#HYHRD: The income phase of The Plan #UPDATE for May 1st, 2016

We are now in the income phase of portfolio management, partially (or totally) withdrawing each month from the available settled cash from earned dividends *only* (leaving all positions and principal untouched, except for trading activity)!

As of now, only stocks in my IRA will be DRIPped. Part (or ALL) of the cash in our accounts will be withdrawn each month on an ‘as needed’ basis. The available withdrawal amounts are shown on the Expected Dividends Part 3 spreadsheet. Preferred shares will NOT be DRIPped.

Projected checkbook balance for the end of the current month should now be at least $5,000.00 – $10,000.00 but if it’s not within that range then the dividend reinvestment and withdrawals will need to be adjusted. Also, the next two month’s projected EOM balance will also be used to determine if adjustments are necessary. This will provide a greater ‘margin of safety’ and hopefully avoid any unpleasantness. I think planning up to 3 or 4 months in advance should provide a reasonable level of financial security, all things considered.

  • Monthly withdrawals from available (i.e.; settled) cash will be taken.
  • Monthly withdrawals are subject to a minimum withdrawal of $10.00 (imposed by fidelity, no limit is imposed by the joint account).
    • In case our checkbook balance exceeds above limits, then a deposit to our joint account will instead be made.
      • In this case, of course that also means there would be no withdrawals that month.
  • Monthly withdrawals will only be scheduled on the first of each month or on an ‘as-needed’ basis.
  • Starting 9/1/15, the taxable account is the only account making additional investments exclusive of dividend reinvestment.
  • Starting 5/1/16, automatic withdrawals from the Roth IRAs will be taken monthly (see Expected Dividends part 3).
  • Starting 5/1/16, regular monthly withdrawals will be taken from our taxable account, although the amount(s) will vary.

So, based on the amount of the checkbook balance at the end of the previous month would determine whether or not I should make a withdrawal on this month. If no withdrawal is warranted, then I will base it on the checkbook balance at the end of the current month. If no withdrawal is warranted, then I will base it on the checkbook balance at the end of the following month, etc. This procedure will also determine if I should make a deposit to the taxable account instead. This could (and did, and probably will again) change…

In our joint brokerage account, I will withdraw $500.00 from the account. There is no tax withholding in this account.

In my IRA account, I will withdraw $109.27 for a net deposit of $81.96 after 25% tax withholding. I don’t foresee making any additional withdrawals after 6/1/16 until 1/1/17 at the earliest, for tax reasons.

In my Roth IRA account, I will withdraw $300.00 for a net deposit of $225.00 after 25% tax withholding.

In my wife’s Roth IRA account, I will withdraw $600.00 for a net deposit of $450.00 after 25% tax withholding.

I have setup automatic witdrawals from our Fidelity accounts. On the 1st of this month, these plans will withdraw $300 from my Roth IRA and $600 from my wife’s Roth IRA. This will increase next month to $675 for my wife’s Roth, and then to $750 in August. My Roth’s withdrawals will increase to $450 next month, then to $550 in August. Adjustments (i.e.; reductions) of these amounts will occur 1st in my Roth and then in my wife’s Roth, beginning in November for my Roth by $50 to $500, then reducing by $50/month until withdrawals are $50.00/month in August, 2017. My wife’s Roth’s withdrawals will be reduced at any time while still maintaining an adequate balance for funding our wants & needs through the end of next year. Withdrawals from my IRA will start 1/1/17 @ $50/month w/25% withheld for taxes.

Any cash left in the accounts will be allowed to accrue for any upcoming stock purchases and/or withdrawals (except for my wife’s IRA account which will have a balance of $50 to cover Fidelity’s fee to close the account until it is actually closed). I am using a ‘set aside’ percentage of 33.33% in each of the accounts to cover any upcoming investments, and plan to increase this percentage after each sharebuilder investment. The projected number of investments are 36, enough for a whole quarter. The cash balance of each account and the amount available to invest (after deducting for withdrawals at current withdrawal rates) are shown on the Equal Weight spreadsheet. The withdrawal amounts are shown on the Expected Dividends Part 3 spreadsheet, published weekly on Saturdays. Withdrawals will only be taken as needed. This is subject to change as necessary.

This is not a permanent solution, however. I am only doing this until some of our monthly expenses are paid off and we build a balance in our checking/savings to offset any future surprises.

This is the YTD withdrawal history (as of this posting);

Expected Dividends part 3

expecteddividends3

When enough of a ‘surplus’ (i.e.; ~$5,000.00 – $10,000.00) has been accumulated in our checking account, the withdrawal amounts will be reduced. I foresee that the withdrawals from our IRAs might be just about completely eliminated sometime in 2016.

Then, we need to plan for my first RMD withdrawal in December of 2024, which should be totally covered by dividends for *at least* the first few years. There will not be any RMDs for my wife’s IRA because I totally converted her holdings to her Roth IRA this year.

Of course, we’ll still have our regular recurring monthly charges that will need to be paid, but the withdrawals from the Roth IRAs and individual brokerages should cover that, and we are already taxed on anything that we make in our individual brokerage accounts.

