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Once FIREd, is there a right way to withdraw?

Question

I looked on the FAQ but didn’t see this. I’m not to FIRE yet, but want to be well prepared (even if this is two years early–I’ve come to realize you can never be too early but you can be too late far easier than you think) for *any* withdrawals ahead, since I may be semi-FIRE or even “yikes, we don’t have jobs and need the money now!” mode after summer 2019.

What I mean by right way are issues like this:

– **Timing I.** Do you sell off some assets at the start of the year, convert them to cash, and just spend that down? Or do you do half as much every six months? 1/12th as much every month? You get the idea.
– **Timing II:** How much does what the market is currently doing affect your decision?
– **Type of asset sold.** Is there some preferred order of which types of assets you would sell? Stock ETFs vs. bond funds in a brokerage account. Or 457b withdrawal vs. brokerage account withdrawal. Post 59.5, the other retirement accounts becoming options (or sooner, if you are doing some of the techniques discussed here).
– **Anything else** to keep in mind?

Basically, I want to imagine it is my “first day FIRE’d” and I need to top up my bank account. What do I do?

Answers

Someone answered:

This is a good resource. Check out all the links to see which article you're most interested in, or read them all.

https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/

Someone answered:

Here's what I am doing since January 2017. I also added changes that I am currently thinking of doing starting early 2019.

Hope this is helpful to you.

Just a quick background. I do not have any side hustle income since I FIRE'ed so I rely 100% on my passive income from investments (stocks, bonds, CDs and MMA). I also have a checking account that is funded from dividends, interest income and proceeds from my MMA quarterly or stock sale quarterly.

X: my annual spending budget.
I keep 1X in MMA (MoneyMarketAccount – CapitalOne360) – I did this to calm my mind when I quit my job. Helps me sleep at night especially early on as I didn't really know how I would feel/ think when my pay check stopped.

Timing 1: I sell stocks quarterly to top off my 1X MMA. Why stocks? Am trying to get rid of my individual stocks as I transition to 100% ETFs (ie, VTI, VOO, VEU, BND). This may take awhile as I still have 4X in stocks. Note: I also earn dividends and interests quarterly so I roughly only need to sell stocks to cover 1 month expenses.

Timing II: interestingly no effect, including the rough February early this year. I thought I would panic but so far so good.

Type of asset sold: Stocks as I noted above. All my bonds (ie, BND etf) are all in my IRA accounts. I also have 2X in 457B and I do not even plan on touching that until maybe 2022. My 457B is 60% VTI and 40% BND.

Anything else: It helped me to think the first couple of years as an experiment on how I would behave. And I planned to adjust accordingly. I was 48 years old when I quit with at least 20-23% in fixed income (bonds, CDs, MMA, cash) allocation when I quit.

What I am thinking of changing starting 2019:

1) Lower my MMA to 0.25X (3 months worth of monthly spend) – the first 20 months of FIRE confirmed my X is correct for me. That extra cash will go to VTI or VEU – haven't decided yet.
2) Sell stocks to top off my MMA semi-annually (from quarterly). I do enjoy thinking about what to sell so I will go back to quarterly if I miss it enough… LOL.

Someone answered:

1) The Trinity Study used monthly withdrawals. I highly doubt there'll be much difference if you want to space that out further though.

2) The market should affect your decision as to which assets to sell (or rebalance to) in order to maintain your desired AA. You could also institute some flexible spending if desired, like if your portfolio drops 20%, you'll cut spending by 10%, or whatever.

3) You should arrange your withdrawals to minimize your taxes. Different accounts are treated differently, (traditional taxed at income rates, taxable at capital gains rates, Roth not taxed, etc) and of course we all have different balances, so it's nearly impossible to give a specific answer. Don't forget state taxes if applicable.

It looks like you have a 457, so a possible option would be to withdrawal up to the standard deduction from your 457 and then from your taxable account after that. If you have to do Roth conversions to avoid early access penalties, then you have to factor that in as well.

I'd open up a spreadsheet and spend some time modeling your account balances and how they'd change and which accounts you'd tap based on both taxes and market performance.