Hello I'm thinking a few years down the road. I'm 52 hoping to retire at 56 but I'm not sure whats the best way to withdraw the money I will need. lets say I need 40k a year. Should I sell 40K of one stock once a year in Jan or any other month or sell $3300 every month from one stock or should I sell $3300 from stock A then the following month sell $3300 from stock B and then stock C and so on? If I do it this way every month I will be paying $.4.95 in fees and that will add up. I guess I can use the same strategy when I have to start taking from my tax fee accounts. I plan to start converting my IRA and 401K to my ROTH as soon I retire.
Any ideas? How do you do it?
thanks
Firstly, all the very best with your proposed retirement within the next 4 years.
The commission (trading cost) is probably one of the less important factor when you are figuring out a withdrawal strategy. The major factors to come up with a strategy are about reducing the possibility/extent of selling stock at the wrong time (market downturn, temporary issues with the company, etc.), the tax-bill, etc. Specifically, in your example, if you are counting on "sell a stock to cover expenses of current month/year", you might be dangerously exposed to the sequence of risk unless you maintain a cash-buffer to avoid selling investments at a lousy price.
https://www.investopedia.com/articles/fi...rawals.asp
Both strategies have their own pros and cons. I think most people end-up using the variation of one of these strategies
(09-14-2018, 09:30 AM)Kanga16 Wrote: Firstly, all the very best with your proposed retirement within the next 4 years.
The commission (trading cost) is probably one of the less important factor when you are figuring out a withdrawal strategy. The major factors to come up with a strategy are about reducing the possibility/extent of selling stock at the wrong time (market downturn, temporary issues with the company, etc.), the tax-bill, etc. Specifically, in your example, if you are counting on "sell a stock to cover expenses of current month/year", you might be dangerously exposed to the sequence of risk unless you maintain a cash-buffer to avoid selling investments at a lousy price.
https://www.investopedia.com/articles/fi...rawals.asp
Both strategies have their own pros and cons. I think most people end-up using the variation of one of these strategies
Sell 3,333 per month. That way, most likely, if the market goes higher, you get more money to work for you and appreciate. This allows you to continue withdrawing 3,333 per month without draining your principal that much. Suppose you have a great stock that keeps going higher...why nip it in the bud? Just milk your gains, should they come, and keep your cow healthy so you can keep drinking from her.
CCCA you make a great point about selling monthly as opposed to selling the annual limit. As you say, if a stock or market keeps going higher, this would work very nicely. What is your suggestion about the scenario where either the stock or the market goes down, and stays depressed for a while? What would be the source of income during that period? Do you suggest selling during this period, despite the depressed price?
I have a pension that I will start collecting at 55 that will be my main source of income. My plan is to have a year or two of easily accessible cash when I retire, I should not use the work retire I do plan to work but more work fun that to make money I will make money but *** will not be live off of you understand?
(11-30-2018, 08:24 AM)DoubleDown Wrote: I have a pension that I will start collecting at 55 that will be my main source of income. My plan is to have a year or two of easily accessible cash when I retire, I should not use the work retire I do plan to work but more work fun that to make money I will make money but *** will not be live off of you understand?
Thanks. RE "work for fun, not for money" - I'm in that state now (since last year) and enjoying every minute. Personally I'd like to keep a larger buffer so that I can completely avoid selling stocks in a downturn as long as 10 years. This "safety net" has weighed down on my portfolio return (because I need to have high-quality Bonds), but it meets my goal and target income requirements.
If your stocks pay dividends, you could opt to not reinvest dividends. See how the yields on your stocks compare with your cash needs.
If this is in a taxable account, sell any losers. In an IRA, that can work too, but think of it as keeping winners.
Whatever you decide, remember that when you turn 70-1/2 the IRS will dictate a good portion of your withdrawals for the rest of your life, starting at about 3.5% a year from your qualified plan. So, for that time between 56 and 70 the amount of assets in each account and taxes are likely the main issues. Try using the 72t Calculator
Personally, I retired in 2004, at 55, and took a 5-year period certain withdrawal from my Defined Benefit plan; That paid over twice my last salary, allowing me to roll over 50-55% tax free into an IRA. When the payout was done, I started taking from the IRA, plus SS at 62. Fast-forward to the present, we take about 1.7% from the IRA, with major cash outlays from the Brokerage account or other cash savings, including US Savings Bonds. Next year RMDs will change that quite a bit, causing us to take roughly 40% more from the IRA than we currently need. I'll pay more taxes, but can certainly find ways to spend or invest the 'excess.' Grandchildren come to mind here...
@wtp1020
My ultimate plan will be very much like yours. I hope to move a large portion of my IRA and 401K to a Roth that I hope to leave my kids. I'm not a big spender I think I will be on the same boat as you I will be forced to withdraw more than I need later in life so I may reinvest it or just blow it, I'm not sure I will say its not easy for me to just blow money way.
Some things that crossed my mind:
I understand that IRA conversions to a Roth IRA must be held five years before tapping into them. Since the conversion will be ordinary income in the year of conversion, initializing SS payments should also be part of your tax considerations. Setting up for Qualified Dividends in a taxable account could be something to consider as well. Heirs benefit from taxable account share's Cost Basis Step Up on your passing, which may be better than Roth conversion for part of your account considering the five year waiting period.
Chat with different pros to get their perspectives on, tax impact, NUA company shares in 401K, etc. before acting.
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