UPDATE: January 1st, 2016 Partial conversions to our Roth IRAs have been initiated on 12/31/15 from our IRA accounts. CYS & ORC positions have been rolled over, and AGNC positions will be next, followed by NYMT and then AI. I also plan to convert my CNSL holdings to my Roth IRA this year, and I also plan to totally convert my wife’s holdings to her Roth IRA this year. I still have a few years to go before RMDs are required and will most likely convert 1/7 of the remaining holding(s) in my IRA each year starting in 2017. This, of course, will result in huge tax bills for last year and this year, and I will be wihholding 25% from each withdrawal beginning this year for upcoming tax bills.

This plan will provide the necessary augmentation of social security to allow us to live quite comfortably on a minimum income.

We met with our tax advisor in mid-2014 and went over this plan. It got a glowing review. The tax advisor is happy, I’m happy, and (most importantly!) my wife is happy. I aim to keep it that way.

UPDATE: 4/1/16 I really need to re-do the following section, since our accounts have lost so much equity. See below this whole section for the update.

On 12/18/14, I performed a calculation of how long my money will last with systematic withdrawals on the Mutual of Omaha website.

Here are my conservative assumptions (Current portfolio balance of $225,000, proposed monthly withdrawal amount of $1,300.00, annual withdrawal increases of 1.5%, annual before-tax return of 12%, Federal marginal tax bracket 15%, desired amortization schedule monthly);

assumptions

(Current portfolio balance of $225,000 is actually higher, and doesn’t account for my wife’s TSA. Proposed monthly withdrawal amount of $1,300 is high, and is currently scheduled at $1,000 (except for January & February). Annual withdrawal increases of 1.5% seems about right, but is not scheduled at this time. Annual before-tax return of 12% is about right. Federal marginal tax bracket 15% is about right. Desired amortization schedule of monthly directly coincides with monthly withdrawals.)

Here are the results;

results

As you can see, our portfolio should more than quintuple in 30 years according to these results, even after withdrawals. I believe the rate of increase is actually under-estimated, and the portfolio should increase at a much higher rate.

Here’s the withdrawals:

The first 15 months;

1st15

and the next series of withdrawals shows a slight increase in beginning balance, annual interest, taxes, withdrawal amounts, and ending balance.

15-32 months;

15-32

…and lots of withdrawals in between, from 33-342 months (not shown), which all show a slight increase in beginning balance, annual interest, taxes, withdrawal amounts, and ending balance.

343-360 months;

343-360

So, after 30 years (the maximum shown on the website) of these monthly withdrawals, $225,000 turns into more than 1.2 million dollars. What am I going to do with all that money when I’m 90? Well, there are a couple of things on my list; an Excalibur Cabriolet for one thing. Gifts to the kids is another. I hope I don’t start watching Televangelists or voting for the GOP (or the Democrats, or Libertarians)!

UPDATE: 4/1/16 (The new, more realistic, calculations);

On 3/1/16, I performed a calculation of how long my money will last with systematic withdrawals on the Mutual of Omaha website.

Here are my conservative assumptions (Current portfolio value of $170,000, proposed monthly withdrawal amount of $1,000.00, annual withdrawal increases of 1.5%, annual before-tax return of 10%, Federal marginal tax bracket 15%, desired amortization schedule monthly);

assumptions

(Current portfolio balance of $170,000 is actual value, and doesn’t account for my wife’s TSA. Proposed monthly withdrawal amount of $1,000 is a little high, and is currently scheduled at ~$1,000. Annual withdrawal increases of 1.5% seems about right, but is not scheduled at this time. Annual before-tax return of 10% is about right. Federal marginal tax bracket 15% is about right. Desired amortization schedule of monthly directly coincides with monthly withdrawals.)

Here are the results;

results

As you can see, our portfolio should increase about 47% in 30 years according to these results, even after withdrawals. I believe the rate of increase is now more correctly estimated, and the portfolio should meet our basic “sunset years” needs, albeit minimally.

Here’s the withdrawals:

The first 15 months;

1st15

…and lots of withdrawals in between, from 16-344 months (not shown), which all show a slight increase in beginning balance, annual interest, taxes, withdrawal amounts, and ending balance.

345-360 months;

345-360

So, after 30 years (the maximum shown on the website) of these monthly withdrawals, $170,000 turns into more than 250 thousand dollars. What am I going to do with all that money when I’m 90? Well, there are a couple of things on my list; an Excalibur Cabriolet a new pair of underwear for one thing. Gifts to the kids is another. I hope I don’t start watching Televangelists or voting for the GOP (or the Democrats, or Libertarians)!

As you can see, my expectations have changed significantly these past couple of years. Realization that I am basically screwed financially from the outset is also starting to crystallize and I am making some changes, finally. This is truly depressing, but it’s all I have and I have to run with it.

But, as I always say; “Hindsight is 20/20, foresight not so much.”

Namaste!

About PandA Trader

I am, I think... "Disobedience, in the eyes of anyone who has read history, is man's original virtue. It is through disobedience and rebellion that progress has been made." -- Oscar Wilde
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