I have spent the last 10 years putting money into the market and have built up a nice portfolio with gains. I realize that I am stuck in that mode where I don't spend much money on discretionaries and put all my excess cash into the market. Now I am planning to start taking money out every month.

Plan is to take $5k out every month. Of which I will keep about 4.5k to spend and 1.5k for tax.That way I also feel like I am making money, not just seeing it in a number on a website.

Anyone doing this? Planning to start from this month end. I want to buy my wife a new car so I plan to increase the pull-out money so I can replace her 13 year old car.

would this be applicable here https://www.amazon.com/Earn-Income-Your-Index-Investments/dp/0578339633

have had this for a while sent by the author from another forum, have yet to read it but maybe others can comment on the general strategy
was planning on getting into that eventually when exiting workforce early

EliteZags said:

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would this be applicable here https://www.amazon.com/Earn-Income-Your-Index-Investments/dp/0578339633

have had this for a while sent by the author from another forum, have yet to read it but maybe others can comment on the general strategy
was planning on getting into that eventually when exiting workforce early

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Thanks for the link! I didn't know about the book. Will check it out.

My wife tells me that I should think of a side hustle or maybe invest in real estate/apartments like some of her friends boast about but I tell her we don't need to. I don't think I convinced her but I don't care.

An index fund is the best way and safest to make money. I'll look for the book.

Unless I'm misunderstanding you, this is basically the FIRE strategy just on a smaller scale. Put in your portfolio value and $60k/year as your withdrawal rate and how long you want to be able to do this, and this will spit out the rough odds of it backfiring. This is, of course, based on historical results and nothing can predict the future, but it is based on reasonable assumptions:

https://www.firecalc.com/

Note: base assumptions are pretty conservative (only 75% equities) but you can adjust that further down the page.

Good for you!

Bond ladders, quality dividend stocks?

Maybe some rent houses but instead of going for max profit, go for minimum headache like newer build starter homes in nice areas.

Try to find things that will maintain your equity while also kicking out cash every month. I don't know your full situation but if it's not eight figures or you aren't 65yo, id be nervous about unnecessarily burning your capital.

What if inflation is just now getting started and instead of needing 60k a year, you need 180k to buy the same stuff.

Point though is, unless you are VERY well off, if you're young, dont spend the capital.

Sure, however that $60k is inflation adjusted at 4% forever, so that model is at least trying to play catch up. You can tinker with any of the assumptions.

I get your point but for a modest withdraw rate 8 figures is not necessary.

If that $2mm is in a traditional IRA your RMD's will dictate your minimum income. I'm on year 5 of mine and my account is up about 75% despite having to withdraw.

infinity ag said:

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I have spent the last 10 years putting money into the market and have built up a nice portfolio with gains. I realize that I am stuck in that mode where I don't spend much money on discretionaries and put all my excess cash into the market. Now I am planning to start taking money out every month.

Plan is to take $5k out every month. Of which I will keep about 4.5k to spend and 1.5k for tax.That way I also feel like I am making money, not just seeing it in a number on a website.

Anyone doing this? Planning to start from this month end. I want to buy my wife a new car so I plan to increase the pull-out money so I can replace her 13 year old car.

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Possible recommendation for the tax liability portion - put the $1.5k/month into a tax free muni bond fund and re-invest the tax free income from it back into the fund. When it's actually time to pay the tax burden, pull it out of the fund and take care of the tax payment. Stashing it away in a high yield savings account obviously creates more taxable income and you won't know your exact liability until your tax return is actually complete.

OP, weren't you just recently talking about a new job you've started, and wondering how you can lump sum into your 401k to get the full year's max? And now you're wanting to start taking monthly withdrawals from retirement accounts?

Is there really a reason for this? Do you need this supplemental income at the moment?

Along these same lines, in general, assuming you have the funds to do so, is it normal to withdraw funds from your taxable accounts and wait until you hit RMD before you start to draw from your 401K, IRA, etc.? I am starting to do some pre-retirement planning now and wondering how this all works. By the time I hit retirement, my post tax accounts should probably have significantly more than twice what my retirement accounts hold.

Synergy!

He Who Shall Be Unnamed said:

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Along these same lines, in general, assuming you have the funds to do so, is it normal to withdraw funds from your taxable accounts and wait until you hit RMD before you start to draw from your 401K, IRA, etc.? I am starting to do some pre-retirement planning now and wondering how this all works. By the time I hit retirement, my post tax accounts should probably have significantly more than twice what my retirement accounts hold.

