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Q: As you Spend Down Your Portfolio in Retirement...

edited July 2020 in Other Investing
How does one keep track of their gains or losses while at the same time accounting for permanent losses from portfolio withdrawals?

Let say I have $100K and I plan on withdrawing 4% or $4K in year one of retirement and I do that Jan 1 of that first year. My balance is now effectively $96K as a result of the distribution. To me this is a permanent loss because I am spending, not saving that 4%. Obviously my bookkeeping accounts for this withdrawal until I spend it. Maybe I buy a car with this 4% and the car goes up in value after I buy it. Maybe I blow it on Jan 2 at the casino...ouch... but these are the dynamics of spending down your portfolio. You may have something (a car worth at least $4k) or you have nothing more than a recollection of the $4K withdrawal.

If my overall portfolio drops 10% soon after Jan 1, I now have $86.4K. My hope is that over the next 3-5 years I will recoup that 10% market loss, but I realize my withdrawal rate (4%) is now greatly impacted by my eventual portfolio balance come Jan1 of the next 3-5 years.

Segregating 5 years worth of withdrawal might act as a drag on my potential upside performance, but might hedge my downside potential. Five years of withdrawal that include a 2% inflation adjustment would amount to $20.8K. It might be prudent to keep this amount in a conservative investment with little downside risk. That leaves a little less than $80K invested for the longer term (5 years). An average 5 year return of 5.8% would return this portfolio to its $100K value, but inflation requires a 7.9% average return in order to keep the same buying power.

Seems to me that in retirement one needs segregate "withdrawal assets" (maybe up to 5 years worth) from "market assets". This way your withdrawals are not necessarily connected to the market's ups and downs. In 5 years, a new calculation will determine what the nest 5 years of "withdrawal assets" will amount to.

If your are managing these dynamics in retirement please share your strategy.


  • I follow an average of the many articles talking about 2-4y in cash or close (have erred here by being too aggressive), the rest in whatever proportion of stock and bond funds I think is wisest

    I think I am missing something, since this is straightforward and widely written up

    for sure you do not want to be withdrawing --- to be having to withdraw --- from the equity-heavy accounts, or even these days from the bond-heavy accounts unless you were all in like vgit the last few years

    it sucks to have that much in low-earning cash, yes
  • Gives me a headache.

    One of the reasons I've been thinking about annuitizing the retirement funds when the time comes. I'm not sure I'm going to feel like sorting through all of the choices I've invested in over the years when it comes time to take RMD's.

    The taxable accounts are different. With any luck, they will be passed on. So it's easier to indulge a tempered optimism.
  • while you have your wits, you can simplify down to 5-4-3 funds or etfs, I found anyway
  • edited July 2020
    Hi @bee, This is something that my broker provides for me monthly in my account statements and covers a ten year history. By year, it contains the account starting value, how much was withdrawn (or added), investment performance, and then an ending account value. With this, I know by year what the activity was for my account values, withdraws & additions, along with investment performance simply by review of this report for each of my accounts. Thus far, even though I have not made any contributions for the past five years since I have retired I have been able to grow my principal over and above my withdrawal rate and for the ten year period with my annualized performance rate of return being a little better than nine percent. A big reason for this is that my wife and I live below our means.

    About five years before I retired I ran a 10% cash, 20% income and 70% equity asset allocation in my portfolio. For the past ten years, though, I have been moving more more towards an income generation allocation and I have now arrived at a base asset allocation of 20% cash, 40% income and 40% equity. From the 20/40/40 I will tweak it a little carrying up to a plus 5% overweight (or underweight) in my income and equity areas with a rebalance threshold set at + (or -) from target allocations. I generally let cash float. Currently, as I write I am at a 15% cash, 45% income and 40% equity asset allocation.

    So, in answer to your question ... My broker provided account reports provide this information and this is something that I do not have to maintain myself.
  • beebee
    edited July 2020
    Thanks for the comments so far.

    @Old_Skeet. Does"living below your means" imply you live in the basement of your in-laws? Mine were pretty mean too. We moved out as soon as we saved enough for a down payment on a house. Now the means are moving into our house and we are "living over our means".

    With your portfolio construction, if you were to segregate out your 20% cash position, I could image the remaining 80% equating to a balanced fund (50% equity / 50% income). Is that one of your benchmarks?

    Great job on achieving a return equal to a little over 9%.

    @davidmoran, I like the idea of simplifying, but I also believe one has to keep an eye on the "cooks in the kitchen". I look for fund managers who attempt to protect on the downside while achieving most of the market's upside. PRWCX , VWINX and BRUFX are examples of this in my portfolio. VLAAX seems to fit this bill as well.

    @WABAC, hope this thread helps your headache. Your retirement income needs will come from SS, maybe a pension, maybe part time work, maybe a portion of your personal retirement accounts (RMDs or other withdrawals).

