I have been following your videos, Geoff, for about two years now and they have helped me immensely. I am well prepared to face the changes associated with retirement and I feel more confident now. This video is quite timely since I just retired two weeks ago!!!
Do I understand this correctly? FMFXX is the settlement fund/money market already associated with my Vanguard IRA. Transfer the annual amount there and do monthly withdrawals from that, and avoid multiple transaction fees? Do I have it right? That’s clever!
And you can make your quarterly tax payments at the same time, ensuring that you get that key task done and that you use the right withdrawal amounts in your quarterly payment calculations.
I retired at 64 and now am 71. I been able to keep my withdraw to a couple times a year, mostly for real estate taxes and major expenses (if any) and it has worked well for me. Being single does make the decision making process easier!
I hadn't given any thought to this so I really appreciate that this topic was discussed. I also appreciate the comments to see how others are handling it.
Some good points. In our case we are doing the following 1. We have 3 years of withdrawals in a Money Market Fund (out of the market) This money is to only be used if the market is down 10% or more from its high. 2. If the market is not down 10% from its high we will take monthly withdrawals from our market investments. 3. If the market is down 10% or more we will take our monthly withdrawals from MM fund. I just retired 2 days ago so reviewing my accounts once a month is OK. Over time I may change how often I review my accounts but for now this is my plan.
@@J-2024-v8i My plan has 3 buckets Bucket1 - 3 Years of withdrawals in MM funds to handle a down market (market down 10% from the last high) Bucket2 - Enough Dividend ETFs so I can live off of SS plus dividends. Bucket3 - The remainder in Growth ETFs If the market is down 10% from its high withdraw from bucket1 So if the market is down for 3 years in a row bucket1 will be empty and I will start taking the dividends from bucket2 Once the market starts to make new highs I will refill bucket1 with money from bucket2 dividends (it will take 3 years for refill from empty)
With an annual withdrawal, you also have to look at the opportunity cost you MAY lose out on with the dividends you could miss out on during the year. Put the money you are not using in a high yield savings account may solve some of that issue.
Any money you have just sitting around should be in a high yield savings acct, vs some other non money making acct. Although the honest truth about some of these things is if you have to worry about them you probably have not saved enough. Sure its nice to make an extra 1000+ based of this situation or that, but if the extra 1000+ makes that big of a difference to your retirement, you probably are on very shaky ground to begin with.
Yep, that is exactly what I'm doing and also my opinion as well. I'm just a "regular" guy with only about 600k in retirement investments (but I live VERY frugally and only need to draw one thousand a month in addition to my SS benefit, so I'll be fine.
this information is right on point for me at this time , I'm still working, but fewer hours, haven't take retirement yet, still a few years out from full retirement, , so withdrawals though the year has been a blessing for me, I don't make a withdrawal every month, just as my budget warrants, so thank you so much for this advice,
I did not need the first withdrawal opportunity, so began taking my annual RMD in November each year which has worked nicely for me. Transferred my properties to my two children five years ago, and have beneficiaries or P-O-D on all investment and cash accounts.
In my first year of retirement I took a single withdrawal in January for the entire year. Since then I take withdrawals quarterly. I think it's a good balance between annual and monthly withdrawals. It all boils down to what works best for you.
Since the market may be volatile during the year, up in one quarter and down in another, do you take the withdrawal from stocks when up and from bonds when down, or do you use some other strategy?
@@J-2024-v8i I have different investment "buckets" for long term and short term. I take withdrawals from a short term money market bucket that is paying a bit over 5% interest these days.
I’m not disciplined enough to take annually. I wish I was so I could time the market with withdrawals. So I use monthly, it’s part of my three legged stool, pension, 401k, part time job, waiting for the forth leg to kick in “social security”. All in all I’m happy I hung it up at 55, gotta go my tee time is coming up 😂
Good for you. I waited until I was sixty five to retire due to the need for medicare, but most people I used to work with want to leave at sixty two and look for alternative medical plans for that bridge period. I'm always so happy to hear about people who retired early and love the fact that they did. Too many people I've known who never had the chance to even retire passed away, and many of them quite suddenly. Best of luck, and with SS coming, you'll be in great shape.
I hear you on not getting to retire. My dad worked till 65 then died at 67. Part of the reason I retired early is because of what happened to him. I’ve also worked with way too many people who kept saying I’m working one more year too many times till they died and didn’t get a chance to retire and enjoy the fruits of all their hard work and saving through their lifetime. It’s sad. As far as health insurance, I received an insurance buyout from my employer who pays until I get to Medicare, it’s high deductible but better than nothing.
In my view, one takes profits annually. If my SPY account grows from nominally $1m by 10% to $1.1m then the full $100k in January. One could take 7% if inflation was 3%. If SPY dropped 10% to $900k then take nothing. Doing this over a nominal life span of 30 years and projecting from the historical trend then one would deposit 25 times. The point is taking profits when they occur. You will not go hungry that way. The alternative is to flat line withdraw such as staying in cash. 30 annual withdrawals is around $33,000 each year. The point is not to leave inheritance to relatives you never see in decades nor lawyers who make their yacht payments on estate settlement.
