Creating a Retirement Paycheck--Which Investments to Withdraw from First?
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- Опубліковано 8 вер 2024
- A viewer named Steve asked the following quesiont:
I have searched up and down and no one...seriously no one...has a video on how you withdraw in retirement when you have multiple funds in 1 account. The only videos out there are what buckets to pull from first, but not how to withdraw from a source in retirement.
Let's say you have a 401K with a Total Stock Market Fund, Small Cap, Reit, and Bonds.at 25% across the board. Now in retirement...how do you take out the 4%? Is it 1% for each fund?
What if they were not all 25% and were all at different percentage amounts...how do you decide which one to deplete first?
Further, what if you have a 401K and traditional IRA and now the total funds across the board is 6 (4 and 2). How does that work when withdrawing by funds?
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ABOUT ME
While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
I'm also the author of Retire Before Mom and Dad--The Simple Numbers Behind a Lifetime of Financial Freedom (amzn.to/3by10EE)
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Greetings Rob and as so many others have said before me, thank you for your great content! I've been binging your vids and articles for the last few days, and I feel grateful to have found you. Thanks in part to your videos and writings, I've recently decided to cut our ties with 25+ years of financial advisors, managers & fees . It was something I Ielt I should have done 24 years ago, but my discomfort was too high, and my knowledge level was too low. Finding you helped change that. Your book, articles and videos help validate today's decision and are simplifying the process for tomorrow. I must admit that having life decisions informed by some guy from UA-cam feels a little off. But at the same time, and after many years of trusting that my financial advisors had my best interests at heart, I realized that choice was even worse. Thanks again for what you contribute and lighting a fire in me to take more control of our financial future.
Perfect! What know one talks about, but what people really need to know. Thanks!
Rob, can you please do some videos for folks 55 and older who do not have enough saved in their retirement accounts to be able to retire. I have very little in bonds because I want growth, to try to make up for lost time.
I wish the big players had a rebalance button like M1!
100 times this. Fidelity does in their retirement accounts that are work-sponsored but not in individual taxable or private IRA's... annoying!
Im sticking with the 3 fund portfolio and no taxable accounts. I like the simple idea of take it out and rebalance ;) 15 years to go! My wife tells me to calm down with her eyes, but i cant help feeling excited that i wont be in the poor house!
I’ve been diligently working, saving and contributing towards financial freedom and early retirement, but the economy so far since the pandemic has eaten away most of my portfolio, what I want to know is this: Do I keep contributing to my portfolio in these unstable markets or do I look into alternative sectors.
Just try to diversify your portfolio to other market sectors, that way your investment is balanced and you don’t get to make so much losses.
I stopped listening and taking stock recommendations from these youtubers, because at the end of the day, I end up with a bunch of confusing stocks without knowing when to take profit, so you see I’m often in the red.
Yes, buying is one thing and knowing when to sell is another, that’s why I do my own stock valuation.
I’m a contractor, and my job doesn’t permit me the time to properly analyze my holdings/evaluate stocks myself, so I’ve had a fiduciary actively restructuring my portfolio for the past 7 years now to match the present market condition and that’s how I’ve been able to stay afloat, knowing when to buy and sell…maybe you should do the same.
My Financial adviser is ‘’Catherine Morrison Evans’’ she’s highly qualified and experienced in the financial market. She has extensive knowledge of portfolio diversity and is considered an expert in the field. I recommend researching her credentials further. She has many years of experience and is a valuable resource for anyone looking to navigate the financial market
Good advice. Strategy I am using is I don't reinvest dividends nor capital gains distributions from funds and stocks, and use this to live off of. For any additional cash needs I sell shares to achieve my rebalancing goals. This minimizes tax impacts because dividends and capital gains distributions are occurring automatically. I keep alot of my bond funds in the IRAs. I will sell some stocks that I feel are overpriced. Downside can be taxes but sometimes you gotta take some profits off the table.
Thank God I rely on dividends goes right to my checking account. Don’t have to worry about selling shares.
Great point about using taxable/tax advantaged accounts in sync to rebalance in a smart way, money is fungible!!!
No it's not if it's in different account types. This is a mistake. Depending on your exact situation this may or may not work. Maybe you don't even have access to your retirement account yet, maybe not for another 10 years. If you use this approach you will rotate certain asset classes out of your taxable account into your qualified account, and now you have your overall portfolio perfectly balanced, but your taxable account is completely messed up - and that's the only account you can withdraw from for another decade. Don't do this, Rob is wrong here.
