Withdrawals option

The planner offers plenty of flexibility and can handle many complicated real-world scenarios, but sometimes it can be tough to figure out how to do it. Check out this forum for discussion of how to model things like selling a house, long-term care expenses, and much more.
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Mobius
Posts: 2
Joined: Thu Nov 08, 2018 3:57 pm

Withdrawals option

Post by Mobius » Fri Nov 09, 2018 12:46 pm

First, thank you very much for creating this and your generous licensing.

I have been able to accomplish almost everything I want, with one exception.
We use what is commonly called the 10 year rule, where assets likely to be needed for expenses are placed in fixed equities (bonds, T-bills, etc) which can be taxable at different rates or even tax free (State munis). The goal is to use these assets first, both the income as well as the principle, spending the lowest net taxable items first. Once those are exhausted, it then withdraws from taxable, tax-free then tax deferred.

While I can enter the equities under additional inputs, the options under settings for order of withdrawals only allows two options. Is there a way to specify that I want to 'spend these first' or an order other than the the two under 'Configure the order for portfolio withdrawals and RMDs'?

jimr
Posts: 462
Joined: Thu Feb 28, 2008 6:48 pm

Re: Withdrawals option

Post by jimr » Fri Nov 09, 2018 1:00 pm

There isn't a straightforward way to accomplish this.

As a workaround, you may be able to roughly approximate what you want by using negative savings cashflows from one of the three portfolio types. The program logic doesn't prevent you from entering negative amounts for Taxable, Tax Deferred, and Tax Free Savings cash flows.

This feature must be used with extreme care since it circumvents the normal simulation withdrawal logic. Also, there's no way to know for sure whether the portfolio balance is sufficient to handle the withdrawal amount. If the withdrawal amount is greater than the balance, the balance is just zero'd out.

So this feature is best used (with care) for special one-time adjustments to portfolio balances. As an example, if you wanted to force a $100k IRA to ROTH conversion early in retirement, you could do a one-year-only negative savings cash flow from the tax deferred portfolio of $100k, then a positive savings cash flow to the tax-free portfolio for an equal amount. Since this transaction has tax implications, you'd also want to create a one-time "Other expense" cash flow to cover the taxes due on the conversion.

This might possibly be a workable, though somewhat fraught, way to handle special situations like the one you've mentioned. Although using this feature comes with a lot of caveats.

Mobius
Posts: 2
Joined: Thu Nov 08, 2018 3:57 pm

Re: Withdrawals option

Post by Mobius » Sat Nov 10, 2018 10:43 am

Thanks Jim - I appreciate the info.

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