Transcript:
Easan Arulanantham:
How do I take a withdrawal during a down market?
Tom Vaughan:
How do I take it withdrawal during a down market? Yeah, that’s a good question. Because we’ve got the scenario now, right? I’ll tell you what we’ve done. There’s a lot of different situations that people might be in. But one of the things is to have a strategy long term, not just for now also. So what we do is we create these portfolios, the pie charts, essentially, we keep a certain amount of money in the money market. And when somebody is doing withdrawal, what we will do is take out about six months worth of that withdrawal, and we put it in the money market. And then the withdrawal happens. And every six months, we’ll go back in and replenish that money market to accomplish that withdrawal. We call it a systematic withdrawal, right. So that’s what allows us to stay pretty much fully invested, and then be able to withdraw that money market. So at the beginning of this year, I actually upped that and put more money into the money markets of people that were doing withdrawals, I felt like the beginning of this year was going to be volatile. And it has been. And so so far this year, our clients have been taking money from the money market. So even though the stocks and bonds are down, they haven’t had to sell those. And so they’re taking their money out one at a time, we’ve had some people that have needed some lump sums, and then it exceeded what’s in the money market. And we’ve had to go in and do that. And so then once you get down to, you know, have to replenish this money market, we basically just look at the model and see where we’re off, you know, what has stayed up the most what’s down the most, we sell off the pieces that have stayed up, and we put those into the money market. And that allows us to allow those ones that have been downward and maybe recover going forward, you know, again, you have to believe in the things in your portfolio in order for that to work. And so that processes is very good.
Now, the other thing that we advocate with the clients, and we have a pretty good response to this, and total is having money at the bank, right. And so, at some point in time, especially, let’s say we had a recession coming. And you know, even right now, I’m not seeing that, in my indicators, just talked about that in my summary. But if I did see that in my indicators, that’s something I might add that I would communicate to the clients and say, look, it might be time to start using some of that money we’ve saved at the bank for a while, and turn off or lower the withdrawals that you have coming out of your accounts. Because if we get a big downturn, it allows us to basically, you know, wait until there’s some recovery, and we live off of that other money. And so, again, that’s a little tough to go backwards in time and put that strategy in place if you don’t already have it. But it is important to have a strategy like that, that that’s how we look at it right? From from a standpoint of long term, we use this replenishment of money market have money on the side in case we have to try to turn off the withdrawal out of these accounts, or lower them at least as far as that goes. So I’ve had quite a few clients asked, Should I be lowering and what have you and I said, you know, he’s so far, you’re still taking it from the money market. We don’t have recession indicators. So I don’t think so let’s wait, once we get some recession indicators to start to really signal that we have a recession coming in the next 12 months. I’ll change that tone, but we’re not there yet. As far as that goes. So yeah, it’s an interesting question. It’s a tough one. Generally speaking, you don’t want to withdraw on these down markets, you know, as much as possible, but it’s not always possible. Right?
Easan Arulanantham:
Yeah. And if you have a solid financial plan, you know, those plans account for down markets. You know, there’s Dave, if you run a Monte Carlo, there are periods where your returns are low. And so if your plan can withstand that, you should have the confidence that you’ll be okay through this down market, too.
Tom Vaughan:
Yeah, that’s right, exactly. I mean, when we put together a retirement plan for somebody got all their incomes coming in all of their outflows that they want to spend, and their assets, you know, and, and it’ll tell us because some of those MonteCarlo simulations are withdrawing money and in bet down markets, kind of like what we’re dealing with, right? And if it’s still working at a higher high enough, you know, probability of success, then, you know, that’s just what happens. You just kind of keep going. So there are some strategies like I talked about, maybe to refine that, but that’s, that’s, that’s a big piece of it is making sure that your plan is still intact. And that’s one of the nice things about MonteCarlo simulation, we can run it again, at these lower levels. And see okay, what is how does it work? And so, you know, we’re kind of pushing that button every six months trying to see what is going on. And, you know, how’s your probability success have dropped way back? We need to look at some different strategies right as the market comes down so I think it’s pretty interesting