The Optimal Retirement Planner (ORP) computes your tax-efficient schedule of retirement savings withdrawals for your entire planned retirement. Withdrawals from your Tax-deferred account (401K, IRA, SEP...) are subject to the Federal progressive personal income tax. The order in which you make withdrawals from your Tax-deferred, Roth IRA, and After-tax accounts affects your total retirement disposable income.
The essential ORP narrative:
- Asks for your facts, in thousands of dollars ($000):
- Applies conventional wisdom to retirement policy issues:
- Assume constant retirement spending, indexed to inflation.
- Retire at 65, when Medicare begins.
- Delay Social Security Benefits to age 70; the best long term investment money can buy. Live off of savings until Social Security benefits begin.
- 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.
- Sell the house and/or business, if any, at age 80.
- The planning horizon is age 95, the Joint Life and Last Survivor Expectancy for a 65 year old married couplei, according to the IRS.
- No estate at the end of the plan.
- IRA to Roth IRA conversions are disallowed. At least one quantitative study (See page 47) demonstrates that conversions offer little economic advantage but increase taxes paid early retirement.
- Uses generally agreed upon values for exogenous economic parameters:
|To override these assumptions click||
The article on page 17 in the 2015 Journal of Personal Finance contrasts ORP to the conventional wisdom of retirement savings withdrawals.
|Last Update |
September 5, 2016
James S. Welch, Jr.