Where to draw down from?

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fishdrzig
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Where to draw down from?

Post by fishdrzig » Sun May 17, 2015 3:41 pm

Just a general question
    At retirement, what part of the 4 x25 does one draw from?  Sorry if this is a stupid question
Reub
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Re: Where to draw down from?

Post by Reub » Sun May 17, 2015 3:49 pm

There are no stupid questions.  Only stupid politicians. I believe that the answer is from your cash. When it reaches 15% you would rebalance.
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Tyler
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Re: Where to draw down from?

Post by Tyler » Sun May 17, 2015 3:58 pm

When in doubt, cash is the best option.  Just live off the cash and rebalance when necessary.

My tax optimization strategy for covering retirement expenses is threefold:
1) Set dividends and interest from the Stock/Bonds/Cash to go into your core account (don't auto-reinvest).  Use that money first.
2) Sell enough of the high assets as you can while staying in the 0% long-term capital gains tax bracket.  Live off that next.  If you have extra room, use it to rebalance tax-free.
3) Pull any extra from cash.

Then I rebalance when necessary as usual.  Because of #2 that won't happen quite as often.

Since my expenses are low, I expect that doing it this way will allow me to pay no taxes most years and also minimize large rebalancing events. 
Last edited by Tyler on Sun May 17, 2015 4:03 pm, edited 1 time in total.
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iwealth
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Re: Where to draw down from?

Post by iwealth » Sun May 17, 2015 4:00 pm

It makes no difference. Choosing to withdraw from cash makes the assumption that gold, stocks, and/or bonds will outperform cash between the withdrawal dates/rebalances. So, pulling from cash versus all four assets equally is market timing. If anything, it will just increase the volatility of your portfolio.
barrett
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Re: Where to draw down from?

Post by barrett » Mon May 18, 2015 7:10 am

Tyler wrote: When in doubt, cash is the best option.  Just live off the cash and rebalance when necessary.

My tax optimization strategy for covering retirement expenses is threefold:
1) Set dividends and interest from the Stock/Bonds/Cash to go into your core account (don't auto-reinvest).  Use that money first.
2) Sell enough of the high assets as you can while staying in the 0% long-term capital gains tax bracket.  Live off that next.  If you have extra room, use it to rebalance tax-free.
3) Pull any extra from cash.

Then I rebalance when necessary as usual.  Because of #2 that won't happen quite as often.

Since my expenses are low, I expect that doing it this way will allow me to pay no taxes most years and also minimize large rebalancing events. 
Tyler, Elegant and succinct as always. I keep a few of your posts from time to time in my "PP Folder" so that if I check out early my wife might know what the heck I am trying to do. Hope that isn't too creepy. Just don't post any bad advice! Seriously though, this is one of those things that I have generally figured out but I am not organized enough to lay out a specific plan.

The back end of the PP doesn't get much attention, but for many of us who are coming to it late, it's critical to have a plan concerning how to actually use what we have set up. The execution of the withdrawal phase shouldn't be a weak link.
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Tyler
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Re: Where to draw down from?

Post by Tyler » Mon May 18, 2015 9:04 pm

It's an honor.  As long as there are no creepy photos in the PP folder, we're cool.  ;)
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LC475
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Re: Where to draw down from?

Post by LC475 » Wed May 20, 2015 2:04 pm

iwealth wrote: It makes no difference. Choosing to withdraw from cash makes the assumption that gold, stocks, and/or bonds will outperform cash between the withdrawal dates/rebalances. So, pulling from cash versus all four assets equally is market timing. If anything, it will just increase the volatility of your portfolio.
Harry Browne did, in fact, make the assumption that gold or stocks or bonds will be outperforming cash except for during a recession.  He furthermore made the assumption that recessions are naturally limited in time -- they have a built-in time limit of 18 months, maybe two years.  Longer than that and they turn into something else -- either they sink into a deflationary depression, or they rise back to prosperity, or there's a crack-up boom (high inflation).

These two assumptions happen to be true.

They are not "market timing" assumptions, as you asserted.  Nothing to do with timing, which has to do with particular times (usually the present and near future); no they are more global, big-picture assumptions.  They are assumptions, no getting around that.  You can hold the HBPP without buying into those assumptions, and in that case maybe you feel that cash could outperform the other three major asset classes for long periods of time.  Perhaps in doing so you would be taking a stance even more future-agnostic than Harry Browne himself.  But I don't think you would be right.  But, I could be wrong!  As Harry always said: "You never know.  Ya just never know."
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ochotona
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Re: Where to draw down from?

Post by ochotona » Sun May 24, 2015 7:17 pm

fishdrzig wrote: Just a general question
    At retirement, what part of the 4 x25 does one draw from?  Sorry if this is a stupid question
Wouldn't it make sense to rank the four assets by performance since the last re-balance, and preferentially harvest the one that grew the most? (or, as it might be this year, shrank the least  :-\  )
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Re: Where to draw down from?

Post by barrett » Mon May 25, 2015 7:29 am

ochotona wrote:
fishdrzig wrote: Just a general question
    At retirement, what part of the 4 x25 does one draw from?  Sorry if this is a stupid question
Wouldn't it make sense to rank the four assets by performance since the last re-balance, and preferentially harvest the one that grew the most? (or, as it might be this year, shrank the least  :-\  )
Anything that helps to maintain a strategy of selling high can't be all bad! If in any given year selling down a winner make sense in terms of tax implications, that should work fine
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