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Participant ○○

4% withdrawls

As I get older I know that I slip a little every year. We can kid ourselves all day, but we are not as sharp as we use to be and never will be again. For you that do the 3% or 4% each year how or when do you know to do it? Do you do it first of each year and leave rest of account on drip till next year. Do you take half every 6 months? Thank you for any help you can give me.

Copie

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Explorer ○○○

Re: 4% withdrawls

I will be retiring at the end of August.  My plan is to send each months dividends to an online bank account/cash buffer then send my monthly "paycheck" to my bill paying checking account same as if I were still employed.  At least that's the plan  :)

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Explorer ○○○

Re: 4% withdrawls

Each retiree has many different options, none of which are considered wrong [IMHO]....

 Some retiree's take their withdrawals at the beginning of each year [considering that @ age 70 1/2 you will be forced to take money out protected accounts and pay Uncle Sam]....

 By taking [all] of the money out at the beginning of each year, you can work with your professional tax accountant preparer and send out your "normal payment" for the previous year and you can pay the "estimated tax liability" for the current year. Doing it this way, you shouldn't have any tax surprises for the current year and you can do away with paying the required "Quarterly" tax liability payments that would normally be required [paid up front to IRS]. Retiree's can then receive their normal "monthly" pensions and social security [etc's] checks and have money in their money market accounts for any emergencies during the year [without the normal "stress"]....

 One way for consideration [IMHO]....

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Re: 4% withdrawls


@copie wrote:

As I get older I know that I slip a little every year. We can kid ourselves all day, but we are not as sharp as we use to be and never will be again. For you that do the 3% or 4% each year how or when do you know to do it? Do you do it first of each year and leave rest of account on drip till next year. Do you take half every 6 months? Thank you for any help you can give me.

Copie


          Copie I have a set amount transferred each month from a TIRA with last years tax amounts withheld to avoid any penalties to a checking account. I don’t ever adjust that amount up unless I have to. All excess income is then auto reinvested each month. Usually RMD transfer in kind (some excess income) takes care of the slop or any increased amounts that may be needed.

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Re: 4% withdrawls

I have read quite a bit on the Bengen's 4% Distribution Rule as updated by the Trinity Study authors. In all there is very little discussion on dividends or taxes.  I'm sure there might be a discussion that I haven't seen but it wasn't that important to me.  Basically the 4% distribution rule gives you a high probably of success for 30 years of withdrawals if an individual's portfolio is between 50-75% stock.

Here is how it works. If the total value of your portfolio is $1,000,000 then you can take $40,000 the first year of retirement ($1,000,000 x 0.04%).  If inflation is 3% then you take $41,200 the second year ($40,000 x 1.03%) and $42,436 the third year ($41,200 x 1.03%).  The dollar amount is adjusted for inflation each year.

Taxes are your responsibility.  This is pre-tax income.  If you want to have monthly payments then divide $40,000 by 12 ($3,333 the first year).

In 2018, again using general market data, Wade Pfau updated the Trinity study. He looked at retirement periods from 1926-2017.  The success rates below were taken from his charts for a 4% initial withdrawal adjusted for inflation.  It is clear from these charts that in general the stock allocation of the portfolio should be between 50-75% for all retirement periods.

                                                                                 Success rates for…

                      Allocation          Period  ->    25 yr.     30 yr.      35 yr.       40 yr.

                    100% stock                            99%        94%        91%        89%       

                      75% stock                          100%        98%        93%        92%

                      50% stock                          100%      100%       97%         87%

                      25% stock                          100%        87%        71%        45%

                        0% stock                            79%        44%        28%        11%

Here are the success rates for other initial withdrawals. The top success rate is for a 75% stock portfolio.  The bottom is for a 50% stock portfolio.

                                             Success rates for an initial withdrawal of…

         Percentage ->       3%                    4%                      5%                    6%                 7% 

            15 years       100/100%        100/100%         100/100%          97/100%          82/85%

            20 years       100/100%        100/100%         100/99%            81/79%           

            25 years       100/100%        100/100%           84/85%              

            30 years       100/100%         98/97%              76/70%

            35 years       100/100%         93/97%

            40 years       100/100%         92/87%

Their research covered rotating retirement periods. They said the worst time to retire wasn't 1929.  A stock market crash wasn't the killer.  The high inflation of the 1970s was.