Very interesting. For the first several years in my retirement I have taken a distribution out in the first week of January. Since my SS is reasonably generous it pays for all my monthly necessary expenses, so the distribution is for planned trips, fun times, and projects I might need to spend a fair amount of money on such as having a large tree cut down or some home upgrade. I will be rolling my 401k over soon (finally) so setting up a monthly allowance from someplace like Fidelity or Vanguard whose money market funds are paying 5% or so without charging $40 for each distribution like my horrible 401k does will be very much worth considering especially since next year is the start of my RMD.
@@steveshea3544 I clearly stated I was doing it. The provider of my 401K had many good low-cost index funds and did not charge you at all to pull money out once retired. Better yet, you were also allowed to take the distribution from all the funds or just one of the funds which was great, so you did not have to sell an equity fund when it was down. That changed when a large outfit gobbled up that provider so now it's time to get out but before this it was a great place to keep the money.
Investing in a Roth IRA is a smart move because contributions are made with after-tax dollars, allowing for tax-free growth. When you withdraw in retirement, you get to keep everything. I retired with $2 million.
I bet you didn't manage that without a financial advisor. Approaching retirement, I've greatly benefited from their guidance. Starting late, I knew index fund compound interest wouldn't suffice. Surprisingly, I've outperformed peers who've invested for years.
Another thing to consider is that when you don't have a large amount in an accessible account there is a much lower chance of it being misappropriated. There are several ways this can happen but there are a lot more safeties in place when it isn't in a simple savings or checking account. Unfortunately I've been witness to this happening in multiple ways.
I am fortunate to have a pension and part-time work income. I use those to pay for ongoing expenses and only take a 401k withdrawal for “big ticket” items like building a workshop, buying a car, etc. I have only taken 4 withdrawals in the 9 years since I retired so it is working well for me thus far. And all of my withdrawals were easily planned for a relative high in the market as none were time critical like say a health emergency would be. However, everyone is in a different situation and needs to tailor their withdrawals to their circumstances.
I have been taking quarterly withdrawals. I was putting the money in a regular savings account at 0.6% to dole out to my checking account, but I switched to a couple high yield savings accounts to hold the money at 5% until needed. I also had a wave of concern about the market continuing to rise, so I took my Q3 and Q4 withdrawals and put them into my savings now. So right now I have two months of cash in checking, three months of cash in basic savings, and six months in high yield savings. I feel like that gives me a little more flexibility on when I will have to take withdrawals from the 401k going forward.
As always, great content Geoff. Do you have a video describing the tax advantages of having a Roth IRA as an investment account, to avoid tax while changing stocks position?
I do monthly to average out market gains and losses. It also continues and supports our pre-retirement budget and forecast cash flow. It avoids overspending.
A simple solution seems to be overlooked. One could take it annually, deposit into a high interest savings account that pays into the checking/bill-paying account monthly, just like during working years. One could even divvy the amount up into as many accounts as necessary for itemizing expenses, like: health insurance and costs associated, utilities, groceries, etc and transfer when applicable or pay from those accounts, if possible.
I am a retired municipal employee. I have a 457 plan. While we enjoyed the deferred tax benefits while we worked. But taking an annual distribution, we get killed by federal and state income taxes. Fortunately we also have a Roth IRA, which we will take distributions, later on. House paid off College loans paid. Solar panels provide us with free electricity.
I tend to make my withdrawal at the end of the year. I need to transfer money from my traditional to my Roth without being pushed into the next Medicare bracket. In December, I can predict my income quite well and have little chance of making a bad mistake and transferring too much.
I was planning to do the same, but my only concern is what if the market goes down at the end of the year, while the highest for the year is right now? Would it make sense to take some of the withdrawal now still safely in the current tax bracket and then the rest at the end of the year at the time of the Roth conversion? We can’t really time the market so there is risk either way by either missing out on the market continuing up or at least taking some off the table before it goes down, if it does.
@@annewax9091 Thanks. I do the same, but I also want to realize some long term gains each year at 0% and, you waste the 0% space each year if you don’t it. Therefore, by waiting to the end of the year, if the market is down, you will take the funds from the MM/CD instead of realizing any gains that you could have harvested earlier in the year when the market was up, essentially wasting space in the 0% tax bracket for that year. It is a good idea to harvest gains each year, especially for securities that have already grown significantly over many years since you first bought them.
Taking a lump sum in the first quarter means it gets multiplied by four for estimated tax purposes and you will be sending a big check to the government. It sorts out later of course, but cash flow will take a hit.
This sort of discussion makes me glad that the only pretax account I have is a small, relative to my total portfolio, 403b. I just let that account pay my RMDs monthly and there are no transaction fees. That money is going directly into treasuries at present, but that will change if rates drop. Other than that I just spend what I feel like and don't worry about withdrawal frequency. It helps that I am frugal and spend less than my fixed income (pensions and social security).
Strongly favor yearly withdrawal. If your shares drop/loose rise/win money during the year you can decide whether to withdraw DEC 30 or JAN 2 and capture or defer potential taxes as optimal for your situation (I have an aggressive investment profile). I also use a buffer low-interest bank loan if there's been a bad year (can go up to 3 years with loans only). No problem with money management or discipline. Probably not for everyone.
For me I think monthly-ish / quarterly is better, for now anyway. I'll be drawing money out of a non-retirement brokerage account for awhile and withdrawal fees are pretty much zero. And I don't want a lot of cash sitting in the bank, even in a high interest account. I don't think we'll have trouble managing the money. But this idea of spending is new to me, I'd like to ease into it ;)
Just like investing; I take my withdrawals monthly sort of 'cost averaging'. I then take one towards the end of Dec to take advantage of the lower tax bracket. I keep 3 years of needed withdrawals in Cd & T-bill ladders so if the market takes a dive, i do not have to sell anything & wait for them to cycle back up.
