How to create chunk of retirement savings with multiple accounts?

[calamityb]

Hi,

I'm confused about something that seems central to the ability to retire early.

So, I think I get the 4% rule. Create a chunk of retirement savings, take out 4% each year for eternity because the market will make up for that 4% withdrawal.

I figure that I could probably start to think about FIRE at around 475K or so. My issue is that I'm not sure how to get all my savings into the same combined account to make the 4% withdrawal work. I have some of my savings in a 403(b), some in a ROTH for me, some in a ROTH for my husband, some in a traditional bank savings account. When can or should I combine? What are the mechanisms for doing that? I'm legitimately confused as to how this works!

Thank you!

[FIRE@50]

They don't need to ever be combined. When you are ready to start making withdrawals, you can make them from one account at a time until it is emptied or spread your withdrawals across the accounts. Obviously tax considerations would come into play but other than that, I don't think it is much to worry about. Good problem to have I would say. :)

[ericrugiero]

They don't need to ever be combined. When you are ready to start making withdrawals, you can make them from one account at a time until it is emptied or spread your withdrawals across the accounts. Obviously tax considerations would come into play but other than that, I don't think it is much to worry about. Good problem to have I would say. :)

+1

You don't need to worry so much about getting them all in one pot but you should develop a strategy to minimize taxes.  You can withdraw from some accounts like the savings account at any time with no tax implications.  Roth IRA you can withdraw the money you put in but not the gains until you hit retirement age (I think 59.5).  403(b) is more restrictive and you have to do something like a Roth conversion ladder to keep from paying a penalty for early access to the money.  You should do some more reading about roth conversion ladders and strategies for accessing money before retirement age which will help to minimize taxes and penalties. 

Also, the 4% rule isn't something magic, it's a rule of thumb that's been true in the past and will most likely be true in the future.  It only works if you have the money invested somewhere that it will grow.  Lots of people have different strategies around what percent of stock (usually index funds), bonds, cash, etc to keep.  Most believe you should have between 50-100% in stocks and the rest in bonds or cash.  You should do some more reading about that as well.  If you can be flexible like reduce your spend in a down market or get a side gig for a short term it helps a lot. 

[Valvore]

You have to remember we're dealing with percentages here. So you can split it up a million ways to Sunday (is that the saying?) but it will all come out the same as if it were in one big lump.

All in one account
475k * 0.07 = 33.25K

Separate accounts
100K *0.07 = 7K
200K *0.07 = 14K
50K *0.07 = 3.5K
125K *0.07 = 8.75K

7 + 14 + 3.5 + 8.75 = 33.25

I know, it's weird to wrap your head around.

[h82goslw]

Bogleheads.org for the most tax efficient ways to save and then withdraw. Read the wiki and then ask questions to members if you’re still unsure.

[MrThatsDifferent]

You have to remember we're dealing with percentages here. So you can split it up a million ways to Sunday (is that the saying?) but it will all come out the same as if it were in one big lump.

All in one account
475k * 0.07 = 33.25K

Separate accounts
100K *0.07 = 7K
200K *0.07 = 14K
50K *0.07 = 3.5K
125K *0.07 = 8.75K

7 + 14 + 3.5 + 8.75 = 33.25

I know, it's weird to wrap your head around.

 This makes sense, but question: are there fees for withdrawal of the funds? If so, if you’re taking from multiple accounts, those fees are adding up right?

[ender]

We slowly have been combining everything into vanguard, ideally we'll end up with just:

• Vanguard Roth IRA for myself and my wife
• Vanguard Traditional IRA for myself and my wife
• HSA somewhere else

Right now in accumulation we have a few more accounts but slowly are consolidating into those accounts.

I have a small pension balance from a pervious job too which I'd love them to cash out so I can roll it into my IRA... maybe someday.

[FireLane]

One of MMM's latest posts addresses this exact question:

http://www.mrmoneymustache.com/2018/11/29/how-to-retire-forever-on-a-fixed-chunk-of-money/

The TL;DR summary is to treat all your assets as if they were a single pool of money and make withdrawals accordingly.

[sith02]

Bogleheads.org for the most tax efficient ways to save and then withdraw. Read the wiki and then ask questions to members if you’re still unsure.

I've read a few article there and they really some good tips there. Check it out

[Villanelle]

You have to remember we're dealing with percentages here. So you can split it up a million ways to Sunday (is that the saying?) but it will all come out the same as if it were in one big lump.

All in one account
475k * 0.07 = 33.25K

Separate accounts
100K *0.07 = 7K
200K *0.07 = 14K
50K *0.07 = 3.5K
125K *0.07 = 8.75K

7 + 14 + 3.5 + 8.75 = 33.25

I know, it's weird to wrap your head around.

 This makes sense, but question: are there fees for withdrawal of the funds? If so, if you’re taking from multiple accounts, those fees are adding up right?

If there are fees, then take $19k (4% of $475k) out of one account each year until it is empty, then move on to the next and the next.   

Or $9k out of one and $10k out of another, until those are drained.

Or...

You are going to have to consider which accounts are available at your age (and/or look into a Roth conversion ladder), and what you want your asset allocation to look like.

So the answer is both more simple--you can take the money from whichever accounts you want/need to--and more complicated--retirement accounts vs. taxable or non age-restricted accounts, future asset allocation, etc.--than you are making it.