When do you take $$ from Investments

[Rdy2Fire]

Curious, for those that take $$ from their investments, do you take it as you need it, quarterly, yearly, some other schedule?

I have not taken money out of anything but savings for over 3 years and getting a bit cash poor. Was wondering what others do in regards to 'taking money' as I really hadn't thought about it til recently. Thanks for your thoughts/opinions/ideas

[BeanCounter]

We are getting close to needing to start withdrawing. We will likely set it up on a monthly auto deposit from the investment account so that we feel like we have an income like when we were working. This would also be similar to the dollar cost averaging you do by depositing every month when saving. Because then you don’t think about if the market is up or down. It’s just on auto pilot

[reeshau]

I'm not primarily indexing, but investing in individual stocks.  So, I sell when there are good opportunities to sell, but try to keep 6 months-1 year in cash for withdrawal.

If you are indexing, then a regular schedule can be a good thing.  It is the same dollar cost averaging logic on the way out, as the way in.  It will not optimize your withdrawals, but you won't get caught at the worst possible moment, either.  On autopilot, you won't have to think about it so much, which is part of the point of indexing, after all.

One point to be careful about:  doing this automatically, or in the year of withdrawals themselves, could lead to unintended consequences with your income planning for ACA purposes.  Income, taxes, and ACA are aspects of the same planning and decision making process, for me.

[Rdy2Fire]

We are getting close to needing to start withdrawing. We will likely set it up on a monthly auto deposit from the investment account so that we feel like we have an income like when we were working. This would also be similar to the dollar cost averaging you do by depositing every month when saving. Because then you don’t think about if the market is up or down. It’s just on auto pilot

Thanks, I was considering doing something similar but quarterly. Currently I reinvest my dividends, they aren't a ton, maybe 20-24K or so a year so I was thinking of not re-investing and taking them, plus whatever else I need quarterly and just looking for ideas

One point to be careful about:  doing this automatically, or in the year of withdrawals themselves, could lead to unintended consequences with your income planning for ACA purposes.  Income, taxes, and ACA are aspects of the same planning and decision making process, for me.

^^ This is exactly my biggest concern which I why I am thinking of just taking the dividends and then whatever additional I may need (thinking about 3-4K per quarter) as time goes on and assessing it at the end of each year. My portfolio is a bit mixed but leans more towards individual stocks and funds/etfs

[bacchi]

Yeah, we've stopped investing dividends in our brokerage accounts. The remainder gets taken out quarterly.

[Rdy2Fire]

Yeah, we've stopped investing dividends in our brokerage accounts. The remainder gets taken out quarterly.

I think it seems like my the smartest 1st step

[FreshlyFIREd]

I have been retired about 4-5 years.

My investments are based on the lazy three fund portfolio (Boglehead). So a large percentage of my investments are categorized as domestic (45%), foreign (15%), and cash/bonds(40%). The cash/bonds are made up of CD's, cash, bonds, and bond funds. Most of my CD's are laddered.

When I retired, I settled on a withdrawal rate of 3.25%. In the beginning, I would hit it once a month 0.27% (like a paycheck). I would just pull from the cash portion (dividends, cd's or bonds maturing). I have a spreadsheet which lists maturity dates and paycheck dates. I always make sure the cash will be there before I need it, or I know I can re-invest by verifying that I won't require any cash to live on.

Since my original 3.25%, I've never needed to increase it. In fact, for 2023, we need less money, so we will be consuming less than half of our original needs.

I haven't had to sell any investments for withdrawal needs.

[sisto]

I was just looking at my Vanguard account today since I was making a purchase with some windfall money. I think next month I will turn off the reinvestment of dividends. I've been very fortunate and have not really had to deal with it much. I still have some stock from MegaCorp that I sometimes sell for certain things outside my usual budget or like recently to harvest some losses. I still have a nice cash buffer that I will hang onto in order to keep the ACA credits flowing for the next 5 1/2 years until my wife gets Medicare. Keeping income down is the priority for now.

