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Roth Conversion Planning: A Step-By-Step Approach

A reader writes in, asking:

“Can you describe exactly the steps you would take to determine whether a Roth conversion makes sense? I understand conceptually that they are advantageous when your tax rate is low, but can you elaborate on how exactly you would figure that out, as well as how to determine how large of a conversion to do?”

What follows is my process for retirement account distribution planning, including Roth conversions.

There are two broad stages to the process:

  1. Creating a “dummy” plan (or maybe you could call it a “default” plan), and
  2. Making improvements to that plan.

Making a Dummy Plan

By a “dummy” plan, I mean a plan in which every year you:

  • Do no Roth conversions.
  • Spend first from wages/earnings, required minimum distributions, Social Security, pension income, dividends/interest coming from holdings in taxable accounts, and only then from further distributions from tax-deferred accounts.
  • Take just enough out of retirement accounts in order to a) satisfy your RMDs and b) provide sufficient dollars to satisfy the desired level of spending, after considering taxes.

What we want to know is what your marginal tax rate (for ordinary income) would be in each of the next several years, under such a “dummy” plan. Note that we are concerned with your actual marginal tax rate, not just the tax bracket that you’re in.

The software I use for this process is Holistiplan, which I think is excellent, but it is priced based on the assumption that it’s being used in an advisory capacity for many clients rather than for an individual household. For most individuals doing DIY planning, a reasonable option is to use tax prep software to prepare hypothetical returns. (Note though that if you do not have experience preparing your own returns, there’s going to be quite a learning curve.) I sincerely do not think that a spreadsheet is a good tool for calculating your marginal tax rate, as it’s quite a challenge to create a realistic tax model that includes all the relevant factors.

For each year, you’re going to create a scenario/return in your tax modeling software, and then start recording the results in a spreadsheet.

For each year, see if you have enough after-tax income to satisfy your desired level of spending. (So this calculation is basically: wages/earnings, plus RMDs, plus Social Security/pension income, plus investment income from taxable accounts, minus taxes — and compare that to your desired level of spending.) If that level of income isn’t enough, increase tax-deferred distributions until it is enough. Remember, we are not yet including any further distributions from retirement accounts.

Then repeat the process for each of the next few/several years. (As I’ve mentioned previously, I don’t think there’s much value in going very many years into the future.) For each year, be sure to include any appropriate adjustments for changes in circumstances, such as:

  • The larger standard deduction for people age 65+,
  • Wage/self-employment income ending/declining due to retirement or partial retirement,
  • Social Security income starting, or
  • Selling your home.

If you’re married, it’s important to also run “only one spouse alive” scenarios under the dummy plan as well, to see what the marginal tax rate would be after one of the two of you dies.

Note that this whole analysis requires making some guesses and estimates. For instance, you’ll have to decide whether to assume the tax bracket structure is allowed to revert back to pre-Tax Cuts and Jobs Act levels at the end of 2025, or whether the current structure will be extended. And you’ll have to make assumptions as to portfolio performance, for the sake of determining RMDs.

Making Improvements to the Plan

With this “dummy” plan in place, take a look at how your anticipated marginal tax rate changes over time. A pattern that is very common for people in almost-retired or recently-retired scenarios is something along these lines:

  • Marginal tax rate falls once income from work stops,
  • Marginal tax rate increases once Social Security begins,
  • Marginal tax rate increases further once RMDs begin, and
  • (For married couples), marginal tax rate increases further once one of the two spouses dies.

From here, the goal is basically to “smooth out” your marginal tax rate. That is, we want to move income out of years in which you have a higher marginal tax rate and into years in which you have a lower marginal tax rate. The tools with which we can shift income from one year to another are:

  • Shifting income earlier by doing Roth conversions, or
  • Shifting income later by satisfying spending in earlier years via Roth accounts or liquidating taxable holdings with significant basis.

For years in which it makes sense to do Roth conversions, you have to decide how much to convert. To do this, first identify the next few thresholds (for the year in question) at which your marginal tax rate would increase. These could be the top of a tax bracket, an IRMAA threshold, the thresholds for Social Security benefit taxation, the bottom of the phaseout range for a particular deduction/credit, or the threshold at which the 3.8% Net Investment Income Tax kicks in.

Then determine exactly what your marginal tax rate would be after hitting that threshold. If that higher marginal tax rate is higher than the marginal tax rate you expect to face later, then you want to do Roth conversions up to (but not beyond) that threshold. If the marginal tax rate beyond that threshold is still below the marginal tax rate you expect to face later, then you probably want to do Roth conversions up to the next threshold. Of note, this is something of an iterative process, because as you do more and more conversions in the earlier years, it can result in your marginal tax rate in the later years being reduced (because RMDs will be smaller).