I'm slowly transitioning a small part of my tax deferred investments to investments that pay monthly dividends; I also have high yield savings, and taxable accounts that I'm also transitioning a portion to investments that pay monthly dividends. My plan is to take money from monthly dividends out of my tax deferred accounts monthly or quarterly; if the market is down, I have savings as a cushion, if the market is up I'll increase my savings or my taxable investments which I can also use to provide additional dividend income. Balancing the transaction fees with spreading my withdrawals over more frequent smaller withdrawals. I'll be in an interesting position when I retire; if I only take amounts that keep me in the 24% Federal tax bracket until age 72, when RMDs hit, I will be forced to take withdrawals that put me in the 37% tax bracket for a few years. On average, my change in asset value increases annually more than I'll be withdrawing to stay at or below the 24% tax bracket before RMDs. I'm trying to avoid being in a higher tax bracket than 24% when I'm retired, but it doesn't look possible.
In my estimation it's extremely difficult. We have gone through a few and so far they have been unwilling or unable to understand basic finance. Still looking.
I would just take the annual withdrawal and put the lump sum into a money market account within my own bank account. Then just take out the monthly amount from the lump sum into your checking account. DONE.
I am a 54-year old burnt-out doctor planning retirement soon. Currently seeking best strategies for market downturns and hyperinflations to save my $400K declining portfolio.
at a point like this, when the pressure is already on you to retire, its best recommended you seek the guidance of a well experienced advisor, as this allows you make smarter investing decisions.
Take a year off and recover. Then look at other work options. You might find a better work environment. Or consider part time work, such as with your state or local government. Good luck 🍀
One purpose of monthly withdrawals is to force you to spend money. If cash starts to pile up in your checking account, you will know you are spending less than you had planned.
confusing! But I take monthly and whatever I don't spend goes into my high rate savings account. That said, I don't get a lot per month. Just what I think my expenses will be. I totally own my house, but the taxes are high as is the insurance. I save that in savings monthly so I can make those payments. I buy groceries only once every 6 weeks, not to exceed $100. I'm not that interested in food these days. But it's healthcare. That is a pretty penny, and takes about 1/3 of what I get monthly. I didn't plan on retiring this early, but here we are.
Im with a company 401k.I think they send a notice in 30 days or so to take a lump sum payment.Thats what I would like to do and pay the taxes before the Trump tax cuts end near the end of 2025. And then put it into my credit union and put a significant amount into a 3-5 year CD.I don't want to worry about investing anymore or having an account manager.I have very tight control of my money and not worried about blowing it all.Also SS and VA compensation. Do you think this is an acceptable way to do it? I plan on seeing a fee only advisor also and tax consultant.
I just take a little at a time out every month as I need it. I’d rather keep as much in the IRA as possible to keep that money working for me until I need some the next time.
I have all mine in dividend payers so selling at the top or bottom doesn't really matter, my dividends go into an interest bearing cash account that is liquid so I draw from that. I never have to sell my shares.
Annual is better for me. Since I took retirement seriously; I am now plane polorized towards savings. I would rather have a hard stop to influx of income than a trickle. I have learned and changed a lot. I have become my own mizar.
While my retirement investments may at times be needed to meet my needs, it mostly is just beer and date money (except HSA). Sounds like my withdrawal strategy might be a hybrid.
I do not understand what is "there are costs every time you withdraw from the account"? Does it mean every withdraw from personal IRA, for example, costs something? How much? Anybody can answer please?
It depends where you have your money. For example, if it's still in a 401K, does your plan charge $40 (or some amount) for each transaction? So if you withdraw once a year it would be $40, If you withdraw once a month it would cost $40 x 12 or $480. Some people have individual stocks and you would most likely pay a fee for each transaction. If you have mutual funds or ETF's somewhere like Vanguard, there would not be a transaction fee at all. Hope that answers your question.
no idea what you are referring to when you describe "fees" for making a "withdrawal" from an IRA. You should ONLY have to pay taxes. If you have a broker charging you fees, find another broker. For me, I dont have a "regular" withdrawal . I do keep track of all my sources of income as well as my expenses. And when I need to move money into the primary checking account. I do.
Very timely video for me. I had thought to take annual withdrawal but have that money put into my money market fund. And then have monthly deposits from my money market to come into my checking account which then functions as a monthly income source. I keep the money market fund earning fairly good interest. Does this strategy make sense?
I do the exact same thing. I do an annual withdrawal in January based on my total expenses (been keeping track of all my expenses including extra amount for vacation, and a little more for miscellaneous spending). I put it all in a high yield money market account. And I set up an automatic transfer to my checking account each month, so it acts a monthly salary. I don’t worry about estimated taxes since I have it withheld at the time I take the withdrawal out of my 401K. This way, I have the rest of the year for the balance to grow or recover based on what happens in the market for the next 11 months. If you prefer to do monthly or quarterly, then do it. Do what feels comfortable for you.
