Control the things you can control. We’ve all heard the mantra when it comes to personal financial planning, and it usually refers to the accumulation side of a retirement plan—factors such as investment cost, contribution amounts and timing.
But a growing body of research points to an under-utilized point of control on the decumulation side of a plan: tax-efficient withdrawal strategies.
Conventional wisdom holds that retirees should spend first from taxable accounts until they are exhausted, then move on to tax-deferred accounts, and finally on to exempt sources.
But in some cases, advisors have the opportunity to add significant alpha for clients by constructing plans that draw simultaneously from taxable and tax-deferred accounts.
“Going from one type of account to the next and then to the next is not as smart as taking from multiple accounts simultaneously,” argues William Meyer, co-founder of Social Security Solutions, a leading benefit optimization service. Meyer and his partner William Reichenstein, a professor of investment management at Baylor University, have argued this point recently in several retirement journals.