# Living on Your Investments? What Happens When a Bear Market Hits?



## MULTIZ321 (May 23, 2018)

Living on Your Investments? What Happens When a Bear Market Hits?
By Ken Moraif, CFP/ Money Matters/ Investing/ Kiplinger/ kiplinger.com

"Investors are often told to "stay the course" even as stock markets go through tough times. However, if you're retired, that advice could put your nest egg in jeopardy.

Many people follow a buy-hold strategy when it comes to investing: You know, just hold on to your stocks through the bad times, and you’ll be all right in the end. Is it true? I don’t think so.

I think buy-hold is a dangerous philosophy, especially if you are a retiree living on your investments. Bear markets tend to occur every three years on average (we are way overdue) and could devastate your retirement nest egg if you keep it in the market.

Let’s examine what could have happened if you had hypothetically invested $1 million in an S&P 500 index fund that exactly tracked the S&P 500, which did not charge any internal expenses or fees. You did not incur any external investment management fees for managing that fund, and you “stayed the course” during a period that included bear markets.

In January of 2000, the S&P 500 was at 1441. In January 2018, the S&P 500 reached a new all-time high of 2872, almost doubling over that 18-year period. Using the rule of 72* to find your rate of return, you’d divide 72 by 18 years and find that your investments averaged a 4% return. Had you drawn 4% each year from your investment, as many people say you should to cover your retirement cost-of-living, you might think you’d would still have your original $1 million today.

Unfortunately, you’d be wrong...."





Getty Images


Richard


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## bluehende (May 23, 2018)

I notice he is picking what would represent the time frame that would calculate the lowest return.  Very few of us invest our money at the top.  Also he knows the rule of 72 but forgets dividends which is a significant part of the return from the S&P 500 he used.


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## bizaro86 (May 23, 2018)

If the market is at the end of a long bull run (or has gone continuously up for many years) it probably is a good idea to assume there will be a decline when making plans.

Sometimes I think people assume a long bull market has made them richer than they actually are...

Of course, missing dividends is a pretty substantial error. Either that or the author should use the S&P total return index.

And his no fee assumption is pretty reasonable. Some ETF providers have fees below 0.1%


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## VacationForever (May 23, 2018)

I have a 5-year note that is pegged to the S&P 500 which matures this week.  Although the gains were higher in Jan/Feb before the market yoyo'ed down, I am glad that it matures this week as opposed to a year out.  Money will go towards our living expenses for the next few years so it won't go back to the stock market.  The current market certainly reinforces that retirement income should not be heavily dependent on performance of the stock market.  We also bought deferred income annuities to shift some of the risk to the insurer.


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## PigsDad (May 24, 2018)

Sorry, I think this "article" (which is really just an advertisement for their services) is majorly flawed.

First, as a couple have noted, it doesn't take into account for dividend reinvestment and only used the S&P Index numbers for their analysis.  That alone should disqualify the author of _any_ credibility.

Second, the author states that they advised their clients to get out of the market right before the crash of 2008, and then to buy back in at about the bottom after the crash.  I say show me the proof that they did that.  Also, they make it sound like that is the only buy/sell advice they have given their clients over the last decade+.  Did they advise any sells from 2009 until the beginning of 2018?  If they did, they lost out on a ton of gains. 

IMO, this "article" is just pure advertisement trash.

Kurt


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## tompalm (May 24, 2018)

There is a computer program called Sector Surfer that uses algorithms and trend analysis to project up or down markets.  It is all data that is computer driven and based on historic trend analysis.  What happened in the past will probably happen again because buying and selling has a lot to do with human emotion and trends. The person that wrote the program has an advanced degree from Stanford and using the program cost $10 per month per strategy. 

Before you make any judgements that people can’t time the markets or technical analysis is nonsense, take a look at the screen shots I made on the first link. I did this about a month ago to show some family members how the program works. When you look at each picture, you should see a title of the picture and a description in the lower left corner of each picture.  If you don’t see that, look in the bottom right corner of the picture for two arrow to reduce the picture size. 

To explain the program, there are two parts. One part follows trends and send an email once or twice a year about each stock or mutual fund to buy. The other part of the program is called Storm Guard and sends an email when going to cash is recommended. They improved the program in 2016 to make Storm Guard more conservative if you use a feature called Armour. They also, have AQR, Death Cross and others. But Armour is the one to use if you want to take less risk or close to retirement. Storm Guard has a scale of 0-2.0 and when it gets to zero, it will recommend going to cash. The reading has gone from 1.1 to .09 in the last six months. So going to cash might happen around June 1 or July 1 if the market doesn’t improve. That doesn’t mean there is a recession coming, it just means the market is going sideways or down and sitting on the sidelines is smarter than being in the market. 

A recession has always been preceded by an inverted yield curve and that hasn’t happen yet. So, this market should be a ways off from a recession. But another correction of 10-20 percent  is possible anytime. What happened in history will probably happen again. 


https://www.flickr.com/photos/96272404@N00/albums/72157668860338738

http://www.sumgrowth.com/MyPages/Strategies2.aspx


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## joestein (May 24, 2018)

Based upon reading these comments I am not as sophisticated an investor as the rest of you.   But I have always believed that investing steadily over the long run is the best bet.   I think that trying to time the market is very difficult.   My wife and I invest the maximum in our 401Ks and we get the benefit of dollar cost averaging.  We probably really started saving the max about 8-10 years ago, so we got most of the benefit of the crash, investing while the market was rising.

However, we are 48 and have a while to go until retirement (est 60 - 65).  So, I am fine with weathering a couple of crashes.

We will have paid off our mortgage by age 50 and plan on purchasing a vacation rental condo in Panama City Beach.  I would plan on investing $50-$75K on a rental condo that I would expect would generate enough funds after mgmt. fees to cover the expenses of the mortgage, insurance and taxes.   If this works out as planed, we expect to purchase a second condo 2-4 years after the first.  We would use the condo income to supplement our retirement.  Maybe even live in one part of the year.

Joe


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## bogey21 (May 24, 2018)

PigsDad said:


> Sorry, I think this "article" (which is really just an advertisement for their services) is majorly flawed.



No question but that this is an advertisement.  I hear half hour pitches by this guy on the radio here in Dallas/Fort Worth  all the time.  Actually I like listening to him as he dispenses some decent retirement planning advice but I have never succumbed and become a client.

George


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## easyrider (May 24, 2018)

tompalm said:


> There is a computer program called Sector Surfer that uses algorithms and trend analysis to project up or down markets.  It is all data that is computer driven and based on historic trend analysis.  What happened in the past will probably happen again because buying and selling has a lot to do with human emotion and trends. The person that wrote the program has an advanced degree from Stanford and using the program cost $10 per month per strategy.
> 
> Before you make any judgements that people can’t time the markets or technical analysis is nonsense, take a look at the screen shots I made on the first link. I did this about a month ago to show some family members how the program works. When you look at each picture, you should see a title of the picture and a description in the lower left corner of each picture.  If you don’t see that, look in the bottom right corner of the picture for two arrow to reduce the picture size.
> 
> ...




It looks like you are an active trader instead of an inactive investor.  

I remember the 2008 problems that caused many people to go back to work or postpone retirement. 

Bill


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## tompalm (May 24, 2018)

easyrider said:


> It looks like you are an active trader instead of an inactive investor.
> 
> I remember the 2008 problems that caused many people to go back to work or postpone retirement.
> 
> Bill


I am an active trader and always fully invested with more than 20 positions. But Sector Surfer recommends trading only one position a couple times a year.  Sometimes you can go more than a year and not make a trade. It really depends on the strategy that you choose. You might want to put everything into one mutual fund and leave it there if it is doing well and only use the Storm Guard of Sector Surfer to go to cash when it recommends that. I buy the top three mutual funds in my strategy and keep those unless something else is doing well.  A better plan might be to pay for three strategies.  But my concern is to save my funds when there is another recession. Storm Guard will never be perfect and call the top. Expect to take a 5-10 percent loss from the top. But riding out the next recession and watching it sell off 50 percent is not good when you are retired or close to retirement. Also, the market lost 90 percent in the 1929 recession, so the next recession might be worse than 50 percent. 

On another note, dollar cost averaging is great while you are young and saving money. Keep buying more while the market is down.  But if you have a large sum of money saved up, it would be smart to park that on the sidelines when the sell off happens.


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## tompalm (May 24, 2018)

joestein said:


> We will have paid off our mortgage by age 50 and plan on purchasing a vacation rental condo in Panama City Beach.  I would plan on investing $50-$75K on a rental condo that I would expect would generate enough funds after mgmt. fees to cover the expenses of the mortgage, insurance and taxes.   If this works out as planed, we expect to purchase a second condo 2-4 years after the first.  We would use the condo income to supplement our retirement.  Maybe even live in one part of the year.
> 
> Joe


We used to live in Pensacola and love the beach. We had rental property there and also a Timeshare on the beach. But after three hurricanes in five years, we sold it all. I think one condo on the beach would be fun and worth the risk. A second condo on the beach would be risky. Insurance does not coverage all losses when a storm hits. A few years back Money Magazine said Tallahassee FL was the best place in the USA to buy rental property. Consider that area or where you live for a second property. Rental property is a great investment.


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## bluehende (May 24, 2018)

tompalm said:


> But if you have a large sum of money saved up, it would be smart to park that on the sidelines when the sell off happens.



Easier said than done. 

I have always found that technical analysis is always very good at predicting the past.


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## PigsDad (May 24, 2018)

bluehende said:


> Easier said than done.
> 
> I have always found that technical analysis is always very good at predicting the past.


I would agree. While I have nothing against those trying to time the market, I guess I would rather stick w/ the slow and steady approach focused on index funds.  I'm sure some are good at it, but if you take a look at active-managed accounts vs. index funds, the index funds win out a large percentage of time over the longer term (10-20 years).  Sure, there are some that will beat the indexes, but rarely over the long term.

On the other hand, dabbling in trading is fun and I admit that I do that with a small portion of my portfolio.  I also allocate some to buy and hold dividend investing for long term.  So I guess I am a mixed bag of sorts.

Kurt


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## bluehende (May 24, 2018)

PigsDad said:


> I would agree. While I have nothing against those trying to time the market, I guess I would rather stick w/ the slow and steady approach focused on index funds.  I'm sure some are good at it, but if you take a look at active-managed accounts vs. index funds, the index funds win out a large percentage of time over the longer term (10-20 years).  Sure, there are some that will beat the indexes, but rarely over the long term.
> 
> On the other hand, dabbling in trading is fun and I admit that I do that with a small portion of my portfolio.  I also allocate some to buy and hold dividend investing for long term.  So I guess I am a mixed bag of sorts.
> 
> Kurt




I am currently having some fun with think or swim through ameritrade where you can get a paper trading account.  The charting sorftware is fun.  So far any indicator I have used has been pretty bad at predicting.  I will say I am day trading short term options.  It seems like a good video game to me.  Who knows maybe I can get savvy enough to start trading real money and make a bit.  With the looks of my results I will not hold my breath .  So far I have only tried out the normal support,resistance, and moving average indicators. The only positive is now I can amaze my friends and family with talk of straddles, strangles, butterflies and especially the famous iron condor.