I guess I'm disappointed with this one. While I understand that folks might need guidance on what to watch out for when taking 1 or 12 withdrawals from a retirement account. The seriousness and urgency in making the decision seem overblown. You can change your mind. You can try it one way and see how it works for you. You can probably switch institutions if yours doesn't have favorable withdrawal terms. You can use your once a year withdrawals to coincide with your annual rebalancing minimizing the risk of selling any particular asset class low. You can still have an emergency fund so that the timing of your withdrawal isn't critical. Your audience probably slants hard toward those who have some financial discipline... otherwise they wouldn't be watching retirement account optimization videos.... This seems like a small reversible decision presented as a critical decision that requires significant analysis.
The only American who won't acknowledge this Administration's failed economic policies is Joe Biden. "Shrink-flation' is the least of our worries compared to rising rents and stagnant wages, but it is an undeniable indicator of how bad our inflation has gotten. I have $100k that i like to invest in a non-retirement account, any advice on that?
I would avoid index funds, mutual funds, and specific stocks for the time being. Right now, the best option is a fixed income of five percent. Put money aside for the times when the market really starts to bounce back.
45% of Americans do not invest in the stock market because of lack of guidance. Every year you don't invest, you are falling behind. I’m hitting numbers in the stock market I used to dream of… Going from $50k to $600k in my portfolio is surreal all thanks to insights from my financial advisor.
I found her page by searching for her entire name online. After that, I emailed her and we set up a meeting so we could talk; I'm currently waiting on her response.
Count me with Joe! My stock fund has exploded under the Biden Administration! Retirement is on my horizon, baby! Also, my health insurance is covered by my husband's union for the rest of my life. Take that!
As an lnvesting enthusiast, I often wonder how top level investors are able to become millionaires off investing. . I’ve been sitting on over $545K equity from a home sale and I’m not sure where to go from here, is it a good time to buy into stocks or do I wait for another opportunity?.
People dismiss the importance of advisors until they are burned by their own emotions. I remember a couple of summers ago, following my lengthy divorce, I needed a good boost to assist my business stay alive, so I looked for qualified consultants and came across someone with the highest qualifications. She has helped me raise my reserve from $275k to $850k, despite inflation.
How can I participate in this? I sincerely aspire to establish a secure financial future and am eager to participate. Who is the driving force behind your success?
… or, you could largely insulate yourself from the market ups and downs by via tax (managing your marginal tax rate withdrawals) and market (harvesting profits when the market is up) smart “bucket methodology”. Fund 3-5 years of cash/near cash. Then spend from that cash bucket, perhaps even until it is drained if the market is down. Refill it when the market recovers and according to the remaining room in your marginal tax bracket.
I have been following your videos, Geoff, for about two years now and they have helped me immensely. I am well prepared to face the changes associated with retirement and I feel more confident now. This video is quite timely since I just retired two weeks ago!!!
Congratulations!
Congratulations. You're going to LOVE it.
You can have both. Convert your annual amount to a money market fund inside the investment account. Withdraw monthly from that MM account.
Do I understand this correctly? FMFXX is the settlement fund/money market already associated with my Vanguard IRA. Transfer the annual amount there and do monthly withdrawals from that, and avoid multiple transaction fees? Do I have it right? That’s clever!
Quarterly w/d works for me. I transfer it from IRA to bank savings account. Then bank savings to bank checking to pay for life
Yeah I think I wrote above a similar strategy.
Seems like a good compromise to me. This also prompts you to monitor your quarterly statements.
And you can make your quarterly tax payments at the same time, ensuring that you get that key task done and that you use the right withdrawal amounts in your quarterly payment calculations.
@@marknussbaum8394 exactly. I have the fed and state tax withheld at time of withdrawal
I retired at 64 and now am 71. I been able to keep my withdraw to a couple times a year, mostly for real estate taxes and major expenses (if any) and it has worked well for me. Being single does make the decision making process easier!
I hadn't given any thought to this so I really appreciate that this topic was discussed. I also appreciate the comments to see how others are handling it.
Some good points.
In our case we are doing the following
1. We have 3 years of withdrawals in a Money Market Fund (out of the market)
This money is to only be used if the market is down 10% or more from its high.
2. If the market is not down 10% from its high we will take monthly withdrawals from our market investments.
3. If the market is down 10% or more we will take our monthly withdrawals from MM fund.
I just retired 2 days ago so reviewing my accounts once a month is OK.
Over time I may change how often I review my accounts but for now this is my plan.
Sounds like a good plan. What will be your strategy to replenish the MM and how low will you let it go?
@@J-2024-v8i My plan has 3 buckets
Bucket1 - 3 Years of withdrawals in MM funds to handle a down market (market down 10% from the last high)
Bucket2 - Enough Dividend ETFs so I can live off of SS plus dividends.
Bucket3 - The remainder in Growth ETFs
If the market is down 10% from its high withdraw from bucket1
So if the market is down for 3 years in a row bucket1 will be empty and I will start taking the dividends from bucket2
Once the market starts to make new highs I will refill bucket1 with money from bucket2 dividends (it will take 3 years for refill from empty)
With an annual withdrawal, you also have to look at the opportunity cost you MAY lose out on with the dividends you could miss out on during the year. Put the money you are not using in a high yield savings account may solve some of that issue.
Any money you have just sitting around should be in a high yield savings acct, vs some other non money making acct. Although the honest truth about some of these things is if you have to worry about them you probably have not saved enough. Sure its nice to make an extra 1000+ based of this situation or that, but if the extra 1000+ makes that big of a difference to your retirement, you probably are on very shaky ground to begin with.