[John Doe]

I’m retired two years now and our portfolio is set up to generate dividends, so once a year i takeout the accumulated cash and luckily that is more than enough for us to live off (my own version of the 4% rule).

[jim555]

My spending is low so dividends and interest cover expenses.  They come in quarterly and monthly.

[BeanCounter]

I have been retired about 4-5 years.

My investments are based on the lazy three fund portfolio (Boglehead). So a large percentage of my investments are categorized as domestic (45%), foreign (15%), and cash/bonds(40%). The cash/bonds are made up of CD's, cash, bonds, and bond funds. Most of my CD's are laddered.

When I retired, I settled on a withdrawal rate of 3.25%. In the beginning, I would hit it once a month 0.27% (like a paycheck). I would just pull from the cash portion (dividends, cd's or bonds maturing). I have a spreadsheet which lists maturity dates and paycheck dates. I always make sure the cash will be there before I need it, or I know I can re-invest by verifying that I won't require any cash to live on.

Since my original 3.25%, I've never needed to increase it. In fact, for 2023, we need less money, so we will be consuming less than half of our original needs.

I haven't had to sell any investments for withdrawal needs.

I really like this idea. Thanks for sharing

[bmjohnson35]

We collect dividends, since we have to realize them against our MAGI anyway.

I collected the difference as a a large lump sum early in the year for 2020.

I collected the difference in 2 separate lump sums early and then late in the year for 2021.

We sold a property in 2022, so I took some of the money from that to make up the difference in 2022 and didn't need to sell any shares from investments.

Thinking of doing monthly distributions in 2023......just haven't decided from what sources (equities, bonds, cash).  It will probably depend on how the market plays out across the year. I may decide the breakdown monthly, based on how each asset class is performing at that time.

 

[Rdy2Fire]

Thanks for those that answered the question..

Given where markets are now I won't really need to think about it til 2024 but will see how things go and make some decisions in 23 for the following year.

For 23 I took some significant losses to offset some gains this year and the proceeds combined with my dividends should be more then enough for 2023 expenses. Additionally I will have carry over losses for 2023 as well which will help offset 2023 dividends/gains. Hopefully things in the markets will turn around but based on todays SATAN Rally it's not looking so good.

[Money Badger]

SATAN rally is right... Looking like earnings season coming up, and particularly 2023 guidance, will determine a lot of folks strategies for withdrawals.   

FWIW, I've built a 2 pot system from after-tax and the IRA for our pending FIRE...   The after-tax account favors REIT, muni-bond funds and energy MLPs that produce a base revenue stream...   The IRA produces growth for the long term and is the source for any big ticket items we may need.   We'll see... Ever in motion, the future is...

[soccerluvof4]

I have been Fire'd a little over 8 years started at 50. My wife works a minimal job because she wants to and for Health Insurance but I think she will retire again in 2 years or less depending on how things are going. I still have my dividends reinvesting and will change that once shit retires. I basically took 50k out at a time when I would get down to around 10k. The last 3 years I was taking more out because the market was getting frothy so I have enough cash I lived 2022 on cash and her income and plan too the next two years and add to market on dips. Then in 2 years if she retires all our kids we be gone our needs should drop and we will be at a lower income level to get on ACA. Thats the plan but they do change.

[Loren Ver]

So this is an interesting question since what our plan was and what has been happening ended up as two different things.  Our situation is unique so I wasn't going to post, but so far everyone's situation was unique so I decided mine was probably the least unique so I'd best throw it out there.

Retired early 2019.  We basically live on the money from the previous year, more or less.  So we are never really hurting for funds.   We are on the ACA so we need enough MAGI to be in the lower brackets but try not to have so much as to grossly over shoot.  This doesn't always work out, and this is why our plan has had to change.