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## geekette (May 24, 2018)

Ignoring dividends ignores my entire strategy.  I buy companies and collect dividends, currently reinvested to gain more shares, later to take as cash to fund my life.  Portfolio value is just a point in time number, I do not base anything on that.  No 4% rule needed here.   It's not a big deal to me what The Market does, I only care about my companies and their earnings.

A company whose stock price goes down is not automatically in danger of going out of business, nor cutting its dividend.  If it's a good company, there isn't a good reason to sell just because the market makes a move, imo.  But people can and do spend their investing lives getting in and out of the market.  Counter-productive to my strategy but I recognize that few seek a div lifestyle.  Slow and boring over decades is getting it done for me.  No need to swing for the fences nor fear market cycles.  

I can retire when dividends more than cover my expenses.


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## Ironwood (May 25, 2018)

To stay invested to collect your 4% dividend while the market corrects 20/30 or 40% is foolhardy.  And I could give you a list of household names that have never come back from significant sell offs.  Having been in the wealth management business I can tell you that the lifeblood of that business is to gather assets under administration for life.... so most wealth management strategies are developed around buy and hold.   Investment management firms make most money when you are fully invested... and not in fixed income strategies.  This is a bit simplistic but is the root of most money management business plans.


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## PigsDad (May 25, 2018)

Ironwood said:


> To stay invested to collect your 4% dividend while the market corrects 20/30 or 40% is foolhardy.


So you can perfectly predict the market and know exactly when to enter and exit?  I'm impressed!



> And I could give you a list of household names that have never come back from significant sell offs.


And I could give you a list that is orders of magnitude larger of companies that have consistently increased their dividends.  With a diverse dividend portfolio, you don't have to worry about having a couple of dogs.

Kurt


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## PigsDad (May 25, 2018)

I just love seeing all these posts from people who infer that there are ways to successfully time the market, and people who don't are "foolhardy" or some such thing.  I'm not doubting that some have been successful, but data supports the fact that even a very high percentage of professionals can't do it over the long term:






Kurt


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## bizaro86 (May 25, 2018)

Ironwood said:


> To stay invested to collect your 4% dividend while the market corrects 20/30 or 40% is foolhardy.  And I could give you a list of household names that have never come back from significant sell offs.  Having been in the wealth management business I can tell you that the lifeblood of that business is to gather assets under administration for life.... so most wealth management strategies are developed around buy and hold.   Investment management firms make most money when you are fully invested... and not in fixed income strategies.  This is a bit simplistic but is the root of most money management business plans.



Which 10% declines that it sells after are corrections where the market bounces back to new highs right after, and which are big 40% declines? 

Everyone promoting software and systems like that always says - "if you only missed one 30% decline" but if you sell out based on technical analysis you'll miss one 30% decline and four 20% gains on bounce backs.


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## CalGalTraveler (May 25, 2018)

Why is this all or nothing? I like to build laddered trailing stop losses so I am not completely out unless the S&P goes below a certain milestone. Then when it gets to a certain point below my lowest stop-loss, I dollar cost average into the market again.

Hedge a part of my portfolio to avoid risk.  I would rather miss a 20% gain than lose 80% of my nest egg.


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## bizaro86 (May 25, 2018)

CalGalTraveler said:


> Why is this all or nothing? I like to build laddered trailing stop losses so I am not completely out unless the S&P goes below a certain milestone. Then when it gets to a certain point below my lowest stop-loss, I dollar cost average into the market again.
> 
> Hedge a part of my portfolio to avoid risk.  I would rather miss a 20% gain than lose 80% of my nest egg.



How do you decide when to buy back?


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## PigsDad (May 25, 2018)

CalGalTraveler said:


> Why is this all or nothing? I like to build laddered trailing stop losses so I am not completely out unless the S&P goes below a certain milestone. Then when it gets to a certain point below my lowest stop-loss, I dollar cost average into the market again.
> 
> Hedge a part of my portfolio to avoid risk.  I would rather miss a 20% gain than lose 80% of my nest egg.


Do you have any data that shows this strategy actually produces higher returns or lower risk?  Missing out on a few big up days is a huge risk, and can significantly reduce one's return.  It's hard to argue with the data that shows actively managed investments rarely beat the indexes in the long term.  But in the end, we all do what we personally think is best for us.

Kurt


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## CalGalTraveler (May 25, 2018)

I don't have data on gains and I find most of these pundits cherry pick dates anyway.  No one will get 100% right.

What I do know is that I don't want to spend several years in my retirement scraping by and losing the opportunity to travel and spend because of another crash. I have maybe 30 - 40 years of traveling etc. left and I don't want to lose a quarter to a third of my healthy life having to work or waiting for the stock market to recover.

BTW...I am a big index investor and the stop-loss ladders are more like an escape only in emergency route, not active trading.


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## Elan (May 25, 2018)

I agree that there are too many variables to make any approach "all or nothing".  If one has ample retirement savings, IMO they'd be idiotic to expose it to much risk, regardless of long term historical performance.  OTOH, if one feels like they might come up short, they probably want to take more risks and more actively manage their investments.  As usual, no "one size fits all" solution.


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## CalGalTraveler (May 25, 2018)

bizaro86 said:


> How do you decide when to buy back?



It is by no means perfect as this is continuous improvement. Usually buy back at a percentage below a stop loss.  I picked up this technique from a broker as they said they do this alot in their office with the stop loses and buy backs. Key is that you have to do this with two different index ETFs if a taxable account because you could end up violating wash sale - but if retirement account no problem.


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## tompalm (May 25, 2018)

Ironwood said:


> To stay invested to collect your 4% dividend while the market corrects 20/30 or 40% is foolhardy.  And I could give you a list of household names that have never come back from significant sell offs.  Having been in the wealth management business I can tell you that the lifeblood of that business is to gather assets under administration for life.... so most wealth management strategies are developed around buy and hold.   Investment management firms make most money when you are fully invested... and not in fixed income strategies.  This is a bit simplistic but is the root of most money management business plans.



Well said. My friend bought 20 stocks during 2006 and rode them down and up in 2008. He felt a lot of pain during 2008. Most of them are looking good right now, but if there is another 50 percent sell off, he will be lucky if he is even because GE has already lost 75 percent of it value and so have a couple other ones that he owns. He says these are big companies that will not go bankrupt and he is not worried.  By the way, the return on the market totally depends on which years you review the results. From 1988 to 2018 or over 30 years, the return was 10.8 percent a year for the index. If you look at the return from the top in 2000 or the last 28 years, you would probably get the 4 percent figure that was talked about in the original post. 

Buying mutual funds can be a buy and hold forever and don’t worry. But stocks can go to zero or sell off more than 50 percent. There is a company called Trade Stops that has a proven record that will tell you how much of a stop loss to set. If you stop out, buy another company that is in an up trend. Here is the link below for trade stops. People that need help finding a stock can buy Motley Fools Newsletter for $49 per year on a special sale they often have. They are killing the market performance with their recommendations.

https://tradestops.com/magic-calculator/

People that plan to buy and hold mutual funds need to evaluate that fund’s performance in down markets.  Kiplinger Magazine just came out with an article about Best funds in a down market and it shows the performance of a few funds that only dropped 20-30 percent in 2008. Target funds should have less risk too.  Now is the time to plan for the next Bear Market. We are probably a year away from from the next recession.


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## VacationForever (May 25, 2018)

I lost half a million, real money and not paper loss, during the 2001/2002 crash as I kept buying when it was going down to try to lower the average cost and before not too long got into margin loans.  I have since decided that I am too emotional to directly manage my funds in the stock market and have gone the complete opposite route.  We have a wealth management firm to manage most of our investments - mainly IRA that is subject to RMD/MRD and non-IRA investments for the rainy day.  The ones that are not managed by the wealth manager went into deferred income annuities and term notes to meet our cash flow needs.  We are retired and our financial situation feels good. Our cash flow that funds the next 30 years of our lives is on a spreadsheet listing various sources of income.  We are not rich but feel that we can weather an extended bear market and not need to change our lifestyle.


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## CalGalTraveler (May 25, 2018)

@VacationForever.  Thanks for sharing.  That must have been painful. A good lesson. I haven't aggressively pursued the buy back at a lower price step for the reasons you stated (I haven't had the stomach for it, so have dabbled.)  Usually wait it out with cash on the sideline. And then start dollar cost averaging when it is reasonably clear a bottom has been hit.

We are still ahead. Perhaps did not realize the fullest extent of the 2017 market rise, but I like to sleep at night.

But not all or nothing. We are hedging and this plan is only a portion of our portfolio.


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## MOXJO7282 (May 25, 2018)

I am a buy and hold guy and I've made some really good picks at a great time to be in the market.  I've also always maxed out my 401k so we're comfortable at where we are from a retirement funds standpoint.

My concern is exactly what this article suggests, getting whacked by the next bear market which no doubt is coming. I hearing some say 2020 if current trends continue.  Now almost 54  I really do want to change my risk tolerance to avoid a huge dip before retirement which I hope is in 5 years and would like to seek a wealth management company but overwhelmed by all the options.

I'd also like to take some cash out of some of my profits in an after-tax brokerage account but kinda of stuck on these options as well. 

For instance I'm sitting on a nice chunk of Amazon that is up 1023.23% and I'd love to take some profits now but not only would I get hit with capital gains but anything but a small amount of profit and it kicks me into the next tax bracket so then all my income including work salary gets taxed at that rate so that isn't good.  However if I wait invariably the market will have a correction, some say 30% possible and I lose a lot of profit, maybe more than the tax implications. I can't even take and put profits into an IRA because of the fact I'm already maxing out my contributions there.  

It sounds like a good problem to have but not if the bear market comes tomorrow because I would get crushed as I am way to stock heavy and then we're not in so great a position.

Anyone do the homework recently and found a wealth management company that has reasonable fees? I need advice as to how to lower tax impact of capital gains.


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## VacationForever (May 25, 2018)

@MOXJO7282 I will PM you the wealth management company that we work with and fees etc.


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## geekette (May 25, 2018)

tompalm said:


> Well said. My friend bought 20 stocks during 2006 and rode them down and up in 2008. He felt a lot of pain during 2008. Most of them are looking good right now, but if there is another 50 percent sell off, he will be lucky if he is even because GE has already lost 75 percent of it value and so have a couple other ones that he owns. He says these are big companies that will not go bankrupt and he is not worried.  By the way, the return on the market totally depends on which years you review the results. From 1988 to 2018 or over 30 years, the return was 10.8 percent a year for the index. If you look at the return from the top in 2000 or the last 28 years, you would probably get the 4 percent figure that was talked about in the original post.
> 
> Buying mutual funds can be a buy and hold forever and don’t worry. But stocks can go to zero or sell off more than 50 percent. ...



Someone bought in 2006 and was devastated in 2008.  A two year investment does not a compelling anecdote make.  I further do not have my life savings in GE.  

>>*Buying mutual funds can be a buy and hold forever and don’t worry. But stocks can go to zero or sell off more than 50 percent*

what do you think these mutual funds invest in???  "Guaranteed" stocks unavailable to the rest of us?