Retiring Soon? Pick Up a Copy of My Book:

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Can I Retire? Managing a Retirement Portfolio Explained in 100 Pages or Less

Topics Covered in the Book:
  • How to calculate how much you’ll need saved before you can retire,
  • How to minimize the risk of outliving your money,
  • How to choose which accounts (Roth vs. traditional IRA vs. taxable) to withdraw from each year,
  • Click here to see the full list.

A Testimonial from a Reader on Amazon:

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My Plan for Asset Allocation/Spending in Retirement

A reader writes in, asking:

“Do you plan to switch to a different all in one fund when you get older? I have been doing the 3 fund portfolio over the last couple decades and was thinking of switching to all in one fund, but I would think that an 80/20 split for someone in their 50s is a bit aggressive. So do you plan to switch to a more conservative split later in life or do you plan to stay with this all in one fund until you retire?”

I’ve written before that I don’t necessarily plan to stick with this fund indefinitely. But that has more to do with costs (i.e., lower fixed-income yields and higher expense ratios) than it does with the fact that risk tolerance tends to decline with age. (Note: this dollar cost increases over time as the size of the portfolio increases. So what makes sense at one stage may not make sense at another stage, even if you appreciate the simplicity just as much as you always have.)

In other words, at some point I may switch to a three-fund portfolio — or a two-fund portfolio using Vanguard Total World Stock ETF for the stock allocation.

Ultimately though, the plan is essentially to segment the portfolio into two sub-portfolios as discussed in prior articles:

Let’s walk through a simplified example to show the idea works. Imagine that the following figures are applicable:

  • We anticipate total spending of $85,000 per year.
  • We anticipate the lower earner filing for Social Security at age 62, with a benefit of $20,000 per year.
  • We anticipate the higher earner filing for Social Security at age 70, with a benefit of $35,000 per year.
  • We are comfortable spending from a stock-heavy portfolio at a rate of 3% per year, and assuming that such would last more or less indefinitely.

Given the above figures:

  • From age 70 onward, we would need $30,000 per year from the portfolio (i.e., $85,000 total spending, minus $55,000 of Social Security). With a 3% spending rate, that would require $1,000,000. So we would need $1,000,000 allocated to the mostly-stock (or maybe all-stock) portfolio.
  • To retire at age 62, we would still need that $1,000,000 stock-focused portfolio, and we would need an additional $35,000 per year from savings for the years 62-69, because the larger Social Security benefit hasn’t begun yet. 8 x $35,000 = $280,000. So we would need an additional $280,000 allocated to something very safe (e.g., an 8-year CD ladder and/or TIPS ladder, perhaps with some I-Bonds in that mix).
  • And then for every additional year prior to age 62, we would need an additional $55,000 allocated to the safe investment mix (because neither Social Security benefit is being received at that point). For example if we wanted to retire at age 58, we’d have 4 years of $55,000 of spending from the safe-asset portfolio, followed by 8 years of $35,000 of spending from that portfolio. And the whole time, the remaining ~$30,000 would be coming from the stock-focused portfolio.

In other words, $500,000 in the safe-asset portfolio, plus $1,000,000 in the stock-heavy portfolio would let us retire at age 58, with a spending level of $85,000 per year. At the beginning, that’s a 5.67% spending rate from the portfolio. A lot of people would balk at that, especially beginning at age 58. But in terms of risk level, it’s mostly just the 3% spending from the $1,000,000 portfolio that generates much risk. The rest of the spending is coming from sources with very little risk (i.e., a combination of CD/TIPS/I-Bonds earlier, and Social Security later).

With regard to the 3% spending rate, I would likely be comfortable using a higher rate if stock valuations were lower or if we were talking about retirement at a later age. Also, I anticipate using something along the lines of a hybrid method in which the spending each year is an average of “last year’s spending plus inflation” and “x% of the portfolio balance” — as opposed to one or the other.

Retiring Soon? Pick Up a Copy of My Book:

Can I Retire Cover

Can I Retire? Managing a Retirement Portfolio Explained in 100 Pages or Less

Topics Covered in the Book:
  • How to calculate how much you’ll need saved before you can retire,
  • How to minimize the risk of outliving your money,
  • How to choose which accounts (Roth vs. traditional IRA vs. taxable) to withdraw from each year,
  • Click here to see the full list.