P.S. Traditional IRAs are required by law to use a different method.  You have to use the government's divisor for your age and it changes every year.  (There is a table on-line)  It does not result in a 4% withdrawal.  It is below 4% in the early years and above 4% later on. There is no adjustment for inflation except for the change in the divisor.  I have mine set up to pay me monthly and they automatically take out the taxes each month. It is completely automatic.

Since I don't need the MRD at this time I pay the taxes and re-invest the difference.

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Contributor ○○

Re: 4% withdrawls

 

I retired 14 years ago.  So far withdrawals haven't been an issue.   The pension & Soc Sec have been about enough to meet all our needs.    What I take from the IRA is far more than re-paid by my investing gains & dividends -- and I use those withdrawals to fund the condo I bought for my daughter in Philadelphia and another I bought for the wife in Florida.    So total net worth has been climbing every year.   So far so good.

As for mental decline, -- that's a serious issue on its own.   I expressed my thoughts about it in detail a couple of months back on a thread discussing the topic.

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Explorer ○○○

Re: 4% withdrawls


@copie wrote:

As I get older I know that I slip a little every year. We can kid ourselves all day, but we are not as sharp as we use to be and never will be again. For you that do the 3% or 4% each year how or when do you know to do it? Do you do it first of each year and leave rest of account on drip till next year. Do you take half every 6 months? Thank you for any help you can give me.

Copie


All stock dividends, individual bond coupon interest, and fund distribution cash I receive goes directly into my brokerage settlement money market account.  I have 3 accounts, a regular taxable account, a traditional IRA, and a Roth.  Each month, I move cash from one or more of these accounts over to my regular bank account.

De gustibus non disputandum est,
Quot homines tot sententiæ
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Explorer ○○

Re: 4% withdrawls

4% (inflation adjusted) is a modest annual drawdown, especially for those of us very unlikely to live 30 more years (and for anyone paying 1 % of the AUM, a quarter the distribution, to an advisor!). It should provide generously for heirs. For maximizing the spending of oneself (and spouse), retirement researcher Wade Pfau likes the “actuarial” approach implicit in the IRS’s RMDs—or an aggressive form of the approach. (What is said to justify the aggressiveness is that the RMDs are designed on the assumption that funds subject to them will earn 0%.) Here’s a link to a Pfau article on this:

https://retirementresearcher.com/retirement-spending-required-minimum-distributions/

Here the strategy is compared with other drawdown strategies:

https://retirementresearcher.com/comparing-retirement-spending-rules-using-historical-data-xyz-rule/

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Re: 4% withdrawls


@Tibbles wrote:

4% (inflation adjusted) is a modest annual drawdown, especially for those of us very unlikely to live 30 more years (and for anyone paying 1 % of the AUM, a quarter the distribution, to an advisor!). It should provide generously for heirs. For maximizing the spending of oneself (and spouse), retirement researcher Wade Pfau likes the “actuarial” approach implicit in the IRS’s RMDs—or an aggressive form of the approach. (What is said to justify the aggressiveness is that the RMDs are designed on the assumption that funds subject to them will earn 0%.) Here’s a link to a Pfau article on this:

https://retirementresearcher.com/retirement-spending-required-minimum-distributions/

Here the strategy is compared with other drawdown strategies:

https://retirementresearcher.com/comparing-retirement-spending-rules-using-historical-data-xyz-rule/


I had to laugh at this line, " It’s important to remember that none of them are “wrong” (though I would be interested to meet someone who prefers the fixed percentage withdrawals method)."  So would I since it results in withdrawals less than desired almost 50% of the time.

I like the 4% rule because it provides a stable income.  And, annual inflation raises do not have to be the full inflation rate.  I have also read that we spend less as we get older (One day I will have to get rid of the motorcycle or move into a smaller place and get rid of the horses.)  I did some rough calculations.  If spending less then the annual raise could be inflation minus 1%.