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## tompalm (May 25, 2018)

geekette said:


> Someone bought in 2006 and was devastated in 2008.  A two year investment does not a compelling anecdote make.  I further do not have my life savings in GE.
> 
> >>*Buying mutual funds can be a buy and hold forever and don’t worry. But stocks can go to zero or sell off more than 50 percent*
> 
> what do you think these mutual funds invest in???  "Guaranteed" stocks unavailable to the rest of us?



Regarding “two year investment”...., the point is he was down 50 percent two years later.  Now, 12 years later, his 20 stocks are up 70 percent and if there is another selloff, that profit is gone.   If you are buying stocks, you need to be active and manage them. 

Regarding Mutual Funds - That is why you have to pick the right fund. Some managers will stay in the same stocks forever, especially in passive funds.  Smart managers will sell stocks that are not performing and buy better companies. Some funds like target funds have 30 - 40 percent bonds and lots of stocks. So if one stock takes a hit, the fund will not take a major loss.  The Vanguard 500 index fund or SPY or any other fund like it have 500 stocks in it. So if one company goes to zero, the fund will not take a big hit. 

It is really pretty simple to see. Maybe you should do some more research on mutual funds.


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## geekette (May 25, 2018)

Foolhardy, idiotic, etc...   why is it that if someone doesn't invest the same way they must be stupid?  

I'm used to it, people pan buy and holders and certainly div investors, so being both, I have always been sneered at.   I don't care, I'm doing my own thing for my own future, quietly getting wealthy without market stress or throwing my dough away on trade fees and gains taxes.  I'm not trying to beat the market, or anyone else's returns, I am only positioning myself to have more than enough to float my butt to my end.  I don't play the market or trade stocks, I own companies.  My strategy rather untethers me from market whims, I am paid the same no matter what the stock price is.  Each year I make more in dividends than the previous year.  Bears don't scare me.

Regardless of anyone's opinion, I'll own stocks until I die, and most likely be always at least 90%+ equities.  There is inflation to outrun and this is the way for me to do it and it's fine by me if people think it's idiotic.  I was born with nothing and the way for me to make something over the long haul has been compounding dividends from solid companies.  I understand people consider it risky but my big risk is the sudden and total annihilation of American business, a risk so unlikely to happen that I don't worry about it.   It's not that hard, I started young and simply didn't sell.  Over time, the earliest shares become worth double, triple, quadruple the buy price.  I like to own things that increase in value over time, even if I have no plans to sell.  Even a severe market correction does not necessary put me into paper loss territory because I probably have shares bought at less than deep correction price.  Plus, div stocks pay me to own them.  Why sell them because the market moves?  And then what, buy the same companies back later?  That makes no sense to me so I stay put.  I have yet to have a loss.  Over 80 companies and none gone blukey.

It is far more than a 4% dividend on my long holds because it's only entry yield at the buy, increases in dividend rates juice it for shares owned.   This year raises are very generous, many double digit increases.  It doesn't take many years of reinvesting + raises to get double the original quarterly payment.  My foolhardy self will keep on stacking shares while the market goes up and the market goes down.  In nearly 30 years of owning dividend stocks, not one of them has gone out of business.  Not sure what the big fear of "go to 0", "doesn't come back", etc.  Apparently I don't own those companies.


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## geekette (May 25, 2018)

tompalm said:


> It is really pretty simple to see. Maybe you should do some more research on mutual funds.



thanks, I graduated from mutual funds a couple decades ago.  I make my own mutual funds.


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## WinniWoman (May 26, 2018)

I honestly will just kind of wing it I think when the time comes. Have a little of everything- mutual funds, cash, CD's and I BONDs and EE Bonds and physical gold and silver.  My husband's 401k is in a stable value fund. 

Right now I am grappling with what to do with an RMD from my deceased mom's IRA. These past few years I have always taken it from a small cap mutual fund, since it was always up. But now everything in the account is down. I am thinking of taking it out of the Blue Chip ETF, since it has the most money in it. Will have to pay the broker's trade fee.


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## am1 (May 26, 2018)

Why do people consider paper losses and real losses different?  Both are losses on something that can be easily bought and sold.  Also people not wanting to lock in a loss by selling?  The stock has already dropped, if you think it will rise keep it or cannot sell because of too much tax but if you think it will drop sell it.


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## VacationForever (May 26, 2018)

am1 said:


> Why do people consider paper losses and real losses different?  Both are losses on something that can be easily bought and sold.  Also people not wanting to lock in a loss by selling?  The stock has already dropped, if you think it will rise keep it or cannot sell because of too much tax but if you think it will drop sell it.


They are different in that if it is paper loss if you can hold it until it goes back up. Real loss is when you have to sell that due to needing the money as in the case of say Minimum Required Distribution or worst case scenario like mine, to cover a margin loan.


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## bogey21 (May 26, 2018)

geekette said:


> Regardless of anyone's opinion, I'll own stocks until I die, and most likely be always at least 90%+ equities.  There is inflation to outrun and this is the way for me to do it and it's fine by me if people think it's idiotic....



To each his/her own.  I only own one stock, a rank oil fracking speculation.  I live on my Pension and Social Security, both of which are annuities.  My Pension has an annual 3% Cost of Living escalator  (note that I agreed to zero raises from my Employer for about 10 years to get this).  To cover rampant inflation if it ever materializes I have a decent amount of raw gold and silver.  No WSJ, Fox Business Network or CNBC for me.  The only risk I see is the continuing solvency of my Pension Provider which I monitor carefully.

George


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## bizaro86 (May 26, 2018)

MOXJO7282 said:


> not only would I get hit with capital gains but anything but a small amount of profit and it kicks me into the next tax bracket *so then all my income including work salary gets taxed at that rate* so that isn't good.  However if I wait invariably the market will have a correction, some say 30% possible and I lose a lot of profit, maybe more than the tax implications. I can't even take and put profits into an IRA because of the fact I'm already maxing out my contributions there.
> 
> It sounds like a good problem to have but not if the bear market comes tomorrow because I would get crushed as I am way to stock heavy and then we're not in so great a position.
> 
> Anyone do the homework recently and found a wealth management company that has reasonable fees? I need advice as to how to lower tax impact of capital gains.



That isn't how tax brackets work. Only the income that is in the tax bracket gets taxed at that rate. So if you are $1 into the next tax bracket, only that $1 pays tax at that rate, the rest pays tax at the lower rates.


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## Talent312 (May 26, 2018)

Given that we live comfortably off my pension and our SS benefits, I see my investments (4 IRA's) as rainy-day funds (and for occasional home improvements).  Thus, income skimming does not concern me.

However, since we're retired, I think it prudent to be cautious. So I keep a 50/50 ratio of equities to bonds to cushion gyrations. Sure, it limits my upside, but it keeps stomach-churning to a minimum. I also use equity-ETF's to guard against individual stocks going belly-up.

Perhaps that's overly cautious, but I don't want to spend my time tracking market indicators or watching CNBC.
.


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## Sapper (May 26, 2018)

VacationForever said:


> They are different in that if it is paper loss if you can hold it until it goes back up. Real loss is when you have to sell that due to needing the money as in the case of say Minimum Required Distribution or worst case scenario like mine, to cover a margin loan.



Margin calls are PAINFUL!


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## bogey21 (May 26, 2018)

VacationForever said:


> They are different in that if it is paper loss if you can hold it until it goes back up. Real loss is when you have to sell that due to needing the money as in the case of say Minimum Required Distribution or worst case scenario like mine, to cover a margin loan.


Just remember that if you have a 50% loss, you need 100% appreciation from where the loss took you to get back to even.

George


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## "Roger" (May 26, 2018)

Dollar cost averaging has been promoted as an alternative to market timing. With dollar cost averaging you invest the same amount of money every month, rain or shine. You come out ahead in that you are buying more shares when the price is low and fewer shares when the market is high. At the same time, you don't make a huge mistake by failing to guess correctly with a market timing approach. Not a sexy strategy, but it has been promoted as a safe(r) alternative to trying to play the market.

Now the bad news. By withdrawing 4% regularly, rain or shine, it has just the opposite effect from dollar cost averaging as an investment strategy. You sell more shares when the market is low and fewer shares when the market is high. That is what drives the conclusions the author of the article cited by the op reaches.


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## tompalm (May 26, 2018)

Talent312 said:


> Given that we live comfortably off my pension and our SS benefits, I see my investments (4 IRA's) as rainy-day funds (and for occasional home improvements).  Thus, income skimming does not concern me.
> 
> However, since we're retired, I think it prudent to be cautious. So I keep a 50/50 ratio of equities to bonds to cushion gyrations. Sure, it limits my upside, but it keeps stomach-churning to a minimum. I also use equity-ETF's to guard against individual stocks going belly-up.
> 
> ...


That is a smart plan. Right now bond funds are flat and not increasing in value because interest rates are going up.  But when a recession happens, the Fed will start dropping interest rates and those bonds funds should go higher. If you are holding bonds and not bond funds, that works better.


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## tompalm (May 26, 2018)

"Roger" said:


> Dollar cost averaging has been promoted as an alternative to market timing. With dollar cost averaging you invest the same amount of money every month, rain or shine. You come out ahead in that you are buying more shares when the price is low and fewer shares when the market is high. At the same time, you don't make a huge mistake by failing to guess correctly with a market timing approach. Not a sexy strategy, but it has been promoted as a safe(r) alternative to trying to play the market.
> 
> Now the bad news. By withdrawing 4% regularly, rain or shine, it has just the opposite effect from dollar cost averaging as an investment strategy. You sell more shares when the market is low and fewer shares when the market is high. That is what drives the conclusions the author of the article cited by the op reaches.


Dollar cost averaging is a great plan until you get close to retirement and have a large sum of money saved. That large sum of money will get cut in half during a recession.  If you loose your job or retire during that period, life might be difficult.

Full disclosure.  The company I worked for shut down in 2008 and I found myself retired or unemployed when I was 54 years old. I was an airline pilot and too old to be hired by a quality airline and needed to start a new career.  I was 50 percent invested at the time and rode out the correction. But I said I will never do that again. We were able to survive because I had health care from a military retirement and a small pension that paid my mortgage. We are doing fine, but could have done better.  Some of the pilots I worked with had to sell their home and some of them took jobs making 25 percent of their Pilot Salary just so they could get health care. 

Nobody knows how bad the next recession will be.  But lots of experts think it will be bad because of the high debt that our country and the rest of the world has run up.


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## geekette (May 26, 2018)

sounds like a lot of people here have pensions.  I don't.  I have what I cobble together and SS.  

That's why my strategy hinges on div payment to me per share vs share price.   I have used my working decades to pile up as many shares as possible in taxable, tIRA and Roth, or stuck in funds with 401k.  Dollar cost averaging plus compounding rising dividends are getting me to the retirement line without depending on market value. 

I can sell if I choose, but that's giving up the golden goose.  "Getting back to even" after recession isn't an issue for me.


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## geekette (May 26, 2018)

bogey21 said:


> No WSJ, Fox Business Network or CNBC for me.



Me, either.  I get my info from earnings transcripts, filings and fi statements.


