Author Topic: 4% withdrawal rate in a taxable account  (Read 792 times)

shah8

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4% withdrawal rate in a taxable account
« on: May 06, 2020, 12:29:40 PM »
I am considering drawing down on a taxable account at a 4% withdrawal rate to cover my living expenses. I was wondering which is the best way to implement that? Are there any books or articles that explain how to structure the withdrawal plan? I am in 90% equities and 10% cash in my taxable currently. Thank you.
« Last Edit: May 06, 2020, 12:33:32 PM by shah8 »

MDM

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Re: 4% withdrawal rate in a taxable account
« Reply #1 on: May 06, 2020, 01:36:23 PM »
There are various ways to do this, and the best will be known only in hindsight.

Some options to consider:
- minimize taxes by starting with those funds that will incur the least tax
- move toward your desired asset allocation by starting with those funds that don't fit
- etc.

Tyler durden

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Re: 4% withdrawal rate in a taxable account
« Reply #2 on: May 07, 2020, 05:14:50 PM »
Listen to the recent podcast on bigger pockets with Michael Kitces. A well diversified 60/40 portfolio can be drawn down at 4% and last 30 years even under the worst of conditions. A 90% stock portfolio creates huge risk to that. Selling in a down market makes the sequence of returns all that much more important. Start trimming risk and adding to fixed income. Listen to that podcast or any book or article by Kitces.

secondcor521

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Re: 4% withdrawal rate in a taxable account
« Reply #3 on: May 07, 2020, 07:35:28 PM »
Listen to the recent podcast on bigger pockets with Michael Kitces. A well diversified 60/40 portfolio can be drawn down at 4% and last 30 years even under the worst of conditions. A 90% stock portfolio creates huge risk to that. Selling in a down market makes the sequence of returns all that much more important. Start trimming risk and adding to fixed income. Listen to that podcast or any book or article by Kitces.

FWIW, setting the portfolio to 90% stocks and leaving the rest of the inputs as default in FIREcalc results in a 95% success rate over a 30 year period.  (A 60/40 portfolio with all defaults results in a 95.8% success rate over the same time frame.)
 cFIREsim appears to give similar or even better results than that.

For a 40 year period, 90/10 gives ~87% success, and 60/40 gives ~80% success.
« Last Edit: May 07, 2020, 07:51:27 PM by secondcor521 »

MustacheAndaHalf

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Re: 4% withdrawal rate in a taxable account
« Reply #4 on: May 08, 2020, 03:43:54 AM »
When I ran numbers through Vanguard's simulator, it's answers stayed the same when I lowered or increased stock allocation from the standard 60/40.  Maybe Vanguard is using out of date performance numbers for bonds?

With treasuries all paying 0% to 1%, I think replacing the "bond" allocation with "cash" in simulators is appropriate.  Using various mixes of stocks and cash over 40 years (retire early!), and withdrawing 4%:
60% stock / 40% cash : have >$0 left 79%
80/20 and 90/10 both give 82% of having >$0 left.

My guess is secondcor521's use of FIREcalc is probably more accurate, but at least you can see Vanguard's numbers in case it matters.