How Should I Withdraw Money for Expenses?
By Matt Fischer, CFA
January 30, 2020
Estimated Reading Time: 5 minutes
"It's easy to meet expenses - everywhere we go, there they are." - Anonymous
You could be just trying to cover a down payment on a car, looking to a buy a home, go on vacation, or fund your child or grandchild’s 529 account, all of these events are likely to require a large cash outlay. The cash needed to cover the costs of any of these events has the potential, and is even likely, to exceed the amount you have in your checking account, so the concern you now have is “how do I come up with the cash needed to fully pay for the expense or gift?”
Know Where Everything Is & What Everything is Worth
While the answer could be as simple as utilizing the cash you have in your brokerage account, that may not be in your best interest in the long-term. To properly answer the question of how you come up with the cash you need, you need to know where all your assets are and how much they’re worth. Some people utilize a service like Mint.com or Quicken, others simply have an Excel spreadsheet listing everything out, but most people only have a general idea of their net worth and the different pieces that make up that number.
You may have a 401k, Roth IRA, and a taxable brokerage account, each of which has potential tax or penalty consequences if you were to liquidate and use the cash to fund your expense. By having that dashboard of your net worth, it enables you to have the ability to come up with unique strategies or a straightforward answer as to which account you should take the money from, hopefully mitigating or avoiding tax and penalty consequences entirely.
“By failing to prepare, you are preparing to fail.” ~ Benjamin Franklin
Plan Early, Plan Often
To achieve long-term success requires thoughtful planning and thorough execution, and funding your largest expenses are no different. Simply knowing what you have is only half of the equation - it’s the combination of your assets in conjunction with a financial plan that empowers you to achieve long-term success. The financial plan is your custom-tailored roadmap to reach your destination in the most optimal way.
It’s like Google Maps directing you around traffic. You can get to your final destination without it, but with it, you’ll get there more quickly and have more time to enjoy the destination.
Your financial plan will be the tool that helps provide guidance on different routes you can take and how different decisions will affect you longer-term. Financial advisors can help put together that financial plan, decipher the meaning, and provide guidance on strategies that can be used to execute the plan to best suit your unique circumstances.
It’s always great if there’s an easy answer that applies across the board for everyone in every situation, but this, unfortunately, isn’t the case. Everyone has a unique goal and objective that is important to them, and to successfully achieve those goals and objectives often requires a custom-tailored financial plan.
For some, it will simply be selling assets in their taxable brokerage account and paying the applicable capital gains tax. For others, it may be more appropriate to begin taking some IRA distributions in the early years of retirement, before Social Security and Required Minimum Distributions (RMDs) kick in. Then there are even others who may be best served by having a low-cost line of credit in combination with a plan to pay it down over a few months or years.
Outside of winning the PowerBall, there is no Hail Mary pass to achieving financial success - it requires grueling hard work and fighting for every yard. In order to set yourself up for the best chances of success, the best thing you can do is plan, even for what might seem small and menial as giving a gift to your child or buying a car, and so I recommend talking with your financial advisory team, who knows the playbook and can quarterback these decisions so you make the first downs as you head towards the end zone of financial success.
Matt Fischer, CFA is a Wealth Advisor at Chicago Partners. He helps clients create comprehensive wealth management plans that optimize their portfolio, tax plan, and financial plan.
Important Disclosure Information
Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Chicago Partners Investment Group LLC (“CP”), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from CP. Please remember to contact CP, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. CP is neither a law firm nor a certified public accounting firm and no portion of the commentary content should be construed as legal or accounting advice. A copy of the CP’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request.
January 30, 2020
Estimated Reading Time: 5 minutes
"It's easy to meet expenses - everywhere we go, there they are." - Anonymous
You could be just trying to cover a down payment on a car, looking to a buy a home, go on vacation, or fund your child or grandchild’s 529 account, all of these events are likely to require a large cash outlay. The cash needed to cover the costs of any of these events has the potential, and is even likely, to exceed the amount you have in your checking account, so the concern you now have is “how do I come up with the cash needed to fully pay for the expense or gift?”
Know Where Everything Is & What Everything is Worth
“By failing to prepare, you are preparing to fail.” ~ Benjamin Franklin
While the answer could be as simple as utilizing the cash you have in your brokerage account, that may not be in your best interest in the long-term. To properly answer the question of how you come up with the cash you need, you need to know where all your assets are and how much they’re worth. Some people utilize a service like Mint.com or Quicken, others simply have an Excel spreadsheet listing everything out, but most people only have a general idea of their net worth and the different pieces that make up that number.
You may have a 401k, Roth IRA, and a taxable brokerage account, each of which has potential tax or penalty consequences if you were to liquidate and use the cash to fund your expense. By having that dashboard of your net worth, it enables you to have the ability to come up with unique strategies or a straightforward answer as to which account you should take the money from, hopefully mitigating or avoiding tax and penalty consequences entirely.
To achieve long-term success requires thoughtful planning and thorough execution, and funding your largest expenses are no different. Simply knowing what you have is only half of the equation - it’s the combination of your assets in conjunction with a financial plan that empowers you to achieve long-term success. The financial plan is your custom-tailored roadmap to reach your destination in the most optimal way.
It’s like Google Maps directing you around traffic. You can get to your final destination without it, but with it, you’ll get there more quickly and have more time to enjoy the destination.
Your financial plan will be the tool that helps provide guidance on different routes you can take and how different decisions will affect you longer-term. Financial advisors can help put together that financial plan, decipher the meaning, and provide guidance on strategies that can be used to execute the plan to best suit your unique circumstances.
Plan Early, Plan Often
It’s always great if there’s an easy answer that applies across the board for everyone in every situation, but this, unfortunately, isn’t the case. Everyone has a unique goal and objective that is important to them, and to successfully achieve those goals and objectives often requires a custom-tailored financial plan.
For some, it will simply be selling assets in their taxable brokerage account and paying the applicable capital gains tax. For others, it may be more appropriate to begin taking some IRA distributions in the early years of retirement, before Social Security and Required Minimum Distributions (RMDs) kick in. Then there are even others who may be best served by having a low-cost line of credit in combination with a plan to pay it down over a few months or years.
Outside of winning the PowerBall, there is no Hail Mary pass to achieving financial success - it requires grueling hard work and fighting for every yard. In order to set yourself up for the best chances of success, the best thing you can do is plan, even for what might seem small and menial as giving a gift to your child or buying a car, and so I recommend talking with your financial advisory team, who knows the playbook and can quarterback these decisions so you make the first downs as you head towards the end zone of financial success.
Matt Fischer, CFA is a Wealth Advisor at Chicago Partners. He helps clients create comprehensive wealth management plans that optimize their portfolio, tax plan, and financial plan.
Important Disclosure Information
Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Chicago Partners Investment Group LLC (“CP”), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from CP. Please remember to contact CP, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. CP is neither a law firm nor a certified public accounting firm and no portion of the commentary content should be construed as legal or accounting advice. A copy of the CP’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request.