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## am1 (May 26, 2018)

VacationForever said:


> They are different in that if it is paper loss if you can hold it until it goes back up. Real loss is when you have to sell that due to needing the money as in the case of say Minimum Required Distribution or worst case scenario like mine, to cover a margin loan.



I understand what you are saying but when it comes down to it they are both losses.  You may be "saving" by cashing out instead of being able to hold on and lose more.  

I much prefer land, houses, apartments then stocks.  The gains and losses are not able to be looked at every day plus they pay rent or can be used.


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## VacationForever (May 26, 2018)

am1 said:


> I understand what you are saying but when it comes down to it they are both losses.  You may be "saving" by cashing out instead of being able to hold on and lose more.
> 
> I much prefer land, houses, apartments then stocks.  The gains and losses are not able to be looked at every day plus they pay rent or can be used.


I had 2 high value rental homes overseas and those saved me from permanent financial ruin.  I sold them before we retired as overseas rentals can get complicated with regards to taxes and retirement means being stress free. It was a hard lesson learned.


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## geekette (May 26, 2018)

am1 said:


> Why do people consider paper losses and real losses different?  Both are losses on something that can be easily bought and sold.  Also people not wanting to lock in a loss by selling?  The stock has already dropped, if you think it will rise keep it or cannot sell because of too much tax but if you think it will drop sell it.


Paper losses are not actual losses.  No one reports it on their tax returns; a company could be paper gain to paper loss over and over through the course of a year.  Doesn't matter, means nothing except Price Today.   

Consider housing bust, my home may have lost market value but it was the same house and I continue to live in it, which is the value I seek from it.  What do I care if a buyer I'm not looking for would pay me less that a few months previous?  Paper loss only.  

For stock, if I own 100 shares I still own 100 shares no matter what the market price is.  There is no loss.  

If I sell the shares for less than I bought them, that is a loss.  I have no more shares and less money than I started with.  Why would I do that?  Sure, if it's a crappy company, but why invest in those?  

A stock drop is not for me a reason to sell, it's more of a buy reason.  I have no problem scooping up shares on sale.


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## ottawasquaw (May 26, 2018)

geekette said:


> Paper losses are not actual losses.
> 
> Consider housing bust, my home may have lost market value but it was the same house and I continue to live in it, which is the value I seek from it.  What do I care if a buyer I'm not looking for would pay me less that a few months previous?  Paper loss only.
> 
> For stock, if I own 100 shares I still own 100 shares no matter what the market price is.



Is the correct term, "unrealized" versus "paper?"

Also, there's a lot of confused thinking regarding housing. There is a utility to your home. You are confusing this with its appreciated value.


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## geekette (May 26, 2018)

ottawasquaw said:


> Is the correct term, "unrealized" versus "paper?"
> 
> Also, there's a lot of confused thinking regarding housing. There is a utility to your home. You are confusing this with its appreciated value.


Yes, unrealized.

I didn't bring up real estate, the poster I was responding to prefers it as an investment (he may not have specified home he lives in).  I said the value was in the use of the home.  I'm not confused about it.   Market value is market value.  It can be appreciated or depreciated.  Like stocks, there is a cost basis to keep track of in order to calculate gain/loss at time of sale.  That's when it's Realized.


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## CalGalTraveler (May 26, 2018)

"Roger" said:


> Now the bad news. By withdrawing 4% regularly, rain or shine, it has just the opposite effect from dollar cost averaging as an investment strategy. You sell more shares when the market is low and fewer shares when the market is high. That is what drives the conclusions the author of the article cited by the op reaches.



What a great discussion. I am learning a lot. Not retired yet: I am of the 401K generation "aka we have no pension" and have to cobble it together ourselves.

As an alternative to the 4% rule, what is suggested to avoid this?

i.e. sell 6% in bull markets and 2% in bear? A "6%/2%" rule?  Although the crashes are easy to detect, how do you know when the market is at a peak?  i.e. markets are high today but do we know with the tax reform if it will go even higher?


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## zinger1457 (May 26, 2018)

Probably not the best idea to put all your eggs in one basket.  Many use a bucket type approach when in retirement to help weather any big market changes.  Have part of your savings in one bucket to cover near term (5 year) expected living expenses.  That bucket should be invested in safe (yes low return) investment/savings accounts.  Annually add to that bucket to keep up with the next 5 year estimate.  Other buckets can be more aggressively invested, expecting that you'll have time to recover from any major down markets.


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## am1 (May 26, 2018)

If one has a million dollar invested in a stock portfolio and then the same portfolio is only $500 000.  That is a $500 000 drop/loss regardless if one sells or not.  I guess I cannot brush off paper losses.  At a casino if I start with a $100 get up to $1000 and go broke I lost a $1000 not $100 minus the free drinks.  After grinding online casinos and poker years ago I have no interest in wasting money in casinos but also is the similar thinking with paper and real losses as with stocks.


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## rapmarks (May 26, 2018)

am1 said:


> If one has a million dollar invested in a stock portfolio and then the same portfolio is only $500 000.  That is a $500 000 drop/loss regardless if one sells or not.  I guess I cannot brush off paper losses.  At a casino if I start with a $100 get up to $1000 and go broke I lost a $1000 not $100 minus the free drinks.  After grinding online casinos and poker years ago I have no interest in wasting money in casinos but also is the similar thinking with paper and real losses as with stocks.


I would say that that person had a lot of risky investments and has not diversified to lose half of their total investment.


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## geekette (May 26, 2018)

am1 said:


> If one has a million dollar invested in a stock portfolio and then the same portfolio is only $500 000.  That is a $500 000 drop/loss regardless if one sells or not.  I guess I cannot brush off paper losses.  At a casino if I start with a $100 get up to $1000 and go broke I lost a $1000 not $100 minus the free drinks.  After grinding online casinos and poker years ago I have no interest in wasting money in casinos but also is the similar thinking with paper and real losses as with stocks.


You are focusing on point in time.  What is the reason the portfolio won't be more than a million later?  How many shares were lost with price reductions?  

We're all different, invest to your comfort while making your goals.   I don't buy into the casino analogy as it's simply not at all the same to me.  Games of chance have nothing in common with buying companies.  Playing a hand or taking a spin is a win/lose right now situation.  One could invest that way, but I personally would not call it investing.

This is why I collect dividends.  They are independent of price.  I'm not playing win/lose, I'm buying tiny slivers of companies over time in order that dozens of companies pay me in retirement vs one employer paying me.


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## PigsDad (May 27, 2018)

zinger1457 said:


> Probably not the best idea to put all your eggs in one basket.  Many use a bucket type approach when in retirement to help weather any big market changes.  Have part of your savings in one bucket to cover near term (5 year) expected living expenses.  That bucket should be invested in safe (yes low return) investment/savings accounts.  Annually add to that bucket to keep up with the next 5 year estimate.  Other buckets can be more aggressively invested, expecting that you'll have time to recover from any major down markets.


This is a strategy that I have read about and makes a lot of sense to me.  To me, this makes a whole lot more sense than the typical advice of moving to a larger and larger percentage to bonds the closer you get to retirement.  I want my money still working for me at all times, but having 60-70-80% bonds / annuities / CDs in retirement makes little sense vs. keeping the money you will need in the next 5 years (give or take) in the safer investments.

Kurt


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## am1 (May 27, 2018)

geekette said:


> This is why I collect dividends.  They are independent of price.  I'm not playing win/lose, I'm buying tiny slivers of companies over time in order that dozens of companies pay me in retirement vs one employer paying me.



I agree with you and dividends.  My preferred type of stock except having the pay the taxes every quarter or remembering to sell every quarter or not buying us/canadian stocks.  

The $500 000 in stocks may very well be worth a million in the future, but if one sold at a million they could buy double the shares at $500 000.  To me a loss is a loss if it is real or unrealized. 

I am willing to take a lot of risk as I do not like to own a lot of different stocks.  Stocks are just one part of my road to retirement plan.  I am diversified with other assets.


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## CanuckTravlr (May 27, 2018)

I am, quite frankly, a little shocked by the comments made by advisor quoted in the OP, particularly since he claims to be a CFP.  As a CFP myself and a Canadian CPA I find his comments to be limited in value.  The problem with sound-bite advice is that it may be appropriate to someone, but is likely inappropriate to many.  As clients get older they definitely need to dial down the risk, but that can be accomplished in many ways.  It is rare, and usually inappropriate to have everything in one basket, whether it be an S&P index, or blue chip stocks with good dividends, or even just term deposits (unless maybe you are in your late 90s).

Most well-advised retirement portfolios employ multi-level strategies.  Also the buy-and-hold strategy doesn't mean buy-and-hold everything forever.  It needs to be constantly monitored and tweaked as investments become more or less appropriate to the specific client's needs and risk factors.  My role as an advisor was once described by someone far more intuitive than I as "making sure our clients do what they should be doing, when they should be doing it, and not doing what they shouldn't be doing, when they shouldn't be doing it".  I couldn't agree more.

One way to not worry about swings in the market is to dial down the risk as the market gets longer in the tooth, which certainly applies to the current markets.  This does not necessarily mean trying to time the market by withdrawing from it. That strategy requires a second decision that is even harder to figure out: when to get back in without missing the initial significant upturn that usually happens when the market finally starts to improve.

It isn't even necessary to fully withdraw from a market.  You can design a portfolio such that 3 to 5 years of income is always available in a low- or non-volatile investment.  You give up some potential income returns in exchange for peace-of-mind.  When you are retired and living off a fixed amount of capital, there is something to be said for that.  You draw your income from this source and top it up each year from the longer-term investments.  If there is a major downturn in the market, you stop topping up the income pool.  You then have 3 to 5 years for the longer-term investments to recover before withdrawing from them again, which is longer than most market downturns have needed to fully recover.  That usually solves the issue of realizing "paper" or "unrealized" losses.

I also dispute the comment that the average time between downturns is only three years.  There may be minor swings within that type of time frame, but typical business cycles are more like an average of seven to ten years.  In any case, any given portfolio should be specifically designed for a particular client.  Over-generalizations are more often harmful than helpful, IMO.


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## Sapper (May 27, 2018)

CanuckTravlr said:


> I am, quite frankly, a little shocked by the comments made by advisor quoted in the OP, particularly since he claims to be a CFP.  As a CFP myself and a Canadian CPA I find his comments to be limited in value.  The problem with sound-bite advice is that it may be appropriate to someone, but is likely inappropriate to many.  As clients get older they definitely need to dial down the risk, but that can be accomplished in many ways.  It is rare, and usually inappropriate to have everything in one basket, whether it be an S&P index, or blue chip stocks with good dividends, or even just term deposits (unless maybe you are in your late 90s).
> 
> Most well-advised retirement portfolios employ multi-level strategies.  Also the buy-and-hold strategy doesn't mean buy-and-hold everything forever.  It needs to be constantly monitored and tweaked as investments become more or less appropriate to the specific client's needs and risk factors.  My role as an advisor was once described by someone far more intuitive than I as "making sure our clients do what they should be doing, when they should be doing it, and not doing what they shouldn't be doing, when they shouldn't be doing it".  I couldn't agree more.
> 
> ...