    If considering an annuity run some withdrawal scenarios with a fund like VWINX which may provide a similar withdrawal rate to an annuity and still allow you to have full control over it.
  • edited July 2020
    How do I keep track of it all? I don't try to kill myself by keeping track precisely, but since the lion's share of my stuff is with TRP, I can get a good and accurate picture about gains and losses when I log-in. Anytime, any day. And my TRP funds are all Trad-IRA. My wife's only fund is Trad-IRA, and we are not adding anything to the Trad-IRA funds at all. I'm retired, and she has no earned income, at least not officially.

    I suppose my portfolio might amount to just a fraction of what some of us here are holding. In 2020, for the very first time, I withdrew a few thousand from my biggest TRP holding (PRWCX) for a new car down payment. I deliberately took the money from my biggest holding, because its relative size might assist in making up that few thousand dollar drop, for the car--- assuming an upward market. I see that the fund is already almost back up to "even-Steven," before I took that few thousand from it. PRWCX is just the best investment I've ever made. Still closed to new investors.

    Our only taxable fund is a bond fund, PTIAX. Every month, it gets automatically fed, but just a morsel. Unless the sky falls down upon us all, I'll keep attempting to edge my equity stake down to about 30% of my total. I'm at 58% bonds, and 5% cash. That cash is held by the mutual funds. We do hold some REAL cash in our bank accounts, but after we save a bunch, it gets spent on extended family. For one thing, we're putting a niece through school. Last month, we saved another niece's life--- literally--- with our money. So, the "karma bank" is full-up. She had Covid, pneumonia, severe anemia and TB. Jayzuz. Frikkin' 3rd-world country. No middle class. 3% own and control everything. Everyone else goes hand-to-mouth. Every... Single... Day. To say nothing of the corruption.

    Sorry, I got sidetracked. NOTE: PTIAX doesn't even have a website that allows shareholders to sign-in and check up on their accounts. I guess it keeps expenses down. Otherwise, I'm quite happy with it.
  • edited July 2020
    I continue to do what I have done for decades which is KISS.

    Prior to retirement.
    We saved for years thru 401K. Always paid all bills on time. Never made a budget. Spend the rest. No more than 5-6 funds. No spreadsheet

    At retirement
    1) Usually 2-4 funds
    2) No budget, no spreadsheet, no tracking of anything. Our discount brokers have all the information we need. I don't need anything beyond that
    3) During working and at retirement we only have several thousands(maybe 2 months of expense) in checking account. Everything else is invested most times. In the last 10 years I was in the market at 99+% at about 98%. This means no MM,CD.
    4) I never understood the concept of emergency fund and/or 2-3 years of expense in cash. We have access to credit cards first, then several thousands in cash. If we need more we can sell some shares and get it within 1-2 days. So why do we need cash unless it's ransom or illegal drugs?
    If stocks are down then use your bond funds for that and you must have some ballast bond funds
    5) We get distribution monthly, if it's not enough I sell some shares.
  • edited July 2020
    @bee, Thank for your your question about what funds I might benchmark my portfolio against. One, the benchmark must be a hybrid fund and have a yield generation of about 3.5%. Not to many hybrid funds achieve this as they are geared more towards growth than income generation. Two funds that I own that come close to the required yield are two widely held American Funds. They are Income Fund of America (AMECX) with a yield of about 3.4% and a ten year average return of 8.5%. The other one is Capital Income Builder (CAIBX) with a yield of 3.6% and a ten year average return of 6.8%. Overall I am at a yield of about 3.4% with a ten year average return of better than 9 percent.

    I'm thinking the main reason that I am doing a little better than these funds comes from me being active within my portfolio and my use of special investment "spiff" positions when I feel it warranted. From a yield perspective I pair up better to AMECX and from an asset allocation perspective I pair up more towards CAIBX. Performance wise, again, I have done better than either of these two funds.

    My top five funds owned (size wise other than my MMK funds) when combined account for about 25% of my portfolio are AMECX, FKINX, ISFAX, CAIBX & JNBAX.

    On your other comment about living below one's means. I feel blessed that both my principal residence and 2nd home are both paid for and have been for a good number of years. Living below my means for a good number of years has helped us (wife and me) get ahead along with good prudent investing.

    I have had high school buddies (at reunions) that were indeed much higher wage earners that I ... ask ... I know I made more than you through the years; and, now you have a great deal more than me. How did you do it? Win a lottery? Nope, I just spent less and lived within my means saving some along the way plus I have been a good prudent investor and grown my wealth through the years.

    Besides, it cost to much to keep up with the Jones that live off credit cards and are mortgaged to the hilt.

    Again, bee ... Thanks for asking. Now you know.