A Testimonial from a Reader on Amazon:

"Hands down the best overview of what it takes to truly retire that I've ever read. In jargon free English, this gem of a book nails the key issues."

Spending More Than 4% Per Year Can Be Safe

If you’ve read much about retirement planning, you’ve probably encountered the “4% rule” — the idea that, if you spend 4% of your portfolio balance in the first year of retirement, then adjust that level of spending upward each year in keeping with inflation, your portfolio will probably last through a 30-year retirement.

An unfortunate side effect of the proliferation of this concept is that people sometimes think that it’s automatically dangerous to spend more than 4% of your portfolio per year. In reality, there are plenty of cases in which spending more than 4% per year isn’t particularly risky — and even some cases where that’s the safest thing to do!

The “4% Rule” Often Involves Spending More than 4%

The idea of the 4% rule isn’t to spend 4% of the portfolio balance each year. Rather, the idea is to spend 4% in the first year of retirement, then adjust the dollar amount based on inflation going forward, regardless of how the portfolio performs.

As a result, even with the original 4% rule strategy, there are plenty of scenarios in which a person ends up spending more than 4% of the portfolio balance in a given year. (For example, any scenario in which the portfolio declines at all in Year One will result in spending more than 4% in Year Two.) Scenarios of that nature are already accounted for in the research that found that a 4% initial spending rate was reasonably safe.

Age Matters

Depending on your age, spending more than 4% per year can make perfect sense. As an obvious example, consider a 85-year-old widower. He doesn’t need his portfolio to last another 30 years. He might want to spend at a low rate, if his goal is to leave most of his savings to heirs, but he doesn’t have to.

Conversely, if you sell a business at age 35 and plan to be retired as of that point, living primarily off the portfolio, I would not suggest spending 4% per year. Given the super long time span that’s likely to be involved, it would probably be prudent to start with something more like 3% — or possibly even less.

Intending to Deplete the Portfolio

One long-time reader of this blog is unmarried, in her 60s, retired after a career with the federal government. Her home is paid off. And, in her own words, her savings are “modest, compared to what I would have tried to accumulate if I did not have a pension.”

Her plan is to spend about 10% of the portfolio balance per year, and I think that’s entirely reasonable. She plans to deplete the portfolio — that’s the goal. Spend the portfolio down while her health is still such that she can get the most enjoyment from the additional spending, and then live on the (not-at-all-trivial) pension for her remaining years.

Delaying Social Security

Finally, as we’ve discussed about a zillion times, delaying Social Security is typically advantageous for most unmarried people, for the higher earners in married couples, and in some cases even for the lower earner in married couples.

But delaying Social Security means spending down the portfolio at a faster rate in the meantime — often a rate in excess of 4%. And that scares some people.

But in reality, this is typically the safest thing to do.

You can carve out a separate chunk of your portfolio to satisfy the higher level of spending in early retirement, and put that money in something low-risk. (For example, build an 8-year CD ladder to satisfy the 8 years of higher spending until your Social Security kicks in.) In such a case, yes, you’re likely spending more than 4% in those years. But that chunk in question has almost no risk. And the result is a lower long-term spending rate once your Social Security does kick in. (Plus, in the event that you were to deplete your portfolio, you’d be left with a higher level of income than if you had not delayed Social Security.)

Retiring Soon? Pick Up a Copy of My Book:

Can I Retire Cover

Can I Retire? Managing a Retirement Portfolio Explained in 100 Pages or Less

Topics Covered in the Book:
  • How to calculate how much you’ll need saved before you can retire,
  • How to minimize the risk of outliving your money,
  • How to choose which accounts (Roth vs. traditional IRA vs. taxable) to withdraw from each year,
  • Click here to see the full list.

A Testimonial from a Reader on Amazon:

"Hands down the best overview of what it takes to truly retire that I've ever read. In jargon free English, this gem of a book nails the key issues."

Retirement Tax Planning Error: Not Planning for Widow(er)hood

One of the most common retirement tax planning errors I see is specific to married couples: not accounting for the tax changes that will occur once one of the two spouses dies.

For example, using data from the SSA’s 2017 Period Life Table, we can calculate that, for a male/female couple both currently age 60 and in average health, there will be, on average, 11.3 years during which only one spouse is still alive. (That is, the expected period for which both spouses will still be alive is 17.4 years, while the expected period for which either spouse will be alive is 28.7 years. The difference between those two lengths of time, 11.3 years, is essentially the expected duration of “widow(er)hood” for the couple.)