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there's a good amount of general strategies to maximize tax efficiency across withdrawals and a CFP/advisor could make sense to ensure optimization each year, but these channels have videos with decent insight

https://www.youtube.com/@RootFP

https://www.youtube.com/@earlyretirementari

Tex117 said:

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Unless you have to do this...don't.

The longer you can hold off, the more the magic of compounding happens.

That said, if you are having trouble enjoying some of the fruits of your labor, then maybe tone back the monthly contributions and have a little more slush.

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+1

OP, instead of cashing out on your investments, can you just stop reinvesting the dividends and start spending them instead? Or just cut back on your savings/investment rate every month and start spending more.

I don't think this has been mentioned yet, but first make sure to employ "tax loss harvesting", or offsetting any gains you plan to take with roughly corresponding losses, until you have exhausted your portfolio losers. The goal is to keep your capital gain near zero until you HAVE to take gains.

Many thanks. Looking forward to the day when I start pulling out funds.

Interesting topic about pulling funds out of your brokerage account. Def get the compound interest camp and my philosophy for the past 20 years has been to fund it and forget it. Where's that fine line of starting to pull some of it to enjoy now vs having a larger nest egg later in life where your time is more limited. I always cringe if I feel the need to pull anything out of the account even if it's to fund a side gig / other investment.

Don't forget the option of just taking out a margin loan against the assets. That way you don't pay cap gains taxes.

chris1515 said:

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Don't forget the option of just taking out a margin loan against the assets. That way you don't pay cap gains taxes.

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Can you explain this to me like I'm 5 lol.

Petrino1 said:

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chris1515 said:

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Don't forget the option of just taking out a margin loan against the assets. That way you don't pay cap gains taxes.

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Can you explain this to me like I'm 5 lol.

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Unless you have no other decent alternatives, this is not a great approach. It is borrowing at a fairly high rate with your assets (investment portfolio) collateralizing the loan. The loan is usually available up to a preset percentage of the value of your investment portfolio (50% or so).

In general, margin loans are most useful if you have a short-term need for cash, and with a specific plan to pay it back pretty quickly (such as buying an investment that will produce income to then pay off the loan). For anything longer term (such as using the money to live on, with no plan to pay it back!), the interest (rates can go up at any time) can quickly drain your account, and cause you to have to liquidate investments down the road (known as a margin call). Also, if your investments decline in value, the margin loan % calculation gets worse, which makes margin calls more likely. Both of these factors moving together in a bad way can equal financial disaster for your portfolio. This is why you saw people jumping from the roof on Wall Street in 1929.

Don't go down this road unless you've exhausted all other methods.

Petrino1 said:

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chris1515 said:

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Don't forget the option of just taking out a margin loan against the assets. That way you don't pay cap gains taxes.

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Can you explain this to me like I'm 5 lol.

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If you have a large amount of financial assets, you can borrow against them. It's the same concept as a HELOC, except that there is a more ascertainable value for your stock holdings vs your house.

I have a securities backed line of credit at Chase. I think the minimum was $150,000 at Chase to become a Chase Private Client which opened up the Line of Credit option. Can basically borrow against half my stock holdings up to $150k (could get this raised if needed, and if assets are there). I haven't used this much, and don't think it's necessarily a good idea for the average person to live off of or anything. It did help a lot when I buying a new house while my old house was still listed. Used my Line of Credit as a bridge loan for the new down payment - and I was fully in charge of loan.

So - at Chase anyways - if you have $300,000 in stocks/etf's, you could take out $150,000 at any time and pay it back however you want as long as your asset balance is still 2x your loan. Interest accrues on the loan, but it's in the 7-8% range (it's a spread above SOFR). If there's a large correction/crash and your holdings drop to $200k you would essentially get margin called.

The advantage of taking a securities backed line of credit is that (unless you get margin called) you don't have to liquidate your stock holdings to generate cash. If you are sitting on significantly appreciated assets, this can potentially help you defer paying capital gains taxes in perpetuity. Guys like Bezos and Musk do this with their extremely appreciated shares and just live off the loan instead of paying billions in capital gains taxes.

The other advantage is that the interest costs are much lower than many other forms of borrowing. The loan is secured by holdings that you hold at the bank, so if anything ever goes wrong, they can just force sell your holdings. It's fairly low risk for the bank, so the interest rate is able to be lower.

Ag13 did a pretty good recap. I'd agree that's probably a better solution for a short term need than any long term spending. Interactive Brokers has some of the cheapest interest rates for something like this, so if you're interested…shop around.

But, and no offense, this might be a bad idea for someone in the "explain it to me like I'm 5" camp! If it goes bad, it can go real bad.

You may want to reexamine your portfolio value if you think $4.5K + $1.5K= $5K.