try to spread out when we pull out the money in terms of taxes, I hadn't thought of that.  It sounds like the consensus is pull it out sooner rather than waiting till we need to make a payment.

Thanks!