Why This Is Important for Tax Planning

When one of the two spouses dies, there is generally a decrease in income, but it’s typically somewhat modest as a percentage of the household’s overall income — especially for retired couples who have managed to accumulate significant assets. What generally happens is that the smaller of the two Social Security benefits disappears when one spouse dies*, but the portfolio income is largely unchanged (unless the deceased spouse left a significant portion of the assets to parties other than the surviving spouse).

And, beginning in the year after the death, the surviving spouse will only have half the standard deduction that the couple used to have. In addition, there will only be half as much room in each tax bracket (up to and through the 32% bracket), and many various deductions/credits will have phaseout ranges that apply at a lower level of income.

In other words, there’s half the standard deduction and half as much room in each tax bracket, but the surviving spouse is left with more than half as much income. The result: their marginal tax rate generally increases, relative to the period of retirement during which both spouses were alive.

The tax planning takeaway is that it’s often beneficial to shift income from those later (higher marginal tax rate) years forward into earlier (lower marginal tax rate) years. Most often that would be done via Roth conversions or prioritizing spending via tax-deferred accounts.

It’s tricky of course because, as with anything dealing with mortality, we don’t know the most critical inputs. To put it in tax terms, how many years of “married filing jointly” will you have in retirement? And how many years of “single” will you (or your spouse) have in retirement? We don’t know. We can use mortality tables to calculated expected values for those figures, but your actual experience will certainly be different.

So it’s hard (or rather, impossible) to be precise with the math. But it’s very likely that a) there will be some years during which only one of you is still living and b) that one person will have a higher marginal tax rate at that time than you (as a couple) had earlier. So, during years in which both spouses are retired and still alive, it’s likely worth shifting some income forward to account for such.

Often the idea is to pick a particular threshold (e.g., “up to the top of the 12% tax bracket” or “before Social Security starts to become taxable” or “before Medicare IRMAA kicks in”) and do Roth conversions to put you slightly below that threshold each year. But the specifics will vary from one household to another. And the decision necessarily involves a significant amount of guesswork as to what the future holds.

*This is a simplification. There can be various factors (e.g., government pension) that would make the total household Social Security benefit fall by an amount more or less than the smaller of the two individual benefits.

Retiring Soon? Pick Up a Copy of My Book:

Can I Retire Cover

Can I Retire? Managing a Retirement Portfolio Explained in 100 Pages or Less

Topics Covered in the Book:
  • How to calculate how much you’ll need saved before you can retire,
  • How to minimize the risk of outliving your money,
  • How to choose which accounts (Roth vs. traditional IRA vs. taxable) to withdraw from each year,
  • Click here to see the full list.

A Testimonial from a Reader on Amazon:

"Hands down the best overview of what it takes to truly retire that I've ever read. In jargon free English, this gem of a book nails the key issues."

6 Fixed-Income Options for a Low-Yield Environment

A reader writes in, asking:

“My wife and I are retired. I have approximately 50% of our savings in Vanguard’s Total Bond Market (TBM) fund. The remaining half is a mix of stock funds as well as a few individual stock holdings.

I am worried how that TBM fund will do going forward, especially over what we hope will be a long retirement.

The Federal Reserve says they’ll keep rates low until at least 2023 unless inflation gets above 2%. But 2% annual inflation still adds up over a few decades. And with US government debt exceeding 20 trillion dollars, inflation over 2% can’t be ruled out. What’s the solution here? Low yields abound, inflation risk still a problem, stocks as risky as ever. Is it time to try something other than TBM for fixed-income? Is it time to increase the equity percentage, even though we are conservative investors?”

There are several reasonable options here. And we’ll discuss them.

But the reality is that (with the exception of option #5, in some cases), none of the options are great. In a low-yield environment, there’s no way to get anything other than low expected returns without taking on significant risk. You basically have to accept that fact and conduct your personal financial planning accordingly. In most cases the best response to low expected returns is to change your expectations rather than change your portfolio.

Trying to find ways around this risk/return relationship is how you end up buying complicated/expensive insurance products you don’t understand or buying esoteric investments with risks you don’t understand. (That is, in a low-yield environment, if an investment appears to be offering you a decent expected return and low risks without any other significant downside, you are misunderstanding some aspect of the product in question. Either the expected return is not what you think it is, or the risks are not what you think they are.)

Option #1: Shop for CD Rates

As long as you stay under the FDIC coverage limit, CDs have no more credit risk than Treasury bonds, and they can provide higher yields, if you’re willing to shop around. For instance, as of this writing, 5-year Treasury bonds are yielding 0.26%, while you can find plenty of 5-year CDs with yields of 1.3%.

