Author Topic: Retirees = How do YOU "harvest" assets for expenses??  (Read 3646 times)

Dances With Fire

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Retirees = How do YOU "harvest" assets for expenses??
« on: January 06, 2015, 06:18:47 AM »
For those of you who are retired, I am curious how you replenish your spending funds each year? (Please note that this is not about the 4% rule etc. those treads abound.) More specifically how to you refill your spending "bucket" be it 2%, 3%, 4%, or whatever.

i.e. Take interest and/or dividends monthly? Quarterly? And then sell x% when needed?

Sell x% yearly? Quarterly? (Also there has been a lot written about how much to keep in your spending fund, 1 and even up to 3 years of expenses. To ride out a bear market without having to sell anytime soon.) Your thoughts?

How do YOU, real retirees, do this and how has it worked out for you?


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Re: Retirees = How do YOU "harvest" assets for expenses??
« Reply #1 on: January 06, 2015, 06:52:13 AM »
We have about 2-3 months of spending in cash.  Our dividends and interest replenish that bucket

I harvest capital gains at the end of the year for tax purposes, and then put most/all of those gains back in the market 10 seconds later

This year because we were doing IVF procedures, I bumped our cash pile up last December to pay for it

I don't keep more than 3 months expenses in cash, because we live primarily off of dividends and interest.  If the market tanks, the impact to cash flow won't be as severe as it is to market value... companies continue to do business and continue to pay dividends, although they may be reduced somewhat.  We could cut our spending substantially in our current location, and can choose to spend next year in Thailand or Guatemala instead of Paris or London if the decline was severe enough


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Re: Retirees = How do YOU "harvest" assets for expenses??
« Reply #2 on: January 06, 2015, 07:15:57 AM »
Over many years, we invested (mostly dollar cost averaged) into a variety of mutual funds and reinvested all dividends and cap gains. The underlying amounts grew into a nice "critical mass."  About four years ago (two years before I retired), I simply had nearly all dividends and cap gains mailed to us instead of reinvesting them.  Starting two years before we actually needed the money allowed us to build up our cash bucket to a comfortable amount, and since then, the dividends and capital gains simply replenish the bucket (more or less).  Our plan is to never touch the underlying number of shares that makeup our critical mass.  That way the market can go up or down with little effect on our everyday living.  If we needed to sell some of the critical mass for a dream vacation, for example, we would first plan and then do it slowly by "reverse" dollar cost averaging out of perhaps a couple of funds that are doing well at the time (e.g., 1000.00 out of each of two funds each month for 6 months.)   


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Re: Retirees = How do YOU "harvest" assets for expenses??
« Reply #3 on: January 06, 2015, 09:06:41 AM »
I'm not at that point but I think I would just DCA out of my investments at some set rate to avoid selling low/high. Just like DCA in, but in reverse.



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Re: Retirees = How do YOU "harvest" assets for expenses??
« Reply #4 on: January 06, 2015, 09:11:38 AM »
For the first 8 months I lived off savings I had let build up in my bank account prior to pulling the plug. Now I'm periodically selling off taxable assets (like, every 6 - 18 months) until old man money (401k/IRA/pension) kicks in. I'm trying to take a strategic approach to how I sell the assets to minimize taxes (or make them $0), reach an overall asset allocation I'm comfortable with (for example, selling more volatile stocks/indexes first), getting rid of assets that will work against us for financial aid calculations when my kids are ready for college, etc.).

In about 5 months, I'll be selling my final remaining rental house. That will provide about 3-4 years of living expenses, so I'll probably keep about two years of expenses in cash (to weather potential market downturns) and invest the rest.

It's been a little psychologically weird/tough moving from a mindset focused heavily on accumulation to selling assets. And I did not earn one freakin' penny in my first year of ER, unless you count getting rid of a couple of things I no longer needed/wanted on eBay for about $200.

Even though I spent $50k on living expenses last year (family of 5), net worth still went up another $70k even though 2014 wasn't a particularly dramatic/kick-ass year for the markets or real estate where I live. I choose to view this as a case of fortunate/good sequencing and not that I overachieved on the "OMY" front. Intellectually I know, though, that there will be some years ahead where we'll likely see net worth go down, so hopefully that big cash buffer will mitigate that.


