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De-accumulation phase

Hello All,

I will be retiring shortly and looking to develop a plan for de-accumulation (HARD).
All of my investments are in tax deferred accounts.
I plan to claim Social security @ the age of 72 (will help me burn tax deferred money, reduce RMD).
Tax bracket will not change = 22% as of now, will convert some to Roth and stay below IRMAA limit.

Plan options:
- I sell 1/10 of monthly expenses from 10 funds even or
- I sell 1/5 of monthly expenses from top performing 5 funds (3 yr returns) or
- I sell 1/5 of monthly expenses from bottom performing 5 funds (3 yr returns)?
- I sell 1/5 of monthly expenses from top performing 5 funds (1 yr return) or
- I sell 1/5 of monthly expenses from bottom performing 5 funds (1 yr return)?

Selling will be every quarter.
Funds are mixture of growth, value, multi-asset/balance and bonds.
I want to make it as mechanical as possible.

What do you think about my options?
Do you have any similar strategy?
Any comment/feedback will be highly appreciated.



  • How does your fraction relate to a "percentage draw down" from your overall portfolio?

    Do you need less than, say 4%, of your portfolio annually?

    Isn't 70 the upper claiming age for SS?

    Have you run scenarios with Portfolio Visualizer? Great website and a great way to back test your portfolio with Withdrawal scenarios.
  • Thanks a lot Bee for commenting and correcting me.
    Initial withdrawal - 4% annually
    Will claim SS at the age of 70 (corrected)
    PV - overlooked - based on the historical analysis - value of portfolio increased with 4% withdrawal in the last 5 years. So 1st option is simplest and manageable. Thanks for the backstop provided by Central Banks.
  • The Retirement Manifesto has a number of good's one:

  • I set up a separate account (tax deferred) for withdrawals. It has 3-4 years needed income. It contains low risk mutual funds and ETFs including 1 year of income in the Schwab MM. My plan is to keep replenishing it with my main IRA account in good times and waiting up to 3-4 years if the markets go south. I haven't had to use it yet because I still work part time. Just getting prepared. But I haven't given enough thought to your question.

    Your question is a good one since I will run into the same dilemma when replenishing the withdrawal bucket. I guess that makes it all the more imperative to keep the number of investments in the main IRA account, funds or ETFs, at minimum. That certainly would help in re-balancing. Looks like you have 10 funds to keep balanced which is a reasonable portfolio #.

    One consideration for me, my IRA money is split 50/50 between the Schwab Intelligent Portfolio and what I call my self-managed account. Withdrawals from the IP get re-balanced automatically. That would be the easy option for me.

    Hope more people respond with what they do so I can learn along with you.
  • You said the magic word: rebalance.

    Assuming for simplicity that rebalancing is done at the same frequency as selling shares, it makes absolutely no difference what one sells. That's because you're adjusting the portfolio to target weightings regardless of what was sold.

    Simplified example: Two funds, $150K in A, $150K in B. Target allocation 50/50. Need$1K/month in cash.

    Say A goes up $2K in a month, and B goes down $1K. If you sell off the winner, you've got $151K in A and $149K in B. Rebalance and you've got $150K in each. If you sell off the loser, you've got $152K in A and $148K in B. Rebalance and you've got $150K in each.

    It has to work out that way, because you've got a fixed number of dollars at the end of each month. You take out a fixed number from whereever, and rebalance the rest.

    If you rebalance less frequently than you cash out, it can make a difference which fund you sell (you want to sell the fund that is going to go up less the next month), but the effect is minor.

    So the real question is not which fund(s) you want to sell for cash, but what your target allocation is. The simplest thing to do is to put everything into a target date fund whose glide path you like (or a fixed allocation fund if you don't want allocations to change over time) and let everything work automatically. Using a robo advisor, as MikeM is suggesting, is similar to using a target date fund.

  • Our portfolio is now in RMD land. Between those distributions, soc sec and a small annuity to cover supplemental health insurance (not LTC) our expenses are covered.