Most of our investments are in non-advantaged brokerage accounts of various types with various companies.  Historically they do not pay out lots of dividend or capital gains.  Well the 2020s were a mess for paying out gains.  For this reason we now see what our funds are going to pay out until about the last week of December, and then fill in the needed gaps based on what we need for ACA or if we think we need more liquid (higher or lower cost basis selection as needed). 

If the markets get back to a point where the funds stop paying out gains and making things difficult, then we will go back to the original plan.  The original plan was to pull out basic living expenses for the next year from the fund that hits xx% growth first.  Then pull out more expenses from funds as they hit higher percents.  If they don't hit those percents, ride out the year and pull out ACA MAGI minimums by the end. 

Loren

[almost]

We FIRE'd in 2019 and have been living off of part time income and cash we had stashed up to that point.

We've mostly run out of cash.  In 2022 we started collecting the dividends in our taxable accounts instead of reinvesting them.  I also just sold shares at the end of the year to replenish our cash reserves for the upcoming year.  I think this worked out nicely, for tax reasons/capital gains, so I will probably sell some shares around December 30th each year to replenish cash. 

Selling shares was a big deal for us.  It was basically our first withdrawal after 20 years of saving.  It took me several months to work up the nerve to do it because 1) breaking a habit and 2) it's not an optimal time to sell. 

I think that doing it on a schedule will help keep my emotions out of it so I can sleep better at night.  Even if it's suboptimal we'll probably never run out of money at this point.

[dividendman]

livingafi has an extensive series on how to drawdown that's good food for thought: https://livingafi.com/2014/05/09/drawdown-part-1-the-basics/

I'm implementing a rising equity glidepath and in my bond portion is 6 months to a year in "safe" investments like short term treasuries/ibonds/etc. that won't go down in nominal value. Every 6 months I rebalance.

Depending on how much money you have and how far markets are down you can consider loans against your portfolio (although this has it's own risks) if you have enough assets that the loans are minor in comparison. This allows you to not sell low and not incur capital gains, but again, it can backfire bigtime if you use callable loans with a small portfolio. I've used a small loan at 3% last year.

[risky4me]

I guess I am guilty of trying to 'time the market'. We keep a fair amount of cash in the bank and only draw money out when each holding is at a pre-defined value (which has been rare for the last year). It has worked well since we keep enough on hand to be able to float through the down market times.

[NWOutlier]

I would like to add to the question... what do you take money from first?

I have: traditional IRA (large, for me), 2x ROTH IRA's, HSA, brokerage.

my gut tells me to reduce the traditional IRA first (slowly) so I'm not hit too hard during RMD... i'm 54... months from 55... maybe retire at 59.5 - so - I don't want soc sec income until later - I can withdraw from my trad IRA... re-invest in my taxable or live off it, but it's normal income... I want my ROTH's to grow, make taxes simple when I'm over 70-ish....

what do people think? what is a good withdraw strat for someone that has; traditional (x2), roth (x2), HSA (x1), taxable brokerage (x1)...

Steve (NWOutlier)

[Turtle]

I would like to add to the question... what do you take money from first?

I have: traditional IRA (large, for me), 2x ROTH IRA's, HSA, brokerage.

my gut tells me to reduce the traditional IRA first (slowly) so I'm not hit too hard during RMD... i'm 54... months from 55... maybe retire at 59.5 - so - I don't want soc sec income until later - I can withdraw from my trad IRA... re-invest in my taxable or live off it, but it's normal income... I want my ROTH's to grow, make taxes simple when I'm over 70-ish....

what do people think? what is a good withdraw strat for someone that has; traditional (x2), roth (x2), HSA (x1), taxable brokerage (x1)...

Steve (NWOutlier)

I'm at a similar point to you with regards to having the same type of buckets and looking at starting to draw from retirement accounts at 59.5

The additional factors I'm looking at are tax brackets and ACA cutoffs, both of which are effected by state and local regulations as well.

At age 65 and beyond there are Medicare cutoffs to take into account instead of ACA.  That's one of the things I'm factoring in when RMDs come into play.