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Author: drbear One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76421  
Subject: Re: A best withdrawal plan Date: 1/4/1998 4:09 PM
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Mover 50 wrote:

 <<I am planning on retiring and am trying to determine the best plan for withdrawing from my portfolios. I am 61 and have basically two portfolios, one an IRA and the other a self-directed stock portfolio. The IRA is with Paine-Weber and consists of stocks as follows
 Stock Shares Value
 MSFT 1200 $156,000
 DELL 800 68,000
 INTC 100 7,100
 Mutual funds 74,000
 Total 305,000

The self directed fund is with Charles-Schwab and is a F4 consisting of the following. 
 Stock Shares Value
 AT&T 1200 $69,600
 DD 850 51,000
 EK 950 58.900
 MO 1800 81,000
 Total 260,500

I feel an intially cash flow of about $75k annually for the next few years will be adequate and still allow my investments to continue to grow. Thereby allowing me to adjust the cash flow accordingly. I am anticipating a continued investment yield of 20% on the current investments. I plan on converting the entire IRA to a F4 dow, similiar to my account with Schwab and using contributions funds from my current income. 
I guess the questions I have is: What is the best way to manage this arrangement and give me the best cash flow and of course getting the best tax breaks possible? >>

TMFPixy replied:
<<Without knowing one heck of a lot more about your ENTIRE financial situation, your estate planning desires and arrangements, and the shoe size of your third child, it's next to impossible to give you anything more than generalities. That being the case, I'll just point out that the usual way to take income in retirement is to start with your taxable assets first. That lets the tax deferred assets continue to grow, thus postponing taxes on that growth until it's needed for income. Given your desires for cash flow with minimum taxes, that means if you want to follow convention, you would start with the FF account because the dividends on that are gonna be taxed anyway. Your best bet, though, is to sit down with your tax advisor to map out the investment and withdrawal strategy that
best fits your personal situation.

And BTW, although I am a strong follower of Foolish investment strategies, I think your projection
of a continued 20% return following these methods is too optimisitic when your income depends on
it. Keep in mind that the long term average since 1961 on the FF is about 16.7%, not 20%. The boom years over the last decade probably won't continue. Were I you -- and I'm not -- I would scale back that assumption.>>

Seconding Pixy's post, when you start to withdraw on your accounts, you might want to be a little more conservative.  Your're projecting a payout equal to slightly over 13% of your principal.  Even if the average return of the FF is 16.7%, all it takes is one bad year to knock your expected growth away (Averaging helps the saver, but can hurt the spender).  Example:

Year  BegBal  Return   W/D@YE  EndBal
1998  565500      NA       0   565500
1999  565500    -10%   75000   444000
2000  444000   16.7%   75000   443150   
2001  443150   16.7%   75000   442150

If you have other sources of income that you can rely on (such as Social Security or a pension), you might want to take the risk.  Most of the retirement literature I've seen recommends taking down less than 10% of your principal annually, but everyone's situation is different.  A professional tax advisor or retirement planner can probably help ensure you enjoy a long, fiscally Foolish retirement.
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