What about preferred stock as a way to reduce risk in a diversified portfolio?  If done in AA< rated companies, the risk of default is fairly low, there are usually higher dividend returns. If things get bad, and the dividend is suspended, it usually accrues (as opposed to common stock, where if the dividend is halted, it's gone); and worst case, if the company fails, preferred is treated similarly to a bond (granted at a lower level), where common stock is usually wiped out. Of course, the trade off is lower appreciation compared to the common stock, so capital gains may be lower in comparison.


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## bizaro86 (May 27, 2018)

CalGalTraveler said:


> What a great discussion. I am learning a lot. Not retired yet: I am of the 401K generation "aka we have no pension" and have to cobble it together ourselves.
> 
> As an alternative to the 4% rule, what is suggested to avoid this?
> 
> i.e. sell 6% in bull markets and 2% in bear? A "6%/2%" rule?  Although the crashes are easy to detect, how do you know when the market is at a peak?  i.e. markets are high today but do we know with the tax reform if it will go even higher?



My plan is to do the 5 years in cash (or laddered  GICs, with the rest in equity type investments. In the event of a market decline, I won't replenish the cash piece that year, and will instead wait (up to 5 years) for a recovery to continue taking money out of equities. That should also allow dividend reinvestment near the bottom.


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## CanuckTravlr (May 27, 2018)

Sapper said:


> What about preferred stock as a way to reduce risk in a diversified portfolio?



Sorry, my original comments were in the realm of fair comment and not meant to offer specific advice on any particular investment.  For the same reasons that I took the original advisor in the OP to task, I will not comment on individual or specific investments or strategies.

I work professionally with individual clients and their organizations for a living.  I only develop overall strategies for clients that have gone through a fairly intensive fact-finding and discussion with me, so that I fully understand their current situation, their mid- and long-term objectives, as well as their risk profile and any specific opportunities or challenges that they might anticipate.  To do otherwise would be a contravention of my professional obligations.  I am in a regulated industry and licensed only in the Province of Ontario and to give specific advice outside of that jurisdiction would also be a violation of my licence agreement.


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## tompalm (May 27, 2018)

The standard asset allocation model of owning a higher percentage of bonds as you get closer to retirement is for the average person that will need their savings during retirement. However, some people have their house paid off, rental property income, full social Security from husband and wife and a pension.  Those people probably have enough income in retirement without using their savings.  A 401k account manager from T.Rowe Price told a group of pilots that if they don’t need those stocks and bonds during retirement that they should keep those funds invested for growth. That makes perfect sense if you are interested in wealth preservation to pass on to your children. So asset allocation is different for each person and it also depends on the risk level and strategy each person has. Now that I have lots of free time to watch the market and read the news, I am more aggressive than I have ever been. But I have an exit strategy and once the trend turns down, I plan to short the Market.


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## TravelTime (May 27, 2018)

VacationForever said:


> They are different in that if it is paper loss if you can hold it until it goes back up. Real loss is when you have to sell that due to needing the money as in the case of say Minimum Required Distribution or worst case scenario like mine, to cover a margin loan.



Exactly, everyone had paper losses in 2008-2009 but those of who did not sell have doubled or tripled our pre-recession net worth.


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## TravelTime (May 27, 2018)

am1 said:


> If one has a million dollar invested in a stock portfolio and then the same portfolio is only $500 000.  That is a $500 000 drop/loss regardless if one sells or not.  I guess I cannot brush off paper losses.  At a casino if I start with a $100 get up to $1000 and go broke I lost a $1000 not $100 minus the free drinks.  After grinding online casinos and poker years ago I have no interest in wasting money in casinos but also is the similar thinking with paper and real losses as with stocks.



Paper losses only count if they do not recover. Most people who had $1 million invested in 2007-2008 probably had a paper loss of $500K. But if they had it well diversified, they probably have at least $2 million now because they held until the market recovered.


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## WinniWoman (May 28, 2018)

Once you turn 70 1/2 you HAVE to start taking RMDs from your IRA's. I assume maybe way before then you should start moving the money that is in equities to cash within the iRA so that when you are forced to take it out you won't have a big loss if there is a downturn? But then again, the question will always be "when" and "how much"- when do you move the money to cash within the IRA? Right now all our IRA's are in equities and bond funds and our cash is outside the IRA's.

It's all great when you have pensions that cover everything, but when you don't,   you can't wait out a market just living on SS checks. It's a whole 'nother story,


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## geekette (May 28, 2018)

mpumilia said:


> Once you turn 70 1/2 you HAVE to start taking RMDs from your IRA's. I assume maybe way before then you should start moving the money that is in equities to cash within the iRA so that when you are forced to take it out you won't have a big loss if there is a downturn? *But then again, the question will always be "when" and "how much"- when do you move the money to cash within the IRA?* Right now all our IRA's are in equities and bond funds and our cash is outside the IRA's.
> 
> It's all great when you have pensions that cover everything, but when you don't,   you can't wait out a market just living on SS checks. It's a whole 'nother story,


I don't think there is a perfect answer.

Were I to be a liquidator, I would likely dollar cost average that, too, selling a set $ amt on a schedule, withdraw cash as needed.  Once your expenses in retirement are known, it shouldn't be guesswork.


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## WinniWoman (May 28, 2018)

geekette said:


> I don't think there is a perfect answer.
> 
> Were I to be a liquidator, I would likely dollar cost average that, too, selling a set $ amt on a schedule, withdraw cash as needed.  Once your expenses in retirement are known, it shouldn't be guesswork.



Yes- but my point is- you still have to have a lot of money in cash within your iRA so you can take that RMD when you have to year after year. The whole thing makes my head spin.


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## bogey21 (May 28, 2018)

CanuckTravlr said:


> I am, quite frankly, a little shocked by the comments made by advisor quoted in the OP, particularly since he claims to be a CFP....



The advisor quoted has numerous paid half hour radio spots here in the DFW area.  He makes a point that he is looking for new clients age 50 and above.  In addition to his radio spots he puts on about 6 seminars weekly.  Actually I find him knowledgeable and informative but have never succumbed to his pitch.  If anyone is interested his website is http://www.moneymatters.net

George


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## VacationForever (May 28, 2018)

mpumilia said:


> Once you turn 70 1/2 you HAVE to start taking RMDs from your IRA's. I assume maybe way before then you should start moving the money that is in equities to cash within the iRA so that when you are forced to take it out you won't have a big loss if there is a downturn? But then again, the question will always be "when" and "how much"- when do you move the money to cash within the IRA? Right now all our IRA's are in equities and bond funds and our cash is outside the IRA's.
> 
> It's all great when you have pensions that cover everything, but when you don't,   you can't wait out a market just living on SS checks. It's a whole 'nother story,


I have also been trying to put this into words.  How does one invest within IRA in that once you turn 70.5, you are forced to liquidate each year?  Do you ensure that there is always 5 years of approximate RMD in the IRA that is fairly stable/liquid so that RMD withdrawals do not force sale of investments in a down market period?


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## Elan (May 28, 2018)

My plan is to live off my 401k withdrawals combined with (hopefully) Social Security.   I also plan to have close to 10 years living expenses saved (in CD's or equivalent) and use that during down markets.  Seems like it's all a crap-shoot, regardless.  

Sent from my Moto G (5S) Plus using Tapatalk


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## VacationForever (May 28, 2018)

Elan said:


> My plan is to live off my 401k withdrawals combined with (hopefully) Social Security.   I also plan to have close to 10 years living expenses saved (in CD's or equivalent) and use that during down markets.  Seems like it's all a crap-shoot, regardless.
> 
> Sent from my Moto G (5S) Plus using Tapatalk


The issue is you are forced to withdrawal from IRA because of RMD, unless it gets suspended by the government as in 2009 due to the recession.  While keeping liquid assets like CDs helps in buffering a down market, you have to make the RMD or pay a 50% penalty.


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## Ironwood (May 28, 2018)

PigsDad said:


> So you can perfectly predict the market and know exactly when to enter and exit?  I'm impressed!
> 
> 
> And I could give you a list that is orders of magnitude larger of companies that have consistently increased their dividends.  With a diverse dividend portfolio, you don't have to worry about having a couple of dogs.
> ...


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## Elan (May 28, 2018)

Yes, I know.  Barring an abnormally long bear market, I don't think RMD will change my plans.





VacationForever said:


> The issue is you are forced to withdrawal from IRA because of RMD, unless it gets suspended by the government as 2009 due to the recession.  While keeping liquid assets like CDs helps in buffering a down market, you have to make the RMD or pay a 50% penalty.



Sent from my Moto G (5S) Plus using Tapatalk


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## VacationForever (May 28, 2018)

Elan said:


> Yes, I know.  Barring an abnormally long bear market, I don't think RMD will change my plans.
> 
> Sent from my Moto G (5S) Plus using Tapatalk


...plan as in how you invest within your 401K/IRA? I did not go back to read earlier posts... but are you heavily invested in stocks in the 401K?


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## Elan (May 28, 2018)

Plan, as in overall retirement plan.  I have a massive spreadsheet that runs through age 100.  Unless something unusual happens very early in my retirement, I should be ok.  Nothing fantastic, but comfortable.  Could always work part time and/or downsize house if needed.





VacationForever said:


> ...plan as in how you invest within your 401K/IRA? I did not go back to read earlier posts... but are you heavily invested in stocks in the 401K?



Sent from my Moto G (5S) Plus using Tapatalk


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## geekette (May 28, 2018)

mpumilia said:


> Yes- but my point is- you still have to have a lot of money in cash within your iRA so you can take that RMD when you have to year after year. The whole thing makes my head spin.


Not necessarily.  I plan to move positions in kind to taxable portfolio.  RMD forces distribution but it does not have to be cash.   

You will know on Jan 1 what your RMD will be so there isn't really guesswork.


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## Steve Fatula (May 28, 2018)

mpumilia said:


> It's all great when you have pensions that cover everything, but when you don't,   you can't wait out a market just living on SS checks. It's a whole 'nother story,



Actually, we can easily live on just SS checks. Prefer not to, but, it's more than enough in our area. Pension kicks in at 62, SS at 62.5 I think. Meanwhile, we live on savings, after tax savings. And then 401k is just gravy, we'll probably just take enough each year to not pay tax until RMD kicks in. We did that this year already.


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## TravelTime (May 28, 2018)

Our retirement plan is to move out of California!


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## WinniWoman (May 28, 2018)

geekette said:


> Not necessarily.  I plan to move positions in kind to taxable portfolio.  RMD forces distribution but it does not have to be cash.
> 
> You will know on Jan 1 what your RMD will be so there isn't really guesswork.



Yes- you can transfer the money in stocks or mutual funds in kind to a taxable account for your RMDs, but you wouldn't do that if you need the money to live on every year.

And knowing the amount of the RMD is fine,  but downturns can last for several years, so you need to have a nice amount of cash - I would think a few years worth-set aside ahead of time within your 
retirement account.

This all said, I don't do this with my inherited IRA, though maybe I should- I don't know. I have been just cashing it out of the mutual funds or ETF's  that are up or have a large position in the account and then reinvesting the money in my brokerage account or CD's or whatever.


