How to withdraw cash in retirement?

Discussion of the Cash portion of the Permanent Portfolio

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tarentola
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How to withdraw cash in retirement?

Post by tarentola » Sun Dec 23, 2018 5:41 am

I have held a Permanent Portfolio for a several years and the time has come for me to draw on it. Up to now, all my cash reserve was in the PP in a short bond ETF and a bank deposit account. I use a current or checking account from the same bank for day-to-day expenses.

To draw on the PP, I intend to transfer funds from the deposit account (in the PP) to the current account (which I consider outside the PP). I am thinking of doing this quarterly in advance, as I don't want to have to intervene any more frequently, and any less frequently means more money gaining zero interest in the current account (deposit interest rates are low at present, but maybe not forever). So if I decided on a 4% withdrawal rate, I could transfer 1% of the PP value from the deposit account to the current account every quarter.

I have read many posts here about cash and I noticed that some posters want to keep all their cash in the PP, so consider even their current account as part of the PP. I would prefer to separate "my" day-to-day money from the PP, so that I don't have to think about the PP more than once a quarter.

Also I cannot understand the idea of "withdrawing" funds to a checking account that is within the PP. I guess you would have to base your withdrawal percentage calculation on the funds in the PP minus the funds in the checking account - so why keep the checking account in the PP?

Can anyone clarify this for me? I would like to know more about the nuts and bolts of withdrawing cash in retirement (not withdrawal rates, just the mechanism for making PP funds accessible for spending).
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Tyler
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Re: How to withdraw cash in retirement?

Post by Tyler » Sun Dec 23, 2018 9:50 am

Personally, I have a separate checking account outside of my brokerage where I manage day-to-day expenses. When I started living solely off my investments, I initially had the same idea where I'd transfer about 3 months worth of expenses from the cash portion of the portfolio to the outside checking account. But after doing that a few times I found it to be an unnecessary chore, so I switched to making an annual withdrawal at the same time that I rebalanced my portfolio. That helped reinforce thinking about money once a year and spending the rest of my time enjoying retirement. :)
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sophie
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Re: How to withdraw cash in retirement?

Post by sophie » Sun Dec 23, 2018 11:20 am

I don't think it matters whether you include the checking account in the PP, as its fluctuations are too small to matter. But, not sure you need to cap quarterly withdrawals at 4% of the PP's value like you propose. In simulations of retirement withdrawals, you still succeed if your portfolio drops in value during the test period, and it may well do that if you start off in a period of low returns (like now). Even if real returns even out to >4% over, say, a 3 year period, there are still likely to be several quarters with lower returns.

I think I'd just move money into checking regularly as Tyler suggests (I believe Harry Browne did this monthly by writing a check on his Treasury money market), and assess spending vs portfolio performance less often, e.g. once a year or when contemplating a large expense. Not much point in retiring if you're only going to stress about money; if you're that close to the bone maybe you retired too soon.
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Re: How to withdraw cash in retirement?

Post by jacksonM » Sun Dec 23, 2018 11:31 am

I have a fidelity checking account so it's quite easy to transfer money from the investment account where I hold most of my cash into the checking account. Even though my wife is still working, I'm delaying SS until 70 (next year) so there is usually a cash shortfall every month (even though overall cash flow is still positive due to wife's max 401k contribution).

What I have been doing is topping the checking account up to $15k at the end of each month. Then all I have to do is plug the amount transferred from the investment account along with the total amount of other checking deposits into a spread sheet and it makes for an easy way to track spending.
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Re: How to withdraw cash in retirement?

Post by tarentola » Mon Dec 24, 2018 1:44 am

Tyler wrote:
Sun Dec 23, 2018 9:50 am
That helped reinforce thinking about money once a year and spending the rest of my time enjoying retirement. :)
Tyler: thanks, that is a useful idea. Recently I had to spend a lot of time and paperwork organising the payment of state and private pensions, so I would particularly like to stop thinking about money for a while. I could pay myself and rebalance at the start of each tax year, to postpone any tax liability.
I think I'd just move money into checking regularly as Tyler suggests (I believe Harry Browne did this monthly by writing a check on his Treasury money market), and assess spending vs portfolio performance less often, e.g. once a year or when contemplating a large expense. Not much point in retiring if you're only going to stress about money; if you're that close to the bone maybe you retired too soon.
Sophie: I have other sources of income including a small state pension as mentioned above, so I am not desperate to squeeze every cent out of the PP. I have been erring on the side of caution with withdrawals, although as you say the simulations are encouraging.
What I have been doing is topping the checking account up to $15k at the end of each month. Then all I have to do is plug the amount transferred from the investment account along with the total amount of other checking deposits into a spread sheet and it makes for an easy way to track spending.
JacksonM: the top-up idea is a good one, meaning that withdrawals are a function of need rather than just the same amount mechanically. I will probably do that.

My conclusions so far: keep the checking account outside the PP, don't be over-cautious about withdrawals, assess spending and top up at relatively infrequent intervals,
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Re: How to withdraw cash in retirement?

