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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 75824  
Subject: Re: A best withdrawal plan Date: 1/4/1998 4:11 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.>>

<<TRYING THIS AGAIN, WITHOUT THE FORMATTING ;-)>>
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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