Two basic approaches to retirement income management are:

  1. If your spending needs are uncertain then the Optimal Retirement Planner (ORP) can project a plan to maximize your retirement disposable income.
  2. If you think you know your retirement spending needs then consult FIRECalc.com to estimate when your savings may be depleted.

Withdrawals from your Tax-deferred retirement savings account (401K, IRA, SEP, etc.) and other sources of income (Social Security income, pensions, etc.) are subject to the Federal progressive personal income tax. The order and magnitude in which you make withdrawals from your Tax-deferred, Roth IRA, and After-tax accounts affects your total retirement disposable income.

The Optimal Retirement Planner (ORP) computes your tax-efficient schedule of retirement savings withdrawals for your entire planned retirement.

The essential ORP narrative:

  1. Asks for your facts, in thousands of dollars ($000):

    Click on parameter titles for help. Retiree Spouse

    Current Age(s)
    Retirement Age (Default 65)

    Tax-deferred Account Initial Balance $000
    Tax-deferred Maximum Annual Contribution $000

    Roth IRA Initial Balance $000
    Roth IRA Maximum Annual Contribution $000

    After-tax Account Initial Balance $000
    Maximum Annual Contribution of All Types $000

    Social Security Benefits at Full Retirement Age $000
    Pension Income $000

    Illiquid Assets
    Home Other
    Value of Home or Business $000
    Cost Basis - Originally Cost, for Tax Purposes. $000
    Mortgage or Loan - Balance due at sale $000

  2. Applies conventional wisdom to retirement policy issues:
    1. Assume constant retirement spending, indexed to inflation.
    2. Delay Social Security Benefits to age 70; the best long term investment money can buy. Live off of savings until Social Security benefits begin.
    3. Allocate 60% of savings to stock and 40% to fixed income at the beginning of retirement. Gradually reduce stock allocation to zero at the end.
    4. Sell the house and/or business, if any, at age 80.
    5. The planning horizon is age 95, the Joint Life and Last Survivor Expectancy for a 65 year old married couple, according to the IRS.
    6. No estate at the end of the plan.
    7. IRA to Roth IRA conversions are not included. At least one quantitative study (See page 47) reports that conversions offer little economic advantage but their dramatic increase in taxes paid in early retirement tends to panic the novice.
  3. Uses generally agreed upon values for exogenous economic parameters:
    1. 2.5% rate of inflation, the Federal Reserve's stated target.
    2. 7% is the 10 year Rate of Return (ROR) for popular S&P 500 index funds as reported by Zacks.
    3. 3.5% Moody's . Aaa Corporate Bond Yield.

To change these assumptions, go to ORP's input-parameter long form.