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## VacationForever (May 28, 2018)

Steve Fatula said:


> Actually, we can easily live on just SS checks. Prefer not to, but, it's more than enough in our area. Pension kicks in at 62, SS at 62.5 I think. Meanwhile, we live on savings, after tax savings. And then 401k is just gravy, we'll probably just take enough each year to not pay tax until RMD kicks in. We did that this year already.


Easy for you to say that you can easily live on just SS checks when you have a pension.  

For us it is a stool with many legs, SS checks, deferred income annuities and RMD after all these income streams start.  In the meantime, we are burning through a chunk of taxable savings for the next 7 years, until those 3 elements start paying us.


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## Steve Fatula (May 28, 2018)

VacationForever said:


> Easy for you to say that you can easily live on just SS checks when you have a pension.
> 
> For us it is a stool with many legs, SS checks, deferred income annuities and RMD after all these income streams start.  In the meantime, we are burning through a chunk of taxable savings for the next 7 years, until those 3 elements start paying us.



Hah, wouldn't need it, pension is also a bonus just like IRA (said 401k earlier but that was rolled into an IRA ages ago). Live in a cheap state! I remember when we first moved from DFW area. Needed some electric work done. Turned out to be 1.5 hour job, licensed electrician. He stayed a while after to clean up a few other things. Total bill: $25. Small fortune in DFW. Just an example! So, will have more money than I ever had while working for that terrible boss of mine, me!

And to that, you add all those senior discounts, property tax that freezes at retirement, etc.


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## VacationForever (May 28, 2018)

Steve Fatula said:


> Hah, wouldn't need it, pension is also a bonus just like IRA (said 401k earlier but that was rolled into an IRA ages ago). Live in a cheap state! I remember when we first moved from DFW area. Needed some electric work done. Turned out to be 1.5 hour job, licensed electrician. He stayed a while after to clean up a few other things. Total bill: $25. Small fortune in DFW. Just an example! So, will have more money than I ever had while working for that terrible boss of mine, me!
> 
> And to that, you add all those senior discounts, property tax that freezes at retirement, etc.


Will you adopt me?


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## WinniWoman (May 28, 2018)

Steve Fatula said:


> Actually, we can easily live on just SS checks. Prefer not to, but, it's more than enough in our area. Pension kicks in at 62, SS at 62.5 I think. Meanwhile, we live on savings, after tax savings. And then 401k is just gravy, we'll probably just take enough each year to not pay tax until RMD kicks in. We did that this year already.



Steve - that is great but where do you live? We are in NY and no way can we live just on our 2 SS checks- never mind one SS check if something happens to one of us.


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## Steve Fatula (May 28, 2018)

mpumilia said:


> Steve - that is great but where do you live? We are in NY and no way can we live just on our 2 SS checks- never mind one SS check if something happens to one of us.



Well, it's on my profile. Oklahoma where the wind comes sweeping down the plain, except the time of year you want it to, summer! We have a lot of Californians here. Relative to our total population that is. Most quit their job in California around 50, sell their house, build brand new one much nicer, and live off their money. But there are a lot of non coastal states where the same could be said. I just had a temporary assignment many years ago and got to liking the area.

You are right, NY, no way you could do that!

To clarify a bit, SS would pay our living expenses. But not travel, only some of it. Pension pays travel and some misc luxuries. IRA is everything else, furniture, cars, whatever. i.e. capital expenses or just waste.


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## WinniWoman (May 28, 2018)

Steve Fatula said:


> Well, it's on my profile. Oklahoma where the wind comes sweeping down the plain, except the time of year you want it to, summer! We have a lot of Californians here. Relative to our total population that is. Most quit their job in California around 50, sell their house, build brand new one much nicer, and live off their money. But there are a lot of non coastal states where the same could be said. I just had a temporary assignment many years ago and got to liking the area.
> 
> You are right, NY, no way you could do that!
> 
> To clarify a bit, SS would pay our living expenses. But not travel. Pensions pays travel. IRA is everything else, furniture, cars, whatever.



My husband just mentioned the other day Oklahoma as a possible place to retire. We have never been there and not sure I'd like it. I need a lot of greenery and mountains and lakes. Don't like tornado's either, though we just had a rare few around here last week.

But- we might be forced to go somewhere like it in a couple of years when we retire- if we even make it.


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## VacationForever (May 28, 2018)

mpumilia said:


> My husband just mentioned the other day Oklahoma as a possible place to retire. We have never been there and not sure I'd like it. I need a lot of greenery and mountains and lakes. Don't like tornado's either, though we just had a rare few around here last week.
> 
> But- we might be forced to go somewhere like it in a couple of years when we retire- if we even make it.


Don't forget to check us out here too... we will be delighted to host you and your husband.  We have the best scenery. 0.5 percent property tax and no state income tax, no tornadoes and no hurricanes, just hot dry summers.  It will be a long way from your son.


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## Steve Fatula (May 28, 2018)

mpumilia said:


> My husband just mentioned the other day Oklahoma as a possible place to retire. We have never been there and not sure I'd like it. I need a lot of greenery and mountains and lakes. Don't like tornado's either, though we just had a rare few around here last week.
> 
> But- we might be forced to go somewhere like it in a couple of years when we retire- if we even make it.



At the risk of being off topic....

Tornados are mostly to the north and west in the state. There are small mountains in several parts, we go hiking there in winter (bug free!) and canoeing in spring and summer. Greenery there is a lot of in the eastern half, but not so much in winter. Lakes, there are a lot of lakes. Theres one < 2 miles from my house where we often go walking, Lake Texoma 93,000 acres, 39th largest US lake, But there are numerous other cheaper states as well. Back to the topic.....

My point was when a bear market hits, another strategy is to simply have minimized expenses such that it doesn't really matter so much. i.e. it's not like you are scraping by.


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## TravelTime (May 28, 2018)

mpumilia said:


> Steve - that is great but where do you live? We are in NY and no way can we live just on our 2 SS checks- never mind one SS check if something happens to one of us.



We live in California - Silicon Valley. Those of us in high cost states like NY and CA need to move out in retirement. That's the only solution.


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## TravelTime (May 28, 2018)

VacationForever said:


> Don't forget to check us out here too... we will be delighted to host you and your husband.  We have the best scenery. 0.5 percent property tax and no state income tax, no tornadoes and no hurricanes, just hot dry summers.  It will be a long way from your son.



Where do you live? If I recall correctly, are you in Nevada?


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## VacationForever (May 28, 2018)

TravelTime said:


> Where do you live? If I recall correctly, are you in Nevada?


Yep


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## geekette (May 28, 2018)

mpumilia said:


> Yes- you can transfer the money in stocks or mutual funds in kind to a taxable account for your RMDs, but you wouldn't do that if you need the money to live on every year.
> 
> And knowing the amount of the RMD is fine,  but downturns can last for several years, so you need to have a nice amount of cash - I would think a few years worth-set aside ahead of time within your
> retirement account.
> ...


Definitely makes a difference if it's money to live on, in which case I guess I am confused.  Your post was about how much and when to go to cash so if you know your expenses, you would know when they are due, so the cash question kind of answers itself.  Liquidate as you need it or go to cash as opportunity or tea leaves dictate a stack of cash to serve years.  

You have a taxable portfolio, too, so money to fund life can come from multiple sources.  Laddering CDs to mature as needed is a simple strategy to put cash on a schedule.


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## easyrider (May 28, 2018)

Very interesting thread. 

For me, there was always doubt using the market to retire because of the downturns. I know so many people that got hosed in the last downturn, me included. We decided to stay invested in what we know and I'm glad we did. We invest in income producing real estate for the most part. I wasn't certain that this would work out but after having some health issues that made me leave my company, and then living off these investment the last 16 months, it seems it will work out fine. 

The one thing I noticed when I was trading was the excitement of earning on trades was often cut with the burn of taxes and losses. I do not have the patients to sit idly by and watch my wealth disappear as the market tanks. It drives me nuts to have to wait 5+ years to recover what I had, and worse yet, when people told me I didn't loose anything because it was a paper loss, I often wondered if they were nuts.

Bill


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## bluehende (May 28, 2018)

VacationForever said:


> I have also been trying to put this into words.  How does one invest within IRA in that once you turn 70.5, you are forced to liquidate each year?  Do you ensure that there is always 5 years of approximate RMD in the IRA that is fairly stable/liquid so that RMD withdrawals do not force sale of investments in a down market period?




Your RMD starts at less than 4%.  So if you are very unlucky with the market you may have to liquidate 4% at the wrong time.  My guess is this risk is far less than if you go very conservative with your investments.  As others said you can move assets to taxable accounts anyway.  If you need the RMD money to live on you should not have 100% in risk assets anyway.   There are many ways to invest and guarantee your future at a lot of risk levels.  Determine what fits for you and save accordingly.


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## VacationForever (May 28, 2018)

bluehende said:


> Your RMD starts at less than 4%.  So if you are very unlucky with the market you may have to liquidate 4% at the wrong time.  My guess is this risk is far less than if you go very conservative with your investments.  As others said you can move assets to taxable accounts anyway.  If you need the RMD money to live on you should not have 100% in risk assets anyway.   There are many ways to invest and guarantee your future at a lot of risk levels.  Determine what fits for you and save accordingly.


I am less concerned about the amount that is withdrawn through RMD but more with having to sell when market is low to meet RMD requirements.  Hence my thought is that the same rule of 5 years of RMD in cash/low risk assets should be kept within the IRA as with many guidance about keeping 5 years living expenses. We do have RMD as one of the sources of living expenses but even if the amount is halved it is not an issue as more than half of our income needs is really discretionary expenses.


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## bluehende (May 29, 2018)

VacationForever said:


> I am less concerned about the amount that is withdrawn through RMD but more with having to sell when market is low to meet RMD requirements.  Hence my thought is that the same rule of 5 years of RMD in cash/low risk assets should be kept within the IRA as with many guidance about keeping 5 years living expenses. We do have RMD as one of the sources of living expenses but even if the amount is halved it is not an issue as more than half of our income needs is really discretionary expenses.



Maybe the way to look at it is the money you leave in less risky assets is like an insurance policy.  Statistically we would as a group be better off if we just left everything in the market and used it when we need it.  Now a few of us will get hurt by the crashes.  If you really cannot afford to be  one of the unlucky few you need that insurance.  Like with our house most of us need that insurance.


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## VacationForever (May 29, 2018)

bluehende said:


> Maybe the way to look at it is the money you leave in less risky assets is like an insurance policy.  Statistically we would as a group be better off if we just left everything in the market and used it when we need it.  Now a few of us will get hurt by the crashes.  If you really cannot afford to be  one of the unlucky few you need that insurance.  Like with our house most of us need that insurance.


I think you are still missing my point or question.  Even if we do not have an IRA, our living expenses are met.  That is not the issue.  The question is how should one manage the money within IRA when at 70.5 we are forced to take a RMD distribution each year regardless of whether the market is down or up.


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## vacationtime1 (May 29, 2018)

VacationForever said:


> I think you are still missing my point or question.  Even if we do not have an IRA, our living expenses are met.  That is not the issue.  The question is how should one manage the money within IRA when at 70.5 we are forced to take a RMD distribution each year regardless of whether the market is down or up.