    The decision of what and when to withdraw the rmd funds is the tricky part. We’ve chosen to receive monthly funds from a TIAA 403-b account and a lump sum from an IRA account. In the 403-b, most funds are in fixed income, so we sell equal percentage amounts. In the IRA we rebalance the best performer (so far it’s been equities) into cash mid-year, or whenever there’s enough earned to cover the next year’s rmd. We stash these funds as a hedge against a significant market drop. If the market does drop, we would reinvest. If not we’ve already earned our rmd distribution, which is no longer at risk. The intent is to balance returns while minimizing risk.

  • Great tread on retirement withdrawal. Where does target date funds fit into the strategies discussed here?
  • @Sven : A very good question. It seems a participate or two has brought this question of using target dated funds in 3 or 4 pots. Unfortunately I don't believe they followed through. I'm getting to the point, (age) where I might just do something like this with the first pot holding enough cash or equivalent to cover RMD's. As for now SS & small pension take care of the bills.
    Frugally Yours, Derf
  • @Derf, Cognitive decline is inescapable as we age. I like to explore the options long before I have to make the choice sometime down the road. Getting market return is enough for us. Our goal is similar to yours and to retire comfortably.
  • not exactly responsive to your question, but this is the best tool I use:
  • Thank you David, I have few years to figure out several options.
  • entirely welcome; it is highly useful and granular, and the devo (not young by any means) answers email questions and also writes good helpfiles about the variables
  • Christine Benz at Morningstar has written extensively on the "bucket approach" and has a lot of information on re-balancing and the various ways of doing it
  • RIP Ted. The board is certainly slower now!

    I seem to remember more details about Benz's re-balancing advice but this is all I can find now
  • Benz articles with a variety of dates. I've not tried these links, so I don't know what you may discover or be able to link for reading.
  • Seemed to fit this thread (From T. Rowe Price):
  • beebee
    edited June 2021
    Another read:
    Optimal Retirement Asset Decumulation Strategies: The Impact of Housing Wealth
    A considerable literature examines the optimal decumulation of financial wealth in retirement. We extend this line of research to incorporate housing, which comprises the majority of most households' non-pension wealth.

    We estimate the relationship between the returns on housing, stocks, and bonds, and simulate a variety of decumulation strategies incorporating reverse mortgages. We show that homeowner's reversionary interest, the amount that can be borrowed through a reverse mortgage, is a surprisingly risky asset. Under our baseline assumptions we find that the average household would be as much as 24 percent better off taking a reverse mortgage as a lifetime income relative to what appears to be the most common strategy: delaying tapping housing wealth until financial wealth is exhausted and then taking a line of credit. In addition, the results show that housing wealth displaces bonds in optimal portfolios, making the low rate of participation in the stock market even more of a puzzle.
    Link to Full Text:
  • Call me dense, but I have been trained/educated over the years, to shift from accumulation investing, to preservation of principal investing. That relates to the "age in bonds" principal, the older you get. What I was not trained/educated over the years about, is that not all bonds are the same. Some bonds are traditional safe harbor, low total return, and low income producing funds. Other bond funds are much more "equity-like" in total return, that can be invaluable in preventing erosion of principal.

    Now that I have been in retirement for the past 8 years, my objective is to develop a system of harvesting RMDs, that is tax friendly, but not necessarily tax avoidance. My system is devoted to shifting my principal from tax deferred, retirement accounts, to taxable accounts that I can more easily use for all kinds of age related expenses, and expenses I can address from a taxable account. My system is devoted to having a preservation of principal investing strategy, in which I use more aggressive bond oefs to produce sufficient total return to "recoup" RMD amounts that were harvested, so that my principal in tax deferred accounts can stay neutral, while my taxable account grows in principal each year. I don't want/need the extreme volatility of equities, where my principal can drop 25% to 35% over night, forcing me to have "patience" in an advanced age, to recoup major principal losses over time, which leads to age related stress in my golden retirement years. More aggressive bond oefs (nontraditional, multisector, HY Munis, FR/BL, etc. bond oefs) have great "total return" value for me, to preserve principal, with modest total return, in my tax deferred accounts, while I can use some more conservative bond oefs in my taxable account, to minimize taxes and prevent any major drops in principal.

    I have become more and more a trader of bond oefs (both aggressive and conservative) to prevent major losses in recessions and black swan events, and to prevent major erosion of principal I have accumulated in over 40 years of working and investing for retirement.
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