Yep, that is exactly what I'm doing and also my opinion as well. I'm just a "regular" guy with only about 600k in retirement investments (but I live VERY frugally and only need to draw one thousand a month in addition to my SS benefit, so I'll be fine.
We look forward to your videos! Thank you for your hard work
this information is right on point for me at this time , I'm still working, but fewer hours, haven't take retirement yet, still a few years out from full retirement, , so withdrawals though the year has been a blessing for me, I don't make a withdrawal every month, just as my budget warrants, so thank you so much for this advice,
You bet
I was just thinking of this last night. Great minds....or timing... or something.
Thanks!
So much info here and lots to think about. I learn something from every video and watch some twice!
Great video, I plan to take monthly distributions. Easy to manage . Just need to verify what the fees will be.
I did not need the first withdrawal opportunity, so began taking my annual RMD in November each year which has worked nicely for me. Transferred my properties to my two children five years ago, and have beneficiaries or P-O-D on all investment and cash accounts.
In my first year of retirement I took a single withdrawal in January for the entire year. Since then I take withdrawals quarterly. I think it's a good balance between annual and monthly withdrawals. It all boils down to what works best for you.
Since the market may be volatile during the year, up in one quarter and down in another, do you take the withdrawal from stocks when up and from bonds when down, or do you use some other strategy?
@@J-2024-v8i I have different investment "buckets" for long term and short term. I take withdrawals from a short term money market bucket that is paying a bit over 5% interest these days.
I’m not disciplined enough to take annually. I wish I was so I could time the market with withdrawals. So I use monthly, it’s part of my three legged stool, pension, 401k, part time job, waiting for the forth leg to kick in “social security”. All in all I’m happy I hung it up at 55, gotta go my tee time is coming up 😂
As long as Biden doesn't give you his 3rd leg when you bendover and start collecting SSA and nothing is left.
Good for you. I waited until I was sixty five to retire due to the need for medicare, but most people I used to work with want to leave at sixty two and look for alternative medical plans for that bridge period. I'm always so happy to hear about people who retired early and love the fact that they did. Too many people I've known who never had the chance to even retire passed away, and many of them quite suddenly. Best of luck, and with SS coming, you'll be in great shape.
I hear you on not getting to retire. My dad worked till 65 then died at 67. Part of the reason I retired early is because of what happened to him. I’ve also worked with way too many people who kept saying I’m working one more year too many times till they died and didn’t get a chance to retire and enjoy the fruits of all their hard work and saving through their lifetime. It’s sad. As far as health insurance, I received an insurance buyout from my employer who pays until I get to Medicare, it’s high deductible but better than nothing.
I'm taking monthly. This allows me to let it grow as much as possible.
In my view, one takes profits annually. If my SPY account grows from nominally $1m by 10% to $1.1m then the full $100k in January. One could take 7% if inflation was 3%. If SPY dropped 10% to $900k then take nothing. Doing this over a nominal life span of 30 years and projecting from the historical trend then one would deposit 25 times. The point is taking profits when they occur. You will not go hungry that way. The alternative is to flat line withdraw such as staying in cash. 30 annual withdrawals is around $33,000 each year. The point is not to leave inheritance to relatives you never see in decades nor lawyers who make their yacht payments on estate settlement.
Thank you again Jeff. This is one of the things I've been struggling with and this gives me additional information to think about.
I use my annual withdrawal to run my income up to the next marginal tax rate. Doing this in december makes it easier to calculate.
Great thought provoking information. Thank you 👌🏻
Very interesting.
For the first several years in my retirement I have taken a distribution out in the first week of January.
Since my SS is reasonably generous it pays for all my monthly necessary expenses, so the distribution is for planned trips, fun times, and projects I might need to spend a fair amount of money on such as having a large tree cut down or some home upgrade.
I will be rolling my 401k over soon (finally) so setting up a monthly allowance from someplace like Fidelity or Vanguard whose money market funds are paying 5% or so without charging $40 for each distribution like my horrible 401k does will be very much worth considering especially since next year is the start of my RMD.
Have you considered rolling your 401K to an IRA? Only one distribution cost, then take any future distributions from that IRA without costs.
@@steveshea3544 I clearly stated I was doing it.
The provider of my 401K had many good low-cost index funds and did not charge you at all to pull money out once retired.
Better yet, you were also allowed to take the distribution from all the funds or just one of the funds which was great, so you did not have to sell an equity fund when it was down.
That changed when a large outfit gobbled up that provider so now it's time to get out but before this it was a great place to keep the money.
@@steveshea3544 Interesting thought. Would love to hear more about any cons on doing this.
Investing in a Roth IRA is a smart move because contributions are made with after-tax dollars, allowing for tax-free growth. When you withdraw in retirement, you get to keep everything. I retired with $2 million.
I bet you didn't manage that without a financial advisor. Approaching retirement, I've greatly benefited from their guidance. Starting late, I knew index fund compound interest wouldn't suffice. Surprisingly, I've outperformed peers who've invested for years.
Ha! I didn't bring that in on my own. I was clueless in finance. A great advisor truly makes a huge difference.
"Melissa Elise Robinson" is the licensed advisor I use. Just research the name. You’d find necessary details to work with to set up an appointment.
