Tuesday, July 5, 2016

The bows & arrows of not so outrageous fortunes: making that first year’s withdrawal

a Doug and his money

 

This past January, I had a lot to think about; it had been one year since my final paycheck, and my ‘first year withdrawal’ plans from my stock portfolio were on hold, due to the market’s historic nosedive right after the New Year 2016.  Luckily, I still had several months of living expenses in my checking account and was able to hold out awhile longer, hoping for some decent recovery in the stock market.

So I watched & waited, and when Wall Street looked a little rosier around the first of April, I took a closer look at my own finances: 

  • ***** in personal checking
  • ***** in emergency savings
  • ***** in 5 year CDs
  • $445,000 in personal & retirement investments

When I left my job in December 2014, my stock portfolio was almost $465,000.  (I hoped it’d be closer to 500K when I was ready to begin withdrawals.)  Not only did it do zilch in 2015, it was 20K lower.  But that’s the breaks, and I had 2-3 months left of living expenses in checking so I made plans for my first sale of stocks. 

I knew I’d need at least 21K to live on for one year & figured on earning about $4,500 in dividend & interest income in 2016.  Would I be safe withdrawing 17K?   

(This was a far cry from the amount I estimated paying myself a couple years ago, but the last year has shown me I need to take a more conservative approach.) 

When it comes to making annual withdrawals from your retirement portfolio, there’s so many trains of thought.  I liked this one best:

Withdraw 4% of your portfolio’s balance every year or 95% of last year’s withdrawal, whichever is greater.

I created an excel worksheet that crunches the numbers, all I have to do is enter the portfolio’s yearly balance in Col B, when I’m ready to make that annual withdrawal.  

Col C will display 95% of the previous years withdrawal;  Col D will calculate 4% of the portfolio’s current value.  Col E will then select the greater value of C or D, showing the amount to withdraw.

official1

Here’s a second spreadsheet with fictitious portfolio balances after year 2016, to demonstrate how they can affect your withdrawal amount.  (I included a big drop in 2021, to show how Col E automatically directs you to take 95% of your previous years withdrawal instead.)

official2l

So that’s what I did—sort of.  According to my chart, I was ‘authorized’ to take $17,800 from my portfolio.  But the preceding 15 months had been rocky and it just seemed like a lot to cash out, so I only withdrew 16K instead.

To be honest, I regretted taking that; why did I cash that out in one sitting?  Why not take 8K now & another 8K six months from now?  Or 4K quarterly?  That money could’ve stayed in the market vs. sitting in my checking account collecting dust.   I wished I could put some of it back.

The Final Chapter: “And then along came Brexit…”

Last Friday when Great Britain shocked the world with their vote to leave the European Union and investors panicked the world over, I watched my own portfolio plunge in value & shrugged my shoulders—what can you do.  I was good until 2017 anyway.

The following Monday as the bloodbath continued (the Dow had now sunk almost 1000 points)  I visited a couple investor forums I frequent, and so-called retirement veterans were warning “get out of stocks, go all in cash, this could last a couple years”.  I smelled temporary insanity.  

It’s scary to buy when everyone is selling, but I hadn’t seen prices this low in a couple years so…  the $16,000 I’d withdrawn from my portfolio… I put $5,000 of it back in.

Date          Transaction                                                                                     Amount

06/27/2016 BUY 100.73 shares Total Stock Mrkt Idx Adm $49.64 per share    $5,000.00

Those 100 shares I bought for $49.64 are now worth $53.00 each, and yes their price will go up & down & up again, but the important thing is, I was able to put some of that wampum back into the swim, and at a LOW PRICE.  Smile

Doesn’t this all sound like a major pain?  Sometimes I think I’d sleep better if I’d just kept on working… or stuck my money in a safer place!   The End!

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