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Re: Retirees = How do YOU "harvest" assets for expenses??
« Reply #5 on: January 06, 2015, 10:15:30 AM »
We're dang new to this (DH got laid off/retired early about 1.5 years ago a couple weeks before turning 52, just as I found this site).  Little did we know that day that he could stay retired. 

Our plan is to keep 2-3 years of money out of the market to weather any market storms, and sell to replenish when the market is higher (or before his options expire, regardless!)  Things that require thought are the need to balance selling with keeping taxes low, but high enough not to end up on Medicaid.  We're happy to pay for an ACA plan.   

I wish we'd had some time to plan, but so far things are working out for us.


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Re: Retirees = How do YOU "harvest" assets for expenses??
« Reply #6 on: January 06, 2015, 12:58:03 PM »
This will be my first year withdrawing funds. At the moment portfolio draw-down "strategy" is just a plan in two parts:

Which accounts to withdraw from?

To minimize taxes for the next few years, withdrawals will be exclusively from my taxable account until age 65 (or next 11.5 years). Withdrawals will be partially replaced by CPP beginning at age 60. Tax-deferred and tax-free accounts will be left to grow for this time.

I have a big tax hit in 2015 from the unsheltered portion of a pension CV payout, but do not expect to pay tax again until 2026.

Taxable account will be mostly depleted by 2026, so will begin withdrawing from LIRA/LIF in 2026. The full amount of withdrawals will be taxable, but eligible for pension income deduction. This income will be supplemented by CPP, and beginning December 2026, OAS. The income is expected to be somewhat larger than my needs, so I expect to be able to start putting funds back into the taxable account

RRSP/RRIF will be tapped for income starting in 2032 - when I'm forced to withdraw.

I don't ever expect to "need to" withdraw funds from my TFSA, and will continue to transfer funds into it each year.

Withdrawal mechanics
I'll call it the "Bucket System"

Initially this is applied only to the taxable account, but when withdrawals begin from tax advantaged accounts, I will apply this methodology to those accounts as well.

Bucket #1 is one year's estimated cash needs in a high-interest [sic] savings account. Monthly, I will transfer funds from this account into our operating account to cover expenses. Until age 60, this will be replenished with dividends/distributions from the taxable account and proceeds from the sale of bonds. Thereafter, supplemented with CPP, OAS, and required distributions from tax-deferred accounts.

Bucket #2 is bonds.  As needed, these will be sold to replenish Bucket #1. When stocks are doing well, I'll sell stocks to replenish bond holdings. I also retain the option to sell bonds to buy stocks if we have a bear market.

Bucket #3 is stocks. Currently hold a mix of low-cost ETFs split more or less equally between Canadian, US and International indexes (with a small amount in various dividend income EFTs and REIT). Generally, I expect to sell these over time, however will reinvest dividends in tax advantaged accounts until withdrawals begin, and will re-invest any surplus cash in the taxable account over time.

I'm hoping there's enough cash/bonds to weather a sustained downturn in the markets.



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Re: Retirees = How do YOU "harvest" assets for expenses??
« Reply #7 on: January 06, 2015, 02:46:02 PM »
For a while I just lived off my savings account. Since then I have lived off dividends.


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Re: Retirees = How do YOU "harvest" assets for expenses??
« Reply #8 on: January 07, 2015, 01:22:01 AM »
For at least the last 10 of 15 years I've been retired. The process has worked like this.  Typically 85-90% of my assets are with Schwab, so my dividends and interest are deposited into my brokerage account. 
Each month a fixed amount is transferred from my brokerage to my checking account. I also deposit my rental property checks in the same account. In most years the spending is pretty close a couple of times a year I may need to move a few additional thousand from the brokerage to the checking.  A few years, I didn't even spend the money and money was returned to brokerage account and invested in stocks.

The last two years I've spending lot (I deferred a lot of house projects in 2008/9) a new car, roof, Photovoltaic system, water heater, fence, kitchen and downstairs remodel, so I've been  transferring additional money seemingly every other month. This spending is finally behind me so I'm  hoping to get back to normal routine.  I have two years expense tied up in a CD ladder (with Gaps) at Penfed the  CD interest compounds.  I'm going to be able withdraw from my IRA in 5 years,and I'll admit I'm not entirely sure what I will do.