The primary downside in my opinion is that it’s somewhat of a hassle — not so much the shopping, but moving money from one financial institution to another. And, when each CD matures, if you’re not willing to shop around again and move the money if necessary (i.e., you simply roll the maturing CD into a new CD at the same bank), you’re going to be missing out on potential yield.

Option #2: Take on More Credit Risk

Another option is to take on more credit risk with the fixed-income part of your portfolio, for instance by switching from a “total bond” fund to an investment-grade corporate bond fund. As an example, as of this writing, Vanguard Intermediate-Term Investment-Grade Fund has a yield of 1.51%, as compared to a 1.18% yield from Vanguard Total Bond Market Index Fund.

But there’s no reason to think that this is a “free lunch.” Yes, it means higher expected returns, but with correspondingly higher risk — not necessarily very different from simply shifting your overall allocation slightly toward stocks.

Option #3: TIPS

Treasury Inflation-Protected Securities (TIPS) offer a given after-inflation yield, as compared to most bonds which provide a given nominal (before-inflation) yield. If, like the reader above, you are concerned that an unexpected high level of inflation will consume most of your purchasing power over time, TIPS alleviate that risk.

Today though, TIPS yields are negative (e.g., -0.55% for 20-year TIPS). In other words, if you buy TIPS right now and hold to maturity, your purchasing power won’t keep up with inflation. But at least it won’t lag it by very much per year. (Point being: if inflation turns out to be very high, lagging inflation by just a little bit per year is actually a relatively decent outcome.)

Option #4: SPIAs

For a household concerned about outliving their money in retirement, a single premium immediate annuity (SPIA) is worth considering. As we’ve discussed elsewhere, it’s basically just a pension you purchase from an insurance company.

And because of the risk-pooling aspect of annuitization (i.e., the fact that the income ends when the annuitant dies, and therefore annuitants who live beyond their life expectancy essentially get to spend the money of annuitants who did not live to their life expectancy), they allow you to spend more per year than you could safely spend from a normal fixed-income portfolio.

An important downside of SPIAs is that they carry inflation risk. Because they pay a fixed nominal amount of income, the purchasing power will decline over time — and would decline dramatically in the event of very high inflation.

Some people make the case that buying a lifetime annuity (i.e., a fixed-income product with a very long duration) is not a good idea when interest rates are low. But as others (e.g., Wade Pfau, David Blanchett) have pointed out, the payout from lifetime annuities is actually most attractive relative to other fixed-income products when yields are low — because the portion of the annuity payment that comes from risk pooling (i.e., the “mortality credits”) is not affected by low interest rates.

Allan Roth recently performed an analysis that found that, when using himself as an example, a lifetime annuity actually provided a higher expected rate of return than AAA-rated corporate bonds. (And therefore a considerably higher expected return than a “total bond” fund that includes a substantial allocation to lower-yielding Treasury bonds.) And that’s while also reducing longevity risk, relative to a bond portfolio.

Option #5: Delaying Social Security

Another option for people in the applicable age range is to effectively sell some bonds to “buy more” Social Security (i.e., spend down fixed-income holdings in order to delay filing for Social Security).

This is the only option on this list that is an exception to the above discussion about risk and expected return. The expected return from delaying Social Security does not change based on current interest rates. So when rates are low, delaying Social Security becomes relatively better.

Option #6: Move Some Money to Equities

Finally, there’s always the option to increase your stock allocation. Stocks do tend to earn more than fixed-income. But as with shifting to riskier bond holdings, shifting from bonds to stocks is not a free lunch. And it tends not to really even increase the amount you can safely spend — at least not at the outset of retirement. (Rather, it provides more of an option for increasing spending later in retirement, if stocks do end up providing good returns over the first part of your retirement.)

Retiring Soon? Pick Up a Copy of My Book:

Can I Retire Cover

Can I Retire? Managing a Retirement Portfolio Explained in 100 Pages or Less

Topics Covered in the Book:
  • How to calculate how much you’ll need saved before you can retire,
  • How to minimize the risk of outliving your money,
  • How to choose which accounts (Roth vs. traditional IRA vs. taxable) to withdraw from each year,
  • Click here to see the full list.

A Testimonial from a Reader on Amazon:

"Hands down the best overview of what it takes to truly retire that I've ever read. In jargon free English, this gem of a book nails the key issues."