I love the concept of withdrawing to keep things rebalanced. It seems like a withdrawal strategy that's advantageous in a way comparable to (at the earlier stage) investment via dollar-cost averaging. It accounts for (and takes advantage of) market swings in a systematic way.
Rob, can your take a live case assuming a person retired 10 years ago. Then take 2 or 3 scenarios like rebalacing method, bucket streategy method and any other method. Finally withdraw some money each month or quarter and let us see which is working better.
Reading articles of others and then trying to find a solution is not that much practical.
A famous proverb is "Reading makes a man wise, practice makes a man perfect."
So, hoping your next video will be on that and it will unleash all the mistries of these articles and methods to deal with retirement corpus.
Rob is the GOAT!!!!!! Amazing work
What what is this goat term I keep hearing
Again, thank you for the explanation! I was searching for this exact content, I have no idea why I didn’t come to your site first…I’m over-tired from travel is my reasoning!
Excellent advice, taxable accounts first, spend dividends & interest, then invade principle tax opportunistically. Probably want to prioritize bonds then equity, then repurchase bonds in Trad and equities in Roth where possible.
That total return/rebalancing strategies effectiveness will depend on fees to rebalance between funds, tax consequences etc.
Thanks Rob. Finally someone did a video on draw down strategies that gets into specifics. Too many ones about which account to draw from none on which fund in said account. Great video you are really helping people understand retirement.
Hey Rob, I love the rebalancing/percentage concept you describe at 7:30. Great explanation! Nice and simple. You can apply the percentage of each allocation stock,bonds etc and withdraw from each to bring it back to your plan.
Perfect timing 5 am here in stockton,ca ;)
What baffles me still, is that some people no matter how you explain "Investments" and how little goes a long way at the end, some people just either are in complete denial about it or just can't be bothered to listen. But they always seem to complain they never have money. Even just investing $5 a week can make a big difference at the end.
I unfortunately started late in the game (around 2017), started using Stash app for buying little fractional shares. Now I have over 100Ks in investments (with diversified portfolios) across multiple platforms including stash (Which I still use) and Betterment, Fundrise and a little bit in Crypto that I have seen huge returns.
Thank you sooo much Rob. This really helped give clarity and I already see others already reaping the benefits of this video already. Thanks for all that you do.
* 3x "already" in one sentence. A record , surely.
Thanks for putting this video together.
One thing I would like to add that if you have capital loss in any of the fund, rebalancing is not easy, even in case of nontaxable account. Because wash sell rules apply to your entire portfolio. Once you sell any capital loss fund, you cannot buy it again immediately.
No. This complexity is only on taxable accounts. On non-taxable, unless I misunderstood your point, you don't get taxed on capital gains but rather take the distribution as INCOME. The re-balancing taking place inside the account thus doesn't trigger a wash... At least I don't think. Ask a tax pro if in doubt. :)
@@Omar-et7sb your entire portfolio regardless of tax status is subject to wash sell. For example if your VTI is running red in your taxable account and you sell it. You cannot buy inside Roth within a month. So rebalancing will be subject to wash sell rule if you sell any of your investment when it is red. Wash sell rule does not apply when they are green. Hope I am clear. Another example is consider that you sell an investment inside IRA when in red and take the distribution. The selling reduced your portfolio such that you require selling on another fund to repurchase the fund you sold for distribution. You cannot do that because when you sold the first one when it was in red. This is true even when the transactions are inside an IRA. Vanguard will even prevent you to buy the fund even when it was sold green. With vanguard you need to strategically sell funds to maintain the final portfolio allocation to prevent repurchasing.
@@malaybasu961 I understand but my point is that this complexity only applies if part of your distributions are coming from a taxable account (even if, as you say, it's just a portion). I don't think it would trigger when you are re-balancing in a 401k for example.
Rob, this sounds pretty straight forward for us DIY guys who have been knee deep in this finance muck for years, but for the spouse who is clueless it would be impossible if I passed away. If I did pass first which is the likely scenario, what would you suggest the (non-financial) spouse do to deal with the mechanics of creating a paycheck. Probably find a good fee based advisor to help out or just move all funds in all accounts to a balanced fund like wellington (probably not optimal but makes it doable for a non financial person).
