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Investment Withdrawals During Retirement

July 5, 2018

A good investment plan was posted on May 15, 2018 (see link below) and this is an amplification of where the money will actually come from. For many people it is unwieldy to withdraw the interest and dividends and possibly some principal from each account, so this is a “how to” plan for them.

  1. If you need to take required minimum distributions (RMD) from your retirement accounts, then that amount would be the first place where you would start withdrawals.
      1. If your interest and dividends in the retirement accounts are less than your RMD, then you will need to sell some of your securities there to get the necessary cash for the RMD.
      2. If the RMD is less than your total interest and dividends (plus necessary principal withdrawals) from all your accounts, or if you are not required to take minimum distributions, then continue with #2.
      3. If your interest and dividends in the retirement accounts are greater than your RMD, that is good, and invest the excess interest and dividends.
  2. Choose one or more accounts to withdraw the total of your interest and dividends. You do not need to withdraw the interest and dividends from each account, but you can if you wish to. If you withdraw more than that account’s interest and dividends you will need to liquidate some investments. You should then use the unwithdrawn interest and dividends in the other accounts to purchase similar securities to what you sold to for the withdrawal. When this process is completed, your total position should be similar to what it was before the sale and purchase; and the total reduction in all your accounts would equal the interest and dividends and any planned withdrawals of principal.
  3. When selecting stocks to sell, try to choose those with a high basis so your taxes would be minimized. If you are taking the funds out of a money market or other savings account, then taxes should not be an issue.
  4. You should try to manage your investments to coincide with your withdrawal pattern to minimize disruption in your investment plan. You can also arrange for regular monthly transfers to your checking account; just make sure the cash is available. A suggestion is to work three or four months ahead of the withdrawal schedule so you will need to manage the funding three or four times a year instead of monthly.
  5. What you can also do is buy laddered bank CDs that come due at 3 month intervals, maximizing interest on the funds waiting to be withdrawn. At today’s interest rates you can set up the ladder for up to three to five years to assure the cash supply without disrupting your investment strategy too much. Note than many brokers now maintain an inventory of “brokered” CDs and some have provision for you to set up the ladder anyway you want.
  6. The above assumes you have sufficient investment assets and cash flow that will provide the retirement cash flow you need. If you do not, then read the suggestions in my May 15, 2018 blog on how to deal with that. Here is a link to that blog.

This plan works. When you begin, do one step at a time and it will quickly come into focus. Once the pattern is established, it will need very little effort sustaining it. Of course, continuous cash flow, spending and investment monitoring is also essential. Good luck and enjoy a secure retirement!

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