  • Schwab seems to have most of the information I need for planning & reporting purposes. I even have my external accounts located there so I can get a sense of aggregation, but they don't allow you to count those accounts in any calculations such as monthly income. The monthly income tab for my Schwab accounts is a very handy & easy way to see the monthly income generated. Schwab will also generate a retirement plan for me at least once a year, maybe as often as I'd want as I seem to get a lot of emails asking me to do so. They are good at working with me regarding changing any variables (such as inflation, rate of return, etc) to see how it might impact the future. I'm sure they would like to get my accounts under management but they have not been pushy at all. Overall, I'm very pleased with Schwab & at some point might transfer my wife's Roth IRA & a small Roth of mine from TRP there.

    The retirement plan that Schwab generates is the most comprehensive that I've used. It shows a year-by-year cash-flow analysis which includes annual income, withdrawal of assets, & taxes due plus more. I've also used TRP's FuturePath Tool too. I've looked at the OpenSocialSecurity tool as well as neither my wife or I have taken social security yet.

    I also still use Quicken which is helpful for budgeting but most of that is on autopilot which is how I like things set up. I would still refer to my account statements vs Quicken for any exact information that I would need.

    I like a bucket approach not so much that I think it generates the best results but it's easy for me to wrap my head around as well as makes it easy for me to leave my equity portion alone.

    Next year will be the first year that my wife & I will need to take from our retirement accounts but we actually have the cash so that we won't need to take much. I retired at the end of 2016 due to health reasons but was fortunate enough to have taken out a personal disability policy. It was equally fortuitous that I had been paying for it out of our personal funds vs through my corporation. The money has been tax-free (with multiple benefits beyond the obvious). I would strongly recommend for anyone getting a personal disability policy that if you can afford to, pay for it out of personal funds.

    @Old_Skeet, "Nope, I just spent less and lived within my means saving some along the way plus I have been a good prudent investor and grown my wealth through the years." I totally agree with that plan.
  • @Old_Skeet, "Nope, I just spent less and lived within my means saving some along the way plus I have been a good prudent investor and grown my wealth through the years." I totally agree with that plan."
  • I haven't spent down my account. I generate more than enough income from my holdings to handle my spending needs.
  • @zenbrew, I am impress with your organized approach. Good idea to use Quicken. Mine is over 20 years old.
  • I probably have more complexity than most but my wife and I have had many different jobs with their associated different type of retirement accounts. Nor do I trust any one broker so we have stuck with Vanguard Schwab and Fidelity. Vanguard is becoming an increasing pain so I am thinking of moving the money.

    I use a modified bucket approach and have set up "investing goal" categories in Quicken, including "money to live on" "emergency fund" conservative bonds, risky bonds , dividend, equity, speculative international, etc. Each specific position gets assigned to the best suited goal in Quicken. Most mutual funds you can pin to a general category. You can also set up investment types with small cap, large cap etc, and I break bonds down by duration category

    I download the account activity from each brokerage at least once a week. It works pretty well and gives me at a glance what % and dollar amount I have in bonds, conservative speculative etc.

    As I just retired I have not taken distributions, but this system will let me see quickly the effect on my allocations after I sell something.

    It does not handle current income terribly well but I have found several online sites to do that. Morningstar is OK but clunky with bonds and dividends.

    Simply Safe Dividends ( has a portfolio tracker that will tell you your expected income from each position and the portfolio as a whole and it is simple to download from Quicken, or you can let SSD download directly from your brokerage account. I have never been comfortable handing out my passwords so I do it myself.

  • Thanks for sharing your approach. I use a modified bucket approach similar to one Charles Bolin posted.

    As my Mac migrated to Catalina, a 64 bit OS, my older Quicken no longer work. Need to figure out how to get 32-bit data transfer over. Also learned that Quicken has gone the subscription route like Microsoft. I will rely on Excel and download and track the data.
  • edited July 2020
    Chapter I -Too complex for me. Fortunately I purchased the DejaOffice App at Apple around the time I retired. It has proven highly reliable and very versatile for creating various files and keeping backups. Updating the most recent backup to all devices (weekly) works reliably. So I have basic records of just about everything related to investing since retiring 20+ years ago. Annual returns, additions from other sources, withdrawals by year, total withdrawals to date, total gains to date, Roth conversion dates and amounts, etc. etc. I also record every fund exchange, transfer or sale I make, but normally discard those files after 3 years. The thought of having to maintain all that garbage in some type of paper file (as might have been common 25 years ago) is daunting to say the least.