Another thing to consider is that when you don't have a large amount in an accessible account there is a much lower chance of it being misappropriated. There are several ways this can happen but there are a lot more safeties in place when it isn't in a simple savings or checking account. Unfortunately I've been witness to this happening in multiple ways.
I am fortunate to have a pension and part-time work income. I use those to pay for ongoing expenses and only take a 401k withdrawal for “big ticket” items like building a workshop, buying a car, etc. I have only taken 4 withdrawals in the 9 years since I retired so it is working well for me thus far. And all of my withdrawals were easily planned for a relative high in the market as none were time critical like say a health emergency would be. However, everyone is in a different situation and needs to tailor their withdrawals to their circumstances.
I have been taking quarterly withdrawals. I was putting the money in a regular savings account at 0.6% to dole out to my checking account, but I switched to a couple high yield savings accounts to hold the money at 5% until needed.
I also had a wave of concern about the market continuing to rise, so I took my Q3 and Q4 withdrawals and put them into my savings now.
So right now I have two months of cash in checking, three months of cash in basic savings, and six months in high yield savings. I feel like that gives me a little more flexibility on when I will have to take withdrawals from the 401k going forward.
As always, great content Geoff. Do you have a video describing the tax advantages of having a Roth IRA as an investment account, to avoid tax while changing stocks position?
I do monthly to average out market gains and losses. It also continues and supports our pre-retirement budget and forecast cash flow. It avoids overspending.
Great video. I’ve not seen one on this topic and I learned a lot. Thanks!
How about the best of both worlds?Take an annual distribution and ladder a rolling 12 month Treasury Bills or CD ladder
A simple solution seems to be overlooked. One could take it annually, deposit into a high interest savings account that pays into the checking/bill-paying account monthly, just like during working years. One could even divvy the amount up into as many accounts as necessary for itemizing expenses, like: health insurance and costs associated, utilities, groceries, etc and transfer when applicable or pay from those accounts, if possible.
I like the thumbnail with you looking over their shoulders lol, I don’t know why this cracked me up. Video liked
How about both? Taking a withdrawl monthly over the course of the year and additional withdrawl annually.
I am a retired municipal employee.
I have a 457 plan. While we enjoyed the deferred tax benefits while we worked. But taking an annual distribution, we get killed by federal and state income taxes.
Fortunately we also have a Roth IRA, which we will take distributions, later on.
House paid off
College loans paid.
Solar panels provide us with free electricity.
Solar panels are not free.
You beat the electric bill, but then you have a big lean against your property to buy the damn things.
Thano
I tend to make my withdrawal at the end of the year. I need to transfer money from my traditional to my Roth without being pushed into the next Medicare bracket. In December, I can predict my income quite well and have little chance of making a bad mistake and transferring too much.
I was planning to do the same, but my only concern is what if the market goes down at the end of the year, while the highest for the year is right now? Would it make sense to take some of the withdrawal now still safely in the current tax bracket and then the rest at the end of the year at the time of the Roth conversion?
We can’t really time the market so there is risk either way by either missing out on the market continuing up or at least taking some off the table before it goes down, if it does.
JI-620 - That’s why I keep a MM/CD bucket to pull from in downturns and replenish when the market bounces back.
@@annewax9091 Thanks. I do the same, but I also want to realize some long term gains each year at 0% and, you waste the 0% space each year if you don’t it. Therefore, by waiting to the end of the year, if the market is down, you will take the funds from the MM/CD instead of realizing any gains that you could have harvested earlier in the year when the market was up, essentially wasting space in the 0% tax bracket for that year. It is a good idea to harvest gains each year, especially for securities that have already grown significantly over many years since you first bought them.
Taking a lump sum in the first quarter means it gets multiplied by four for estimated tax purposes and you will be sending a big check to the government. It sorts out later of course, but cash flow will take a hit.
This sort of discussion makes me glad that the only pretax account I have is a small, relative to my total portfolio, 403b. I just let that account pay my RMDs monthly and there are no transaction fees. That money is going directly into treasuries at present, but that will change if rates drop. Other than that I just spend what I feel like and don't worry about withdrawal frequency. It helps that I am frugal and spend less than my fixed income (pensions and social security).
Strongly favor yearly withdrawal. If your shares drop/loose rise/win money during the year you can decide whether to withdraw DEC 30 or JAN 2 and capture or defer potential taxes as optimal for your situation (I have an aggressive investment profile). I also use a buffer low-interest bank loan if there's been a bad year (can go up to 3 years with loans only). No problem with money management or discipline. Probably not for everyone.
For me I think monthly-ish / quarterly is better, for now anyway. I'll be drawing money out of a non-retirement brokerage account for awhile and withdrawal fees are pretty much zero. And I don't want a lot of cash sitting in the bank, even in a high interest account. I don't think we'll have trouble managing the money. But this idea of spending is new to me, I'd like to ease into it ;)
Just like investing; I take my withdrawals monthly sort of 'cost averaging'. I then take one towards the end of Dec to take advantage of the lower tax bracket. I keep 3 years of needed withdrawals in Cd & T-bill ladders so if the market takes a dive, i do not have to sell anything & wait for them to cycle back up.
Great videos.
Thanks.
I'm slowly transitioning a small part of my tax deferred investments to investments that pay monthly dividends; I also have high yield savings, and taxable accounts that I'm also transitioning a portion to investments that pay monthly dividends.