Implementing and Refining the “Spend Safely in Retirement Strategy”

A couple of years ago, we discussed a paper by Steve Vernon, Joe Tomlinson, and Wade Pfau, which looked at an assortment of retirement spending strategies and evaluated them based on several different criteria. The authors then put forth a strategy that they referred to as the “Spend Safely in Retirement Strategy,” which generally does a good job of satisfying the various (often competing) criteria.

Broadly speaking, the strategy involves creating two sources of retirement income:

  1. A safe floor of guaranteed lifetime income. The authors refer to these as “retirement paychecks.” This includes Social Security, pensions, and annuity income. These retirement paychecks would be used to cover the necessities like housing, utilities, food, transportation, medical care, etc.
  2. A liquid mutual fund portfolio, from which you pay yourself a “retirement bonus” — used for discretionary expenses. The level of spending from this portfolio varies with investment performance.

And again speaking broadly, the strategy has two steps:

  1. Implement the safe floor of income. Usually this means delaying Social Security if you are single or the higher earner in a married couple. Sometimes it means delaying for the lower earner in a married couple as well. And sometimes it means buying an annuity for additional guaranteed income.
  2. For the remainder of the portfolio (the “retirement bonus” portion), invest in a low-cost stock index fund or all-in-one fund (e.g., target-date fund, balanced fund, or LifeStrategy fund). Then use the IRS’s RMD tables to determine how much to spend from this part of the portfolio each year.

This strategy tends to work well as a rough-draft plan, for a few reasons:

  • Satisfying basic needs via guaranteed income minimizes your exposure to investment risk, longevity risk, investment mistakes, cognitive decline, fraud, or mistakes that might otherwise be made after the death of the more financially knowledgeable spouse.
  • To the extent that the guaranteed income is made up of Social Security, your exposure to inflation risk is minimized as well.
  • Using the RMD tables for discretionary spending accounts for the facts that it is wise to adjust spending based on investment performance, as well as the fact that you can safely spend a greater percentage of the portfolio per year the older you are.
  • The plan is reasonably simple and can in many cases be implemented without needing a financial advisor.

Real-World Implementation

But the basic, two-step plan described above (and in the original report) leaves an assortment of open questions. And when it comes time to actually implement the strategy in a real-world situation, you must come up with answers to those questions.

So I was happy to learn recently that the authors released a follow-up paper that addresses those real-life implementation questions one-by-one. (To be clear, the follow-up paper was published last year. I only recently learned about it though.)

The newer paper addresses questions such as:

  • How would you implement the RMD portion of income before the normal RMD age? (In brief: use the same life-expectancy-based calculation that the IRS uses. The authors provide a table with per-year spending percentages.)
  • How would you select an asset allocation for the RMD portion of the portfolio? (In brief: if your basic needs are completely satisfied by guaranteed sources of income, you can afford a stock-heavy allocation with remaining assets. Whether you want to use such an allocation is up to you and your preferences.)
  • How can you plan for the fact that the portfolio-funded level of spending has to vary as the level of income from other sources (e.g., work income or Social Security) changes over time? (In brief: create a “retirement transition fund” — a portion of the portfolio that has been carved off and invested in something like a bond ladder that will be used to fund the additional spending over the years in question.)
  • How can you plan for an uneven desired amount of total spending, such as a desire to front-load spending in the early years of retirement? (The authors propose a few options here. One such proposed method is to multiply the RMD for each year by a factor such as 1.25 or 1.5, which would increase spending early — and thereby result in less spending later, since you’d be spending a percentage of a portfolio that is smaller than it otherwise would have been. They run through a few examples of how such adjustments would have played out, given various assumptions.)

If you have the time, I’d encourage you to give the newer follow-up paper a read — or at least bookmark it for future reading. As I’ve written previously, I think the strategy that the authors describe is a great rough-draft approach to funding retirement spending (i.e., a sort of “cookie cutter” plan, which you can then adjust based on your own circumstances and preferences).

Retiring Soon? Pick Up a Copy of My Book:

Can I Retire Cover

Can I Retire? Managing a Retirement Portfolio Explained in 100 Pages or Less

Topics Covered in the Book:
  • How to calculate how much you’ll need saved before you can retire,
  • How to minimize the risk of outliving your money,
  • How to choose which accounts (Roth vs. traditional IRA vs. taxable) to withdraw from each year,
  • Click here to see the full list.

A Testimonial from a Reader on Amazon:

"Hands down the best overview of what it takes to truly retire that I've ever read. In jargon free English, this gem of a book nails the key issues."
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