If you view the IRA as something you are investing for your heirs, you will manage the money within the IRA -- and the money you withdraw from the IRA under RMD rules -- in a manner consistent with your _heirs'_ needs, timetable, other assets, and risk aversity.  The selection of assets to liquidate to make the RMD and the new assets you purchase with the RMD (after paying taxes) would be part of the rebalancing process.  But if that's your situation, your professional advisors should be helping you make these allocations.


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## Steve Fatula (May 29, 2018)

VacationForever said:


> I think you are still missing my point or question.  Even if we do not have an IRA, our living expenses are met.  That is not the issue.  The question is how should one manage the money within IRA when at 70.5 we are forced to take a RMD distribution each year regardless of whether the market is down or up.



I think you hit the nail on the head earlier with your 5 year rule. You can do cash, bonds, etc for those 5 years. This allows some ability to weather the downturn. I’ve done exactly that. I even used to do that before retirement. When the huge crash happened 10 years ago or so, my portfolio indeed went down. However, I liquidated some of the safer investments and used that and cash to buy more of the stuff I believed in that were poised for regrowth thus reducing cost per share average. Obviously way ahead. Today, I would not do that, being retired.


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## WinniWoman (May 29, 2018)

VacationForever said:


> Don't forget to check us out here too... we will be delighted to host you and your husband.  We have the best scenery. 0.5 percent property tax and no state income tax, no tornadoes and no hurricanes, just hot dry summers.  It will be a long way from your son.




Oh, yes! I have that on my list! I did tell my husband about it. (Our son currently flies out to Vegas for work. In fact, he just came back from there. Though I doubt it, maybe he'll move out West- who knows?)


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## WinniWoman (May 29, 2018)

Steve Fatula said:


> At the risk of being off topic....
> 
> Tornados are mostly to the north and west in the state. There are small mountains in several parts, we go hiking there in winter (bug free!) and canoeing in spring and summer. Greenery there is a lot of in the eastern half, but not so much in winter. Lakes, there are a lot of lakes. Theres one < 2 miles from my house where we often go walking, Lake Texoma 93,000 acres, 39th largest US lake, But there are numerous other cheaper states as well. Back to the topic.....
> 
> My point was when a bear market hits, another strategy is to simply have minimized expenses such that it doesn't really matter so much. i.e. it's not like you are scraping by.



Yes. I get it. Might have to take a vacation out to Oklahoma one of these years to check it out. Good to know the whole state isn't a flat, brown, dry dust pan. That is how I always thought of it.


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## WinniWoman (May 29, 2018)

TravelTime said:


> We live in California - Silicon Valley. Those of us in high cost states like NY and CA need to move out in retirement. That's the only solution.




That's the plan. Our main issue is we live in the country in NY and the real estate market is not good here, so we have to hope we can sell our home and, if so,  also end up with enough money to buy something else decent elsewhere. Our only child lives in NH and we are planning to go there as our first choice, but real estate ain't cheap there, so we are considering other options as well.


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## WinniWoman (May 29, 2018)

geekette said:


> Definitely makes a difference if it's money to live on, in which case I guess I am confused.  Your post was about how much and when to go to cash so if you know your expenses, you would know when they are due, so the cash question kind of answers itself.  Liquidate as you need it or go to cash as opportunity or tea leaves dictate a stack of cash to serve years.
> 
> You have a taxable portfolio, too, so money to fund life can come from multiple sources.  Laddering CDs to mature as needed is a simple strategy to put cash on a schedule.




LOL! It is hard sometimes to write what I am trying to explain. What I wastrying to  say is if most of my money is in stock and bond mutual funds within an IRA- and I have to take RMD's every year- and I know what my expenses are- as each year approaches it still might be a down market so when I take out the RMD's it could be a bad time to do so, but still required. As opposed to changing my portfolio to hold a lot more cash at all times- within the iRA- a few years worth of expenses- so I do not have to liquidate shares on down markets.

But- now thinking it through- as you mentioned before- if you have enough cash in taxable accounts, you could transfer the RMD  shares in kind to your taxable accounts. You would still have to pay taxes, but at least you wouldn't have to liquidate the shares.


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## Steve Fatula (May 29, 2018)

mpumilia said:


> Yes. I get it. Might have to take a vacation out to Oklahoma one of these years to check it out. Good to know the whole state isn't a flat, brown, dry dust pan. That is how I always thought of it.



Yes, when I Dad first flew to Tulsa, he said "there are trees here!". Well, yes. I guess people have their opinions as you did. Lol the entire eastern half is forest, even pine in some areas. There's some very old negative perceptions for sure. You don't know how many times I've heard 'it's so flat'. Well, not that flat. I never hear anyone say isn't Florida flat? Ohio? Etc. there are several mountain ranges in the state, not Rocky or Appalalachian size, but mountains. Think Missouri size.

If you ever do come down or over, you are welcome to stay with us if we are not at a timeshare! We're down SE, 1 hour from Dallas.


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## WinniWoman (May 29, 2018)

Steve Fatula said:


> Yes, when I Dad first flew to Tulsa, he said "there are trees here!". Well, yes. I guess people have their opinions as you did. Lol the entire eastern half is forest, even pine in some areas. There's some very old negative perceptions for sure. You don't know how many times I've heard 'it's so flat'. Well, not that flat. I never hear anyone say isn't Florida flat? Ohio? Etc. there are several mountain ranges in the state, not Rocky or Appalalachian size, but mountains. Think Missouri size.
> 
> If you ever do come down or over, you are welcome to stay with us if we are not at a timeshare! We're down SE, 1 hour from Dallas.




I do! I always say how flat Florida is! Between that and the humidity it isn't on our list pf places to retire.

I always thought of Oklahoma as flat dusty plains with tumbleweeds and tornadoes. LOL! Good to know that isn't the case. 

Anyway- thanks for the offer to stay with you! Very hospitable and generous! PS- Are there any timeshares or resorts in Oklahoma?


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## Steve Fatula (May 29, 2018)

mpumilia said:


> I do! I always say how flat Florida is! Between that and the humidity it isn't on our list pf places to retire.
> 
> I always thought of Oklahoma as flat dusty plains with tumbleweeds and tornadoes. LOL! Good to know that isn't the case.
> 
> Anyway- thanks for the offer to stay with you! Very hospitable and generous! PS- Are there any timeshares or resorts in Oklahoma?



I know there's some up by Grand Lake, a Worldmark. Not exactly timeshare country though. As far as resorts, try Echo Canyon Spa Resort.

http://echocanyonmanor.com/

It's near one of the mountain ranges.


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## geekette (May 29, 2018)

VacationForever said:


> I think you are still missing my point or question.  Even if we do not have an IRA, our living expenses are met.  That is not the issue.  The question is how should one manage the money within IRA when at 70.5 we are forced to take a RMD distribution each year regardless of whether the market is down or up.


This is where being a div investor makes things easy - just turn off reinvestment and let the divs accumulate as cash.  When that is not enough, which will most definitely be the case at some point, then I'll move entire positions out.  If you don't want to sell, and don't really need the money, in kind transfers might fit the bill for you.  This allows you to invest as you want to invest with no need to sell in any market.  Unless you want to.

Or, since you can buy most anything for an IRA, own what you won't mind cashing in during any kind of market.  Or make your sales during up markets and leave proceeds as cash for later withdrawal.  Given the current bouncy market, that would probably be my advice for someone wondering and worrying what the next 5 years brings:  sell now the wildly appreciated assets to sit on cash and not worry about what to take out later.


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## geekette (May 29, 2018)

vacationtime1 said:


> If you view the IRA as something you are investing for your heirs, you will manage the money within the IRA -- and the money you withdraw from the IRA under RMD rules -- in a manner consistent with your _heirs'_ needs, timetable, other assets, and risk aversity.  The selection of assets to liquidate to make the RMD and the new assets you purchase with the RMD (after paying taxes) would be part of the rebalancing process.  But if that's your situation, your professional advisors should be helping you make these allocations.


Yikes, I most definitely would not consider my retirement account as belonging to someone else.  None of us know how long we have or how high our expenses will be before we check out.

Seriously, unless you definitely don't need any of it, do not invest as if you were much younger.  Agree, a professional would need to be involved for high wealth persons devoted to leaving an estate.


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## geekette (May 29, 2018)

mpumilia said:


> LOL! It is hard sometimes to write what I am trying to explain. What I wastrying to  say is if most of my money is in stock and bond mutual funds within an IRA- and I have to take RMD's every year- and I know what my expenses are- as each year approaches it still might be a down market so when I take out the RMD's it could be a bad time to do so, but still required. As opposed to changing my portfolio to hold a lot more cash at all times- within the iRA- a few years worth of expenses- so I do not have to liquidate shares on down markets.
> 
> But- now thinking it through- as you mentioned before- if you have enough cash in taxable accounts, you could transfer the RMD  shares in kind to your taxable accounts. You would still have to pay taxes, but at least you wouldn't have to liquidate the shares.


I think we may be very similar, correct me if I'm wrong - I want to be fully invested at all times.  I don't want to sit on cash ever!

I am a buy n holder "until/unless", which is triggered at retirement.  Given how many decades my money has been percolating in retirement shelters, I'm not terribly bunched up by parting ways with some companies.  I have a mental "first to go" list, spinoffs top that list since I never bought em.  It will be difficult for me to click Sell.  A person gets used to the habit of saving and investing, managing the exact opposite direction will take some practice, and a new tight-fitting Distribution hat to replace the comfy worn Accumulator hat.

Overall, I don't worry about it.  I'm pretty good at acting in my own best interest.  After all, the only reason I will have tough decisions is because I did my job in saving.  When the time comes to use the dough, I'll do it!  I made sacrifices to save as much as I have in order to be comfortable in retirement.


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## vacationhopeful (May 29, 2018)

Stayed MANY 'work' weeks in Oklahoma in the late 1970s. Looked up the one small town I visited multiple times .. Duncan, OK. Fly into Dallas and drove north. The current "Google" write up made on Duncan sounds nice plus listed its "claim to fame" as being Ron Howard's (Happy Day's actor) home town. A successful trip to Duncan for me back in working then, ment finding a reason to drive up to Tulsa to do my work there instead .. the BIG city living for MOST of my work visits verses the cowboys sitting on the rails of my Duncan Holiday Inn motel after 6PM.

Notice .... again ... my Oklahoma experiences were in the late 1970s. Duncan_ MIGHT _have gotten bigger.

And check which cities have flights to where you would want to vacation or your family connections.
And where GOOD medical specialists might be available.
And the cost of assisted living (might be way cheaper as you age) in rural or small town areas.


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## VacationForever (May 29, 2018)

Steve Fatula said:


> I think you hit the nail on the head earlier with your 5 year rule. You can do cash, bonds, etc for those 5 years. This allows some ability to weather the downturn. I’ve done exactly that. I even used to do that before retirement. When the huge crash happened 10 years ago or so, my portfolio indeed went down. However, I liquidated some of the safer investments and used that and cash to buy more of the stuff I believed in that were poised for regrowth thus reducing cost per share average. Obviously way ahead. Today, I would not do that, being retired.