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Re: 4% withdrawls

 My distribution plan is simple. I have all the investment income from one account deposited into a checking account on the first of each month which covers about 1/3 of the expenses. SS Is deposited around the middle of the month. I also receive quarterly distributions from a TIAA plan that coincide with the dates to pay property taxes and estimated income tax with some cash available for expenses. when needed additional funds can be withdrawn from dividends in other investment accounts or a Roth IRA. IRA RMDs are transferred in kind to a taxable account where the dividends are used to pay expenses. The investment income used to pay expenses Is about 3% of the asset value.

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Re: 4% withdrawls

We endeavor since youth to hopefully accumulate more than enough, and thus are not going to be too concerned whether to meet the 4% (or 3%) rule rigidly when retired.  It is a good goal to aim at when young, but retirement should really be about enjoying the life we deserve.   

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Participant ○○○

Re: 4% withdrawls

We rebalance our port once per year. In early January. We begin every year with 5% of port in CASH. Our AWR is 4% so it works well.

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Re: 4% withdrawls


@51hh wrote:

We endeavor since youth to hopefully accumulate more than enough, and thus are not going to be too concerned whether to meet the 4% (or 3%) rule rigidly when retired.  It is a good goal to aim at when young, but retirement should really be about enjoying the life we deserve.   


That is pretty much what all retirement strategies do. They give us confidence that the money will last throughout our lifetime.  I know people who are trying to live off only social security.  It can be done but I'm not sure I would call that a life anyone deserves.  What the 4% rule (and other strategies) do is basically set you up with an annuity without paying high fees to the insurance company and the CFP that sold it to you.

If someone is unable to follow a strategy that will enable their money to last I think they would be better off buying an annuity so that the insurance company takes on the burden of making it last.  But then there is nothing left for the heirs. (Our trusted CFP sold us one years ago.  I think it was around the time he was building a new house.)

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Explorer ○○

Re: 4% withdrawls

I withdraw 4%each year on a monthly basis (I dollar cost averaged my way in, I'll dollar cost average my way out). I invest half of my withdrawal into a taxable fund. If I come to a point where I need more money I will start putting less in the taxable fund... then much later I can begin to tap the taxable fund. 

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Re: 4% withdrawls

I will be retiring in 1 year

With a 1 million dollar portfolio 50% stock(vti), 10% qqq, 25% T LT, 5% gold,10% IEF

 withdrawing 40,000 year at the beginning of each year.  Placed in this money in to money market account.  Allowing the remaining 2 compound throughout the year I find this is best for myself

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Re: 4% withdrawls


@copie wrote:

As I get older I know that I slip a little every year. We can kid ourselves all day, but we are not as sharp as we use to be and never will be again. For you that do the 3% or 4% each year how or when do you know to do it? Do you do it first of each year and leave rest of account on drip till next year. Do you take half every 6 months? Thank you for any help you can give me.

Copie


Hey, Copie, good buddy for years now.  Is this a loaded question?  I don't think you need any help on this!  You've been at it for some time now.  There's something about teaching an old dog new tricks.  8-)

Unless I'm missing something, you hold mostly individual stocks, which you have owned forever.  Your 'method' is to target each stock to cover one of your expenses, so the dividends you receive from, say, Cracker Barrel, are used to pay one of your monthly bills.  Then, whenever you need to buy something big, you might sell something and pay cash.  Other than that, I seem to remember that, ifn you haven't targeted a divey to pay something, you DRIP back into the stock.

If so, you, like I, and probably most everyone who posts on the Dividend & Income forum, especially retirees, DON'T think in terms of your question!  Your question seems to imply that EVERYONE DRIPS diveys back into the individual stock that generated the cash, or automatically reinvests all income, capital gains, and returned capital cash distributions back into the fund that generated the cash.  That is, they are what's commonly known as 'total return' investors, since TR usually assumes diveys and distributions are reinvested back into the stock/fund that generated the cash, thereby taking advantage of 'compounding'!

For those investors, its a simple cash flow management question as to when, and how often, they need to sell enough of something held in their portfolio to cover a withdrawal, however large that may be!  You then get into a discussion as to whether or not that retiree 'rebalances', if so, how often?  Whether or not that retiree maintains a cash 'bucket', to hold enough cash to cover some number of years worth of withdrawals?  And all of those kinds of considerations.