    Chapter II - I don’t worry too much about any overarching plan. Looking at those detailed records gives me some degree of confidence I’m heading in the right direction. We’ve skated around the related issue in the past of whether it’s better to keep a 3-5 year cash reserve to smooth out those market shocks or to just pull what you need from the overall blend of assets. The former allows for a more aggressive investment approach of course (but with fewer dollars). Good arguments both ways. I’m in the minority here as I believe in not maintaining a separate cash reserve. However, am quite conservatively invested,

    Chapter III - In terms of how much and when to withdraw? Depends on needs. Pull substantial amounts for a new car or home renovation maybe every 5 years. Lesser amounts for other years. If worried about market levitation I do a 6 month “advance” by transferring the next year’s anticipated needs into cash still within the tax-sheltered domain. I did that mid-way through 2019. Not planning on doing that this year. Politicians have gone spending crazy in an election year. A trillion here ... a trillion there ... Hell to pay some day. But I expect the markets to hold at least until November. As far as those drawdowns for major purchases go ... if the market’s sucking air and your investments are way down, postpone whatever you’d intended. Wait for a better time. I suspect that in that regard the human brain is better enabled to make the decision than would be MonteCarlo or any other computer simulation.

    Chapter IV - Can’t quite get my head around the popular notion of “spending down” assets. My invested assets have increased (in nominal terms) during retirement. I expect them to continue to increase. (That’s after whatever withdrawals were taken.) There’s something to be said for having an increasing “net worth” at any age. In fact, it seems counterintuitive to me to be “investing” (presumably for growth) while at the same time planning how to divest oneself of said assets. Maybe it’s because I have a decent pension. Don’t know. But it’s a real brain stopper for me.
  • @hank- Yes, sir- the pensions make all the difference. The cohorts behind us are nowhere near as fortunate as we were.
  • Yes consider yourself very lucky. Half way through my career the private sectors were either trimming then eliminating the pension plan. So only define contribution plan is left.

    For those who work for federal and state, they still have their pension plus (401)k plan.
  • :) You guys interrupted my book! Lost the train of thought now ...

    But thanks @Old_Joe and @Sven for your pertinent remarks.
  • Thanks everyone. Very thoughtful responses that vary thoughtfully. Just like there are many ways up the mountain. were on a roll...keep it coming.
  • @Sven: I am bombarded by upgrade offers from Quicken even though I haven’t used it in years. I can’t entirely cut the cord from Intuit, however, because I’m a TurboTax subscriber.
  • bee said:

    @WABAC, hope this thread helps your headache. Your retirement income needs will come from SS, maybe a pension, maybe part time work, maybe a portion of your personal retirement accounts (RMDs or other withdrawals).

    If considering an annuity run some withdrawal scenarios with a fund like VWINX which may provide a similar withdrawal rate to an annuity and still allow you to have full control over it.

    Not too worried about headaches at the moment. Aside from market performance, we are saving cash every month under the current conditions. This has been an interesting stress test.

    Used to spend 135$ a month filling up the cars. Now, one car, or the other, gets filled up every third month,

    The little numbers might be small for what some folks here may need. But they add up quick for our situation.

    While I have "enjoyed" the accumulation stage. I'm not so sure I want to manage the RMD stage. We're still 7-8 years out from that. And I don't have to sort it out today.

    But it's something to think about so long as we can entertain the idea of relying on our retirement accounts, without tapping into taxable accounts.

    The recent changes in the way inherited retirement accounts are treated by the IRS has influenced my thinking.
  • @BenWP, we use TurboTax too. Now Intuit gotten greedy that a standalone Quicken is no longer available, only the subscription-based packages. Also we now use a 64-bit Mac OS computer that pretty much force us into the subscription version of Quicken.

    Think I will write my own accounting on Excel, and customize the outputs for my use.
  • Hello @bee,
    I’ve been an infrequent poster but have been snooping on MFO for some time. In 2002, after the dotcom implosion, I crafted an Excel file to keep track of our (with DW) investment accumulations. I would track the bi-weekly changes, as well as the starting totals on January 1st of each year.

    As we got closer to retirement, I calculated our current expenses and projected a retirement budget for comparison. The retirement budget had/has two versions = “Frugal Lite” and “Frugal Extreme.“ With those numbers, I then calculated the taxes to add to this total number. From this number I calculated the percentage passive income we needed to offset this total expense need. I calculated a 2.5%, 3.0%, and 4.0% yearly return. I use 2.5% as my S.W.A.N. figure.

    I then projected the social security we would each receive and subtracted that amount from the total expense budget. The remaining balance was the amount our portfolio would need to generate each year. When 2.5% would cover this cost, I believed that I would/had come to a place I considered - “financial independence.”

    All of this data is the “Rube Goldberg” that comes down to the final number. That is, the difference between what is needed for living expenses & aspirations, and how much our portfolio generates. My concern is that this number be on the “positive” side of the ledger even with withdrawals (RMDs, etc.). If it should dip to the negative, then we would need to shift our expenses from the “frugal lite” to the “frugal extreme“ budget.

    I am in my 3rd year and my DW her 6th year of retirement. So far so good.
    Best to all,
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