My plan is to take money from monthly dividends out of my tax deferred accounts monthly or quarterly; if the market is down, I have savings as a cushion, if the market is up I'll increase my savings or my taxable investments which I can also use to provide additional dividend income. Balancing the transaction fees with spreading my withdrawals over more frequent smaller withdrawals.
I'll be in an interesting position when I retire; if I only take amounts that keep me in the 24% Federal tax bracket until age 72, when RMDs hit, I will be forced to take withdrawals that put me in the 37% tax bracket for a few years. On average, my change in asset value increases annually more than I'll be withdrawing to stay at or below the 24% tax bracket before RMDs.
I'm trying to avoid being in a higher tax bracket than 24% when I'm retired, but it doesn't look possible.
Timing the withdrawals to the market seems like a bad idea. Should you do the three-bucket strategy for that?
Quarterly in conjunction with my estimated tax payments seems best for me. Transaction costs are nil.
Thanks Mr S
I really enjoyed your video. Do you have a suggestion for finding a good tax advisor/CPA? Thank you.
In my estimation it's extremely difficult. We have gone through a few and so far they have been unwilling or unable to understand basic finance. Still looking.
I would just take the annual withdrawal and put the lump sum into a money market account within my own bank account. Then just take out the monthly amount from the lump sum into your checking account. DONE.
At the end much depends here on what is your personal style. Even long term withdrawals average over time. Just more slowly
I am a 54-year old burnt-out doctor planning retirement soon. Currently seeking best strategies for market downturns and hyperinflations to save my $400K declining portfolio.
at a point like this, when the pressure is already on you to retire, its best recommended you seek the guidance of a well experienced advisor, as this allows you make smarter investing decisions.
@maria_casey this is considerable! enthused about the stock market but dont know how to go about it, can your advsor be of help?
Take a year off and recover. Then look at other work options. You might find a better work environment. Or consider part time work, such as with your state or local government. Good luck 🍀
Fixed index annuity with lifetime rider. Protect that money and get a lifetime monthly check. (Extra social security)
Will take all money for year out in first week of January every year and ig market was down 10% or more I will take from my 5 year cash pile
Would you consider bonds as a cash pile or does it have to be cash?
I do my RMD and QCDs in the first quarter and my Roth conversion in the last quarter, if it makes sense to do that RC.
I'll be in the monthly camp because my IRA is generating income. I don't need, and it would be counterproductive, to sell stock.
One purpose of monthly withdrawals is to force you to spend money. If cash starts to pile up in your checking account, you will know you are spending less than you had planned.
Exactly. I'm a saver by nature and its really hard to spend it without worrying about the future.
@Holy Schmidt. If withdrawing from a Traditional IRA and doing QCDs....does the QCD need to be the first withdrawal of that tax year?
A great number of retirees interviewed state they should have spent more after the scare tactics "you are at risk of running out of money"
I’ll just use my cash and then at the end of the year withdraw from my 401k. This way I get the max return on my investments
What happens if the market drops by 10-15% in September or October?
@@scottb6269 still have enough cash to take out. I have about 10yrs of living expenses saved in cash.
confusing! But I take monthly and whatever I don't spend goes into my high rate savings account. That said, I don't get a lot per month. Just what I think my expenses will be. I totally own my house, but the taxes are high as is the insurance. I save that in savings monthly so I can make those payments. I buy groceries only once every 6 weeks, not to exceed $100. I'm not that interested in food these days. But it's healthcare. That is a pretty penny, and takes about 1/3 of what I get monthly. I didn't plan on retiring this early, but here we are.
Im with a company 401k.I think they send a notice in 30 days or so to take a lump sum payment.Thats what I would like to do and pay the taxes before the Trump tax cuts end near the end of 2025.
And then put it into my credit union and put a significant amount into a 3-5 year CD.I don't want to worry about investing anymore or having an account manager.I have very tight control of my money and not worried about blowing it all.Also SS and VA compensation.
Do you think this is an acceptable way to do it? I plan on seeing a fee only advisor also and tax consultant.
Once a year for tax strategy is what I’ve been doing.
Right now my plan is to do withdrawals every month - sort of DCA in reverse……….🤔
I just take a little at a time out every month as I need it. I’d rather keep as much in the IRA as possible to keep that money working for me until I need some the next time.
I have all mine in dividend payers so selling at the top or bottom doesn't really matter, my dividends go into an interest bearing cash account that is liquid so I draw from that. I never have to sell my shares.
Annual is better for me.
Since I took retirement seriously; I am now plane polorized towards savings.
I would rather have a hard stop to influx of income than a trickle.
I have learned and changed a lot.
I have become my own mizar.
While my retirement investments may at times be needed to meet my needs, it mostly is just beer and date money (except HSA). Sounds like my withdrawal strategy might be a hybrid.
I take it in January for the year. My state has no taxes on IRAs. I pay the federal tax the following spring, no quarterly filing
You can have fed tax withheld at the time of the withdrawals. No need to do quarterly IRS tax payments/filings
You are risking some IRS penalties depending on your current and previous year tax bills. Quarterly payments may be required.
Costs to withdraw my money. That is crazy. I am budget conscious to do an annual withdrawal but how much more does it cost monthly?
I do fortnightly.
I do not understand what is "there are costs every time you withdraw from the account"? Does it mean every withdraw from personal IRA, for example, costs something? How much? Anybody can answer please?