You, myself, and most D&I forum posters, on the other hand, probably do like NotEinstein described below.  Diveys and distributions go into a liquid cash/money market account and withdrawals are taken from that account.  Ifn more divey and distribution cash goes in than is taken out, the excess seed corn is reinvested back into something.  On the other hand, if less cash goes in than is taken out, something is sold every so often AND/OR a cash bucket is maintained.

In this later case, there is a simple test as to whether or not the retiree ever needs to sell something OR ifn he/she is a farmer.  You simply take a look at the total distribution yield of your portfolio, call it Y%, where 'Y' is the total amount of divey and distribution cash generated over the course of one year.  You then compare Y% to W%, where W is the total amount of cash taken out of your portfolio that year.  You reinvest seed corn as long as Y is greater than W, you harvest a bit of the crop each year whenever W is greater than Y!

In your question, W is either 3% or 4%, and some are concerned whether the amount of cash taken out increases with inflation each year.  If so, the term a 'real 4%' is used while, if not, 'nominal 4%' is used.

ElLobo, de la casa de la toro caca grande
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Contributor ○

Re: 4% withdrawls

Regardless what method is used......many retirees do not spend enough and enjoy life.  SPEND!

Gabe

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Re: 4% withdrawls


@youth wrote:

Regardless what method is used......many retirees do not spend enough and enjoy life.  SPEND!

Gabe


I could not spend much money unless my life depended on it. Being brought up very frugal, for me, spending money is like having my teeth pulled. I get my dinner at the senior center, which I volunteer to deliver. got to go and do that now.

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Participant ○○

Re: 4% withdrawls

Thanks to each and every one of you for your posts. At age 77 and looking long term will I be able to research and keep a eye on 40 to 50 stocks every year? I want to start working up a plan now that in a few years I can go to if I start to making more then normal mistakes.

I have a friend( younger then me)  that in one year has really gone downhill in making choices. It takes him 5 min. to order when we all go out to eat and I know it takes me a lot longer to buy a stock then it use too. El. my old investing friend is right as I do love dividend paying stocks, but I know that nothing in this world stays the same and we all have to change with it.

I more then likely think at this age I am as smart as I was twenty years ago, but the truth is I am not! :)

Copie 

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Re: 4% withdrawls


@copie wrote:

Thanks to each and every one of you for your posts. At age 77 and looking long term will I be able to research and keep a eye on 40 to 50 stocks every year? I want to start working up a plan now that in a few years I can go to if I start to making more then normal mistakes.

I have a friend( younger then me)  that in one year has really gone downhill in making choices. It takes him 5 min. to order when we all go out to eat and I know it takes me a lot longer to buy a stock then it use too. El. my old investing friend is right as I do love dividend paying stocks, but I know that nothing in this world stays the same and we all have to change with it.

I more then likely think at this age I am as smart as I was twenty years ago, but the truth is I am not! :)

Copie 


I went over that cliff last year, whenever I sold all 20 of my individual stocks and went with higher yielding funds.

SO, let me make a suggestion.  Total up ALL divey and distribution cash you received last year.  Divide that number by the value of your whole portfolio today.  That's your total portfolio distribution yield, as of today.  What is that number?

Say it's 3%.  If so, then you could quite comfortably sell all of your individual stocks and put all of the proceeds into an ETF, such as SDY, which currently yields 3.06%, as of right now.  SDY is a fund that invests only in those individual stocks that have paid an ever increasing divey for at least the last 20 years, above a certain minimum market cap.  CBRL was taken off that list, after 17 years, whenever it cut its divey first quarter.  The top 10 holdings for this fund are:

Exxon Mobil Corp
Franklin Resources Inc
Chevron Corp
AT&T Inc
Polaris Inc
Amcor PLC Ordinary Shares
AbbVie Inc
Bank OZK
National Retail Properties Inc
People's United Financial Inc

 

If you do so, you would no longer need to worry about the price of oil, or the financial condition of your favorite restaurant, or anything else about any individual stock!  In the process, you will still be receiving the same amount of cash, going forward, as you currently receive.

Ifn you are also worried that you are over allocated to equities, you might also consider a bond fund.  Again, you would look at the distribution yield.  For example, the bond market index ETF, BND, distributes 2.54%, so a 50/50 SDY/BND portfolio would distribute the average, or 2.8%.

ElLobo, de la casa de la toro caca grande
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