Retirement Spending Strategies

Michael Kitces recently had a blog posting regarding tax efficient spending strategies from retirement portfolios.

He notes that the conventional wisdom is to draw down taxable accounts and let the tax deferred account continue to grow.  However as with most rules of thumbs or short cut decisions this one does come with a caveat of its own.

If you’ve done a really good job of accumulating tax deferred savings, you may want to consider an alternate strategy. This is especially so, if your required minimum distributions are potentially so large they will put you in a higher tax bracket than expected when they start.

If that is the case you may want to consider drawing funds from you IRA during the early part of your retirement to reduce the size of the future RMDs. Even if you don’t need the funds for your retirement living spending plan, you may want to convert traditional IRA funds to Roth IRA funds to at least get your income up to the tax bracket you are most comfortable with.

The conventional wisdom is generally correct in that deferring taxes and using those funds to build your retirement savings is a good plan. However as you approach the last few years until you actually retire and especially in the last few years before Required Minimum Distributions come into play, some additional planning with regard to income taxes will likely be beneficial.

For additional information on this, you can check out Michael’s blog or better yet, just get ahold of me and we can talk about your individual situation