It depends where you have your money. For example, if it's still in a 401K, does your plan charge $40 (or some amount) for each transaction? So if you withdraw once a year it would be $40, If you withdraw once a month it would cost $40 x 12 or $480. Some people have individual stocks and you would most likely pay a fee for each transaction. If you have mutual funds or ETF's somewhere like Vanguard, there would not be a transaction fee at all. Hope that answers your question.
no idea what you are referring to when you describe "fees" for making a "withdrawal" from an IRA. You should ONLY have to pay taxes. If you have a broker charging you fees, find another broker. For me, I dont have a "regular" withdrawal . I do keep track of all my sources of income as well as my expenses. And when I need to move money into the primary checking account. I do.
I was wondering about this also. I wonder if it has to do with pensions?
I agree. I do believe some 401k accounts have fees, but no clue why one would keep a 401k once retired
Very timely video for me. I had thought to take annual withdrawal but have that money put into my money market fund. And then have monthly deposits from my money market to come into my checking account which then functions as a monthly income source. I keep the money market fund earning fairly good interest. Does this strategy make sense?
Sounds good too me.
I do the exact same thing. I do an annual withdrawal in January based on my total expenses (been keeping track of all my expenses including extra amount for vacation, and a little more for miscellaneous spending). I put it all in a high yield money market account. And I set up an automatic transfer to my checking account each month, so it acts a monthly salary. I don’t worry about estimated taxes since I have it withheld at the time I take the withdrawal out of my 401K. This way, I have the rest of the year for the balance to grow or recover based on what happens in the market for the next 11 months. If you prefer to do monthly or quarterly, then do it. Do what feels comfortable for you.
I guess I'm disappointed with this one. While I understand that folks might need guidance on what to watch out for when taking 1 or 12 withdrawals from a retirement account. The seriousness and urgency in making the decision seem overblown. You can change your mind. You can try it one way and see how it works for you. You can probably switch institutions if yours doesn't have favorable withdrawal terms. You can use your once a year withdrawals to coincide with your annual rebalancing minimizing the risk of selling any particular asset class low. You can still have an emergency fund so that the timing of your withdrawal isn't critical. Your audience probably slants hard toward those who have some financial discipline... otherwise they wouldn't be watching retirement account optimization videos.... This seems like a small reversible decision presented as a critical decision that requires significant analysis.
I’ve never seen a 401(k) or Ira have to deal with capital gains tax
Your RMD's can be weekly also.
We take a lump sum every January
KISS... Monthly. Unless taking quarterly dividends..
The only American who won't acknowledge this Administration's failed economic policies is Joe Biden. "Shrink-flation' is the least of our worries compared to rising rents and stagnant wages, but it is an undeniable indicator of how bad our inflation has gotten. I have $100k that i like to invest in a non-retirement account, any advice on that?
I would avoid index funds, mutual funds, and specific stocks for the time being. Right now, the best option is a fixed income of five percent. Put money aside for the times when the market really starts to bounce back.
45% of Americans do not invest in the stock market because of lack of guidance. Every year you don't invest, you are falling behind. I’m hitting numbers in the stock market I used to dream of… Going from $50k to $600k in my portfolio is surreal all thanks to insights from my financial advisor.
Please can you leave the info of your invstment analyst here? I need such luck
I found her page by searching for her entire name online. After that, I emailed her and we set up a meeting so we could talk; I'm currently waiting on her response.
Count me with Joe! My stock fund has exploded under the Biden Administration! Retirement is on my horizon, baby! Also, my health insurance is covered by my husband's union for the rest of my life. Take that!
Let me explain....
I don't want stock market volatility in my retirement. So TIPS bonds for me.
As an lnvesting enthusiast, I often wonder how top level investors are able to become millionaires off investing. . I’ve been sitting on over $545K equity from a home sale and I’m not sure where to go from here, is it a good time to buy into stocks or do I wait for another opportunity?.
Well as you know bigger risk, bigger results, but such impeccable high-value trades are often carried out by pros.
People dismiss the importance of advisors until they are burned by their own emotions. I remember a couple of summers ago, following my lengthy divorce, I needed a good boost to assist my business stay alive, so I looked for qualified consultants and came across someone with the highest qualifications. She has helped me raise my reserve from $275k to $850k, despite inflation.
How can I participate in this? I sincerely aspire to establish a secure financial future and am eager to participate. Who is the driving force behind your success?
My CFA NICOLE ANASTASIA PLUMLEE a renowned figure in her line of work. I recommend researching her credentials further.
Thank you for this amazing tip. I just looked the name up and wrote her.
… or, you could largely insulate yourself from the market ups and downs by via tax (managing your marginal tax rate withdrawals) and market (harvesting profits when the market is up) smart “bucket methodology”. Fund 3-5 years of cash/near cash. Then spend from that cash bucket, perhaps even until it is drained if the market is down. Refill it when the market recovers and according to the remaining room in your marginal tax bracket.
Annual withdraws for me...Taxes
If you have fees to withdraw money from your retirement account you need to roll it over into an IRA that has no fees. Ridiculous.
Annually is best,by far,especially if u keep 3 or 4 years of living costs as your sequence of return risk safety net.This is not hard.
I'll just donate it to charities that way I won't have to pay tax on it.I don't need it.
Sounds like you’re advocating for market timing. Really?
Not necessarily. Drawing from a significantly down portfolio has consequences. So any alternative to that can be helpful