Our investments are handled by a wealth management company and in the IRA, there are 2 buckets of investments.  One bucket is like Geekette's, where it holds dividend stocks.  Another bucket is 60-35-5, stock-bonds-cash.  We just have never gotten into this level of details with the wealth manager as RMD does not start until this year and this thread prompted me to bring this up in our next meeting.  We do have 5 years of cash (CDs, checking, and savings accounts) sitting outside of IRA, which is meaningful because we will spend them until everything else kicks in - Social Security, annuities and RMD.  After all these start paying, then we will get down to 1 year of cash equivalence of RMD withdrawal in our checking account.


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## bluehende (May 29, 2018)

VacationForever said:


> I think you are still missing my point or question.  Even if we do not have an IRA, our living expenses are met.  That is not the issue.  The question is how should one manage the money within IRA when at 70.5 we are forced to take a RMD distribution each year regardless of whether the market is down or up.



Reading through others have stated it better than I did.  If you do not need it then keep it fully invested by transferring risk assets to taxable accounts or even just buy a stock in your regular account as you sell a stock in your tax advantaged account to take out as a RMD.  You can use this forced sale to do an in depth analysis of your portfolio.  Someone mentioned spinoffs.  I have a lot of small positions in those.  Through lack of info and no push I let them ride.  At an RMD i will get my butt in gear and do the work to determine if I want them or some other stock.  For those that do need the cash think 3 to 5 yrs ahead and move that to safer investments.  Think a laddered bond portfolio that the maturity date matches when you need the cash.  My third instance would be if you need the money but are rich enough that liquidating a few percent (obviously the math changes on this as you get older) at the wrong time would not really effect you then let it ride if you have the stomach for the risk.


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## Talent312 (May 29, 2018)

mpumilia said:


> I always say how flat Florida is!...



Hey, Florida has hills... There's Sugarloaf Mountain - Elevation 312 ft.
The highest point: Britton Hill - Elevation 345 ft.  _... So there._ 
_



_
We also have beaches.

.


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## Steve Fatula (May 29, 2018)

Talent312 said:


> Hey, Florida has hills... There's Sugarloaf Mountain - Elevation 312 ft.
> The highest point: Britton Hill - Elevation 345 ft.  _... So there._
> 
> .



How ironic, here's Sugarloaf maountain in Oklahoma! Just over 2,500'. The highpoint is more than double that, the Black Mesa which is some good hiking and very remote. It's the only town in the state on mountain time.


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## bizaro86 (May 29, 2018)

Talent312 said:


> Hey, Florida has hills... There's Sugarloaf Mountain - Elevation 312 ft.
> The highest point: Britton Hill - Elevation 345 ft.  _... So there._
> _
> 
> ...



That's awesome. My commute by public transit from downtown to my home in a suburban neighbourhood here (Calgary, rocky mountain foothills) has a 700 foot elevation change. (~3400 feet to ~4100 feet)

The beaches aren't very good though...


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## easyrider (May 29, 2018)

Talent312 said:


> Hey, Florida has hills... There's Sugarloaf Mountain - Elevation 312 ft.
> The highest point: Britton Hill - Elevation 345 ft.  _... So there._
> _
> 
> ...




Looks like a sand dune maybe. Mountain is kind of a stretch.

Bill


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## PigsDad (May 29, 2018)

Talent312 said:


> Hey, Florida has hills... There's Sugarloaf Mountain - Elevation 312 ft.
> The highest point: Britton Hill - Elevation 345 ft.  _... So there._


I'd have to dig a hole ~4700 ft. deep just to get down to 345 ft. of elevation. 



> We also have beaches.


You got me there! 

Kurt


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## bluehende (May 29, 2018)

We have talked a lot about markets and RMD and things we cannot control or really know. One thing we can do is manage taxes with some smart strategies. I would think that a lot of people who retire early like I did have a lot of room to push around income to take advantage of favorable tax rates. My income is very low and with a lot of deductions I have room under the 10% threshold for taxes. Until I collect SS and especially with RMDs eventually I can remove small amounts from my 401k that will be taxed at a 0% rate. The most important tax scheme ( I love using that word) is that income up to around74k is taxed at a 0 rate under the rate used for dividends and capital gains. At the end of the year I do my taxes and then make a withdrawal and sell some assets. If you do not want to get out of the market you can buy something similar immediately or wait the 30 days to avoid the wash sale rule. I have done both. At least with taxes you can run actual numbers. These strategies could save a ton of money. With the combined knowledge here I bet there are a lot more tax schemes we can exploit.

Edited to ask the experts.

I have gotten differing opinions on whether a gain is subject to the wash rule. With that I didn't want any surprises so always preceded as if it does. Does anyone here know for sure?


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## Steve Fatula (May 29, 2018)

Until I get SS and pension, I basically wait until December, do my best estimate of how much I can withdraw from IRA with no tax, and then do it. Might as well withdraw all money possible tax free while I can. My wife is older, I have not reached 59.5. So, we withdraw from her IRA until I reach 59.5, then we go to mine.


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## WinniWoman (May 29, 2018)

I thought you have to pay taxes once you withdraw money from an IRA and 401k (Except for the Roth).?


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## Steve Fatula (May 29, 2018)

mpumilia said:


> I thought you have to pay taxes once you withdraw money from an IRA and 401k (Except for the Roth).?



Only if you make enough to owe taxes. If your income + withdrawl is not enough for the first tax bracket, there is no tax. It's *taxable* but not necessarily taxed.


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## WinniWoman (May 29, 2018)

Steve Fatula said:


> Only if you make enough to owe taxes. If your income + withdrawl is not enough for the first tax bracket, there is no tax. It's *taxable* but not necessarily taxed.



Oh, OK. 

I already take out RMD's every year from an Inherited IRA and the federal taxes come out of the check the mutual fund company sends to me.


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## geekette (May 29, 2018)

mpumilia said:


> Oh, OK.
> 
> I already take out RMD's every year from an Inherited IRA and the federal taxes come out of the check the mutual fund company sends to me.


If you didn't owe it, you would be getting refund with your return.  

I don't plan to have any withholding subtracted from my distributions except where there is no choice.


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## geekette (May 29, 2018)

Steve Fatula said:


> Until I get SS and pension, I basically wait until December, do my best estimate of how much I can withdraw from IRA with no tax, and then do it. *Might as well withdraw all money possible tax free while I can. *My wife is older, I have not reached 59.5. So, we withdraw from her IRA until I reach 59.5, then we go to mine.


Yeah, bring on the low income early retirement years!!  Much Better than converting to Roth.


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## VacationForever (May 29, 2018)

geekette said:


> If you didn't owe it, you would be getting refund with your return.
> 
> I don't plan to have any withholding subtracted from my distributions except where there is no choice.


If you don't withhold and you owe taxes by more than 10% of the tax liability, I think there will be a penalty.  We have already put in paperwork for SS for my husband to hold at 12% and RMD will be the default to 10%.


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## geekette (May 29, 2018)

VacationForever said:


> If you don't withhold and you owe taxes by more than 10% of the tax liability, I think there will be a penalty.  We have already put in paperwork for SS for my husband to hold at 12% and RMD will be the default to 10%.



I'll check actual rule when I get there, but I thought it was more than $1000 owed in taxes vs %.  Someone I do taxes for got caught short on that a few years ago and had a minor penalty.  

I'll be filing quarterly if I owe and would make only one payment, in January for previous year, if I can push it that far.  I think the key is being aware of the tax obligation and not letting Uncle Sam hold my pennies if I don't owe them.  

I want to pay taxes from my checking account and not my investment accounts.  In kind transfers can solve some of that.


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## rapmarks (May 29, 2018)

You have to have paid at least what your tax liability was the previous year.  We actually were under forty thousand, but we weren't penalized.  I send almost entire RMD to IRS in mid December from both of us, sometimes they give me a little of it back.


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## geekette (May 29, 2018)

rapmarks said:


> You have to have paid at least what your tax liability was the previous year.  We actually were under forty thousand, but we weren't penalized.  I send almost entire RMD to IRS in mid December from both of us, sometimes they give me a little of it back.


I think that only applies if you have reasonable expectation of same income.  No way my first year retirement will be anywhere near work salary so no way I'm sending previous W2 liability in.  I'll know as I go so quarterly estimates or delay to the Jan payment if I dodge penalty, pony up ahead of that otherwise.  I've been on pay as you go thru job for ... always... so it will be a new ballgame.  

Probably another 7 years to go, I will confirm at IRS site when the time comes.


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## VacationForever (May 29, 2018)

rapmarks said:


> You have to have paid at least what your tax liability was the previous year.  We actually were under forty thousand, but we weren't penalized.  I send almost entire RMD to IRS in mid December from both of us, sometimes they give me a little of it back.


Only if you expect the following year's income to be same as previous.  We went from paying several hundred thousands in taxes when we sold the business to 0 the following year.  We did not need to send in any taxes during the year otherwise they would come straight back to us.  Also with 0, we do not need to send in any tax estimates for the folowing year.


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## PigsDad (May 29, 2018)

geekette said:


> Yeah, bring on the low income early retirement years!!  *Much Better than converting to Roth.*


I'm confused -- assuming the same $$ amount would be withdrawn vs. converted to Roth, why do you think withdrawing the $$ is better than converting to Roth?  If you convert to Roth, then all future growth is tax free, vs. if you simply withdrew it, all growth would be taxable.  Of course, this is assuming you can invest the money you withdraw vs. having to spend it.

For me, in my early retirement years I will be converting to Roth as much as I can while staying in the 12% tax bracket.

Kurt


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## rapmarks (May 29, 2018)

Yes, you do not have to pay same income tax if you are no longer earning.  If you have a sudden increase in income you will not be penalized if you have the same amount of withholding.


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## geekette (May 30, 2018)

PigsDad said:


> I'm confused -- assuming the same $$ amount would be withdrawn vs. converted to Roth, why do you think withdrawing the $$ is better than converting to Roth?  If you convert to Roth, then all future growth is tax free, vs. if you simply withdrew it, all growth would be taxable.  Of course, this is assuming you can invest the money you withdraw vs. having to spend it.
> 
> For me, in my early retirement years I will be converting to Roth as much as I can while staying in the 12% tax bracket.
> 
> Kurt


I will need my IRA, makes great sense to pull what I need while under the tax bar (which could change in the next 7 years).  If I could let it ride, I would, but it's the big nest egg, no other portfolio or cash on hand is going to be near that amount.  There are maybe 10 years between retirement and RMD, it would not be worth conversion for me, I'll be funding my life.  I have divorced single person assets, not decades-married assets.  One SS, no pension.   Taxable portfolio won't float me.  

I have a Roth, it's the last of my portfolios to tap.  Save the best for last.  More like, save the last (started) for last (used).  Prepaying tax for later tax free isn't a strategy I can use, not enough excess dough for that and wouldn't stay in the Roth long enough to be worth doing.


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## VacationForever (May 30, 2018)

geekette said:


> I'll check actual rule when I get there, but I thought it was more than $1000 owed in taxes vs %.  Someone I do taxes for got caught short on that a few years ago and had a minor penalty.



If you didn't pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.


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## geekette (May 30, 2018)

VacationForever said:


> If you didn't pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they either *owe less than $1,000 in tax *after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.


that's the one I had in mind.


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