#HYHRD: The income phase of The Plan #UPDATE for November 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)!

Shares being DRIPped are shown on the Google sheets on the Dividends tab. (Preferred shares can NOT be DRIPped.)

As of September 27th; FFC, FLC, GOF, GUT, MAV, MHI, PFD, PFO, PHK, PHT, PMF, PML, & PMX will be DRIPped in Fidelity accounts because they reinvest at a discount! I just love a bargain!

Part (or ALL) of the cash in our accounts will be withdrawn each month on an ‘as needed’ basis.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.

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 few 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 one of our joint accounts will be made instead.
      • 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.

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 ind-PandA account, I will withdraw $3,300.00 from the account. There is no tax withholding in this taxable account.

In our PandAjoint account, I will withdraw $0.00 from the account. There is no tax withholding in this taxable account.

In my IRA-P account, I will withdraw $0.00 for a net deposit of $0.00 after 25% tax withholding.

In my Roth-P account, I will withdraw $251.43 for a net deposit of $188.58 after 25% tax withholding.

In my wife’s Roth-A account, I will withdraw $289.46 for a net deposit of $217.10 after 25% tax withholding.

Any cash left in the accounts will be allowed to accrue for any upcoming stock purchases and/or withdrawals. The cash balance of each account and the amount available to invest are shown on the Equal Weight spreadsheet. The withdrawal amounts are shown on the Expected Dividends Part 3 spreadsheet. Withdrawals will only be taken as needed. This is subject to change as necessary.

UPDATE: August 27th, 2016 I decided to make the ‘sharebuilder’ investments monthly, on the first Tuesday each month. Investing amounts will be based on a weighting of Total Return (shown on “Equal Weight” sheet, below, and subject to change).

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. (I keep saying that. Do you or I believe it yet?)

This is the cash balance sheet (as of this posting);

Cash

cash

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

Withdrawals

withdrawals

We might 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. If I convert 1/7 of my remaining IRA each year starting in January of 2017, then the balance at the end of the year before my RMDs are scheduled to start will be $0.00, eliminating the need for any RMDs! 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: 6/1/16 I really need to re-do the following section, since our accounts have changed so much. Maybe next month I’ll get it done.

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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