I think most of us are agreed that the dollar/pound (I'm in the UK) cost averaging approach makes most sense when accumulating, but now I'm a year or two away from retirement I'm starting to think about the best strategy when it comes to withdrawal.
Essentially, is it better to make a single withdrawal every year, based on your needs and the safe amount you can take from the portfolio, or is it better to spread the withdrawals throughout the year, say monthly?
I can see pros and cons of both.
Annual: You can determine a safe withdrawal at the time you make it, and don't need to worry about valuations till the next year. The downside might be that the amount you can take, or the impact on your portfolio, depends on the market valuation on the day you make the withdrawal - you don't benefit from averaging through the year.
Monthly: Here I'm thinking of determining the amount to withdraw once a year, but spreading the withdrawals across the 12 months. The benefit is that market fluctuations are averaged out across the year. The downside might be that if the markets drop during the year, the withdrawals would have a bigger impact on your portfolio.
It seems to me that the psychology of withdrawal is very different to accumulation. Dollar cost averaging is basically a no brainer when accumulating, but it's a more difficult decision when withdrawing.
Is there a concensus about this? What is the experience of current retirees?
Richard
Essentially, is it better to make a single withdrawal every year, based on your needs and the safe amount you can take from the portfolio, or is it better to spread the withdrawals throughout the year, say monthly?
I can see pros and cons of both.
Annual: You can determine a safe withdrawal at the time you make it, and don't need to worry about valuations till the next year. The downside might be that the amount you can take, or the impact on your portfolio, depends on the market valuation on the day you make the withdrawal - you don't benefit from averaging through the year.
Monthly: Here I'm thinking of determining the amount to withdraw once a year, but spreading the withdrawals across the 12 months. The benefit is that market fluctuations are averaged out across the year. The downside might be that if the markets drop during the year, the withdrawals would have a bigger impact on your portfolio.
It seems to me that the psychology of withdrawal is very different to accumulation. Dollar cost averaging is basically a no brainer when accumulating, but it's a more difficult decision when withdrawing.
Is there a concensus about this? What is the experience of current retirees?
Richard
Statistics: Posted by rich4768 — Wed Oct 30, 2024 3:58 am