Post by KevinW » Sun Jan 20, 2019 1:33 pm

This is one of these subjects where any thoughtful plan should work fine, so you might as well do whatever you find most comfortable and convenient.

An everyday-expense checking account is so small relative to the portfolio that I don't think it matters very much whether it is considered inside the PP or outside, and whether it is interest-bearing or not. Under standard assumptions, a 4% withdraw rate means you are spending 4% of the portfolio per year or .33% of the portfolio per month. If you keep 2 months' expenses in checking that is 0.66% of the portfolio. If your checking account yields 0%, and T-bill money markets yield 3%, then holding that 0.66% share in checking reduces overall portfolio returns by a paltry .019% per year. This is an insignificant amount, for point of reference it is smaller than the expense ratios on cheap ETFs.

FWIW, my plan is that, as part of my annual rebalancing routine, I'll move one year's worth of withdrawals out of brokerage accounts and into a high-yield online savings account. Then configure the savings account to automatically move 1/12th of that sum into my checking account monthly. This way I only think about money once per year, get a smooth monthly payout, and the outflowing cash still earns reasonable interest.
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ochotona
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Re: How to withdraw cash in retirement?

Post by ochotona » Sun Jan 20, 2019 3:07 pm

"and any less frequently means more money gaining zero interest in the current account (deposit interest rates are low at present, but maybe not forever)."

Jesus Mary and Joseph, get thee to an online bank which pays 2% or more in savings. We don't want to hear about how you've banked at Wells / BA / Chase / Citi for a long time. They are ripping you off every damn day.
tarentola
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Re: How to withdraw cash in retirement?

Post by tarentola » Sun Feb 03, 2019 5:35 am

Thanks for the replies. For the first quarter of this year, I estimated the amount I would need for spending in Jan-Mar, and transferred a top-up from the PP to my checking account to complement the pension money I expect to receive in those three months. I will see how it looks on 1 April and adjust if necessary before transferring 9 months' top-up for Apr-Dec. In January 2020 I will transfer 12 months' top-up and continue annually.

Ochotona - I don't know of any Euro current acccount, online or otherwise that pays 2% (apart from short-term introductory offers). Even savings accounts often pay less than 1%. If interest rates rise here in Europe I would use a deposit account with a monthly transfer like KevinW.
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ochotona
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Re: How to withdraw cash in retirement?

Post by ochotona » Sun Feb 03, 2019 7:36 am

Oh sorry I didn't know you were in Europe!
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Re: How to withdraw cash in retirement?

Post by mathjak107 » Sat Apr 20, 2019 3:49 pm

KevinW wrote:
Sun Jan 20, 2019 1:33 pm
This is one of these subjects where any thoughtful plan should work fine, so you might as well do whatever you find most comfortable and convenient.

An everyday-expense checking account is so small relative to the portfolio that I don't think it matters very much whether it is considered inside the PP or outside, and whether it is interest-bearing or not. Under standard assumptions, a 4% withdraw rate means you are spending 4% of the portfolio per year or .33% of the portfolio per month. If you keep 2 months' expenses in checking that is 0.66% of the portfolio. If your checking account yields 0%, and T-bill money markets yield 3%, then holding that 0.66% share in checking reduces overall portfolio returns by a paltry .019% per year. This is an insignificant amount, for point of reference it is smaller than the expense ratios on cheap ETFs.

FWIW, my plan is that, as part of my annual rebalancing routine, I'll move one year's worth of withdrawals out of brokerage accounts and into a high-yield online savings account. Then configure the savings account to automatically move 1/12th of that sum into my checking account monthly. This way I only think about money once per year, get a smooth monthly payout, and the outflowing cash still earns reasonable interest.
we are retired and each year fill our bank up with each years needs which can be substantial ... we keep some liquid and the rest rolling over in laddered cd's ... we never count our spending cash as part of any portfolio..... any cash held for investing is totally separate from what we spend ... like the pp if i hold cash it is an active part of the plan like shy would be to the pp... spending thousands a month down would quickly unbalance any portfolio that was meant to hold cash for a reason .
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sophie
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Re: How to withdraw cash in retirement?

Post by sophie » Sun Apr 21, 2019 9:46 am

I SO can't wait to have this problem!!

Happy Easter or Passover, everyone.
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Kriegsspiel
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Re: How to withdraw cash in retirement?

Post by Kriegsspiel » Sun Apr 21, 2019 11:51 am

ochotona wrote:
Sun Jan 20, 2019 3:07 pm
"and any less frequently means more money gaining zero interest in the current account (deposit interest rates are low at present, but maybe not forever)."

Jesus Mary and Joseph, get thee to an online bank which pays 2% or more in savings. We don't want to hear about how you've banked at Wells / BA / Chase / Citi for a long time. They are ripping you off every damn day.
I don't keep any significant amounts of money at my bank, I have it all in Treasuries because they are exempt from state taxes, whereas bank interest is taxable. You Texans are free from that consideration, of course.
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