That's a great question, and I'm actually working on a document for my wife that walks through this very issue. Perhaps I'll do a video on it once I'm finished.
@@rob_berger yes, please share that with us!
All my IRA is in Wellington isn’t this cheaper expensive ratio than 3,4 or 5 fund allocation? I seems more complicated.
5:23 in Oroville, Ca
Ah great this was a specific question of mine! Thank you this makes sense.
Rob, I'm surprised you didn't at least mention several things:
a) potential tax-loss harvesting in a taxable account
b) rebalancing in retirement accounts such that ROTHs gets the most growth funds and IRAs get the more stable funds
c) if you have multiple IRAs and/or multiple ROTHs that it isn't necessary to rebalance within each account as long as you end up with your desired overall asset allocation when you sum the total of all accounts.
You don't need to do tax-loss harvesting in Roth or 401k accounts and he focused mostly on those for his answer. Also, most folks probably want to keep relatively simple (and balanced) portfolio in retirement so having different purposes for a Roth vs a Taxable vs a tax-deferred isn't really necessary.
And for your third point... well yea, but the question was which investment to withdraw from first... the answer from Rob still applies even if your "balance" comes from a total allocation across several accounts.
need to be cautious if selling in taxable account to generate income while rebalancing in a retirement account. this combination of transactions can trigger the wash sale rule if an investment in the taxable account is sold at a loss and then repurchased in any account within 30 days.
I don't think you mentioned, but it might be a good idea to do Traditional IRA/401K/403b/457 -> Roth Conversion when you are retired. This is assuming you are in lower tax brackets (0/10/12%), after retirement and have the spare funds to pay the taxes.
I think this makes sense since given the recent change in inheritance rules of retirement accounts and also helps with RMDs down the road.
It also allows you to lock in a low tax rate for those funds, and have access to those funds later tax free if you need to do a large withdrawal later for some reason.
Thank you! this is very important information!
What is the best frequency to withdraw money in retirement? Quarterly? Annually? Monthly?
Great Video!
Great information
Great advice. Makes sense.
Timely and helpful, Rob. Thanks!
Just spend the growth
I want to retire but it seems like every few months a large bill comes along - usually related to health, car, home or travel. Also if I sell my townhouse I would have to pay a lot more in rent to stay in my area. As a single person I really don’t want to move to some low-cost area away from my children and friends. My ideal retirement is not sitting alone in an apartment in some backwards town in America where everyone has the opposite political views that I have and don’t like the same things I like. So I chose to work until I’m 65 - but there’s longevity in my family, with most people living into their 90s and being very healthy well into their 80s.
No, you can't rebalance like that - sell in taxable, buy in qualified. That rotates certain asset classes out of certain types of accounts. Depending on the retiree's situation it may completely ruin them. Say you can't touch your qualified account for another 10 years and you have sold your bonds in taxable and re-purchased them in qualified. Sure you're still overall balanced, but you will rely on your taxable only for another decade, now you have no bonds in it and the stocks crater. You're screwed. This is a mistake. Even if the qualified account is accessible, but plays a special role in the tax planning process, you still can't do that.
I have to say I'm shocked by how many people (including knowledgeable guys like Rob here, and also myself until very recently) don't understand what diversification actually is and why it's required; they think there is some kind of special meaning in maintaining the allocation. Advice like this shows a complete lack of understanding of which purpose each asset class serves.
Another example is Rob's own portfolio - he claims he has kept 10% in bonds for decades while he was working. That makes zero sense. Why do you need bonds in your portfolio if you know you won't start withdrawing from it for decades? Less volatility is only valuable if you're withdrawing, or if you're mentally incapable of stomaching the charts go down, but even then 10% won't do much for you. Just a senseless loss of long-term performance. If you just understand the role of bonds in your portfolio - which is to protect stocks from having to sell them while they are down - you'd never do this.
Another example is the notion of percentage-based asset allocation itself. There is no reason to refer to percentages when talking of allocation if you're talking about a particular individual. You don't need x% in stocks and y% in bonds; rather you need as much in stocks as you can while at the same time having enough dollars (not percentage points) in bonds to last you through a reasonably long stock downturn. No person will ever think of asset allocation in terms of percentages if they understand that. The amount of bonds must be expressed as annual expenses times number of years to last in a downturn, and the remainder will be stocks. The percentage value is completely meaningless and will fluctuate as so does the relationship between annual expenses and the overall size of the portfolio. This can easily be shown with an extreme example: it is asinine to suggest that a retiree with $100m in assets who only plans to spend $300k a year must maintain 40% of the portfolio in bonds; that would be $40m in bonds. What purpose would that serve? None.
Love the thumbnail :)
Dear Rob,
How can one withdraw money from any fund.
Ideally one should withdraw from the fund which is performing best currently or if bucket strategy to follow, least risky bucket is the best where one puts its 4 year withdrawl money in low duration or liquid debt funds and fill this bucket from time to time from other buckets.
Remember Rob, if bucket strategy fails in certain condition then your other solutions will also fail. I have checked. Why don't you also show us by checking.
Regards.
If you rebalance your asset allocation after your withdrawal, it doesn't matter which "bucket" or which fund you take the money from. Your investments will look the same after rebalancing no matter where you take it from.
If your portfolio pays enough dividends to live on, say 4% annually, then why not just have all the dividends be deposited in your core account (like SPAXX at fidelity) and withdraw those as needed?
Wondering what makes more sense in taking a yearly distribution. Would it be better to take let’s say $24,000 out at one time and put it in a high interest savings account and pull your monthly amount out of that or take $2,000 out monthly from your investments.
Also wondering what triggers taking money out of your cash bucket “bonds” instead of your stocks? How much does the total investment need to be down or up to make the decision?
find pattern in the chaos, exploit it and make a fortune while most people are still confused! there will always be a bubble, a correction, a reset. if you could catch a hint of how many FREE tools are out there that can help us understand the flow of the markets better rather than being concerned about a crash
nothing truer that this. my favorite ones are tradingview's paid research and data analysis tools. yea they are not free but still, you get access to professional work by experts. what are yours?
I need more specific show/tell on how to choose. I do have a bunch of little positions, some of which I inherited, and now that I'm retired and need money I don't know how to choose what to sell. Do I just look at the performance tab in Fidelity and if so, would I choose to sell the lowest performers, and what if one did better for the three years past, a different one did better for the 5 yrs and a third did worse at 3 and 5 yrs but best for lifetime performance? What if some are dividend funds, some are growth+income funds, and some are just growth funds? Do I need to factor in the yield number at all?
Can’t get get questions answered / email responded to / who do I report your lack of fiduciary responsibility to ? ( “ no one seems to want to do the minimum ?
Digging through videos trying to find drawdown strategies for which type of account first. Do you have any? Many sources say to run down taxable accounts first, but it just seems like a bad idea to completely empty one bucket because that reduces flexibility. Also, no one talks about which funds to take from in a downturn. My retirement company says they just do withdrawals evenly from each fund. That seems like a really terrible idea in a downtown. Thoughts?
Given 2022 pull backs may have some lots with losses. Only nuance this might add is you can trigger wash sales if you sell in taxable and you rebalance a in your retirement account right?
So I have a question regarding the Schwab article. They have (2) accounts, a taxable account (assuming 401K) and an IRA. The IRA only has bonds in it. At the end of the year the bonds are down $10,000. When they rebalance in the last chart, it appears they added $31,000 to the bond fund. Where did this money come from since the IRA only has the one fund? Can you rebalance (shift) funds from a 401K to an IRA like that?
So a target date or Wellington fund easy to do IRA withdrawals?
Or is that only in draw down rather than in accumulation?
Why not reinvest dividends and interest?
Rob, does rebalancing change if the market is yo-yo-ing?
It depends on how you rebalance. If you rebalance based on time, then no. When it's time to rebalance, you rebalance. If you rebalance only when asset allocation deviates by a set percentage, than it might.
@@rob_berger Got it. Thanks!!
Do you get taxed every time you rebalance?
You are sheltered from taxes in an IRA, 401(k) or 403(b). You may incur taxes if you rebalance in a taxable account.
@@jamesdarnell8568 Thanks James. That's what I thought. I just don't know the details very well.
You sound a little hoarse, Rob. Burning the candle at both ends?
Always.
If your portfolio pays enough dividends to live on, say 4% annually, then why not just have all the dividends be deposited in your core account (like SPAXX at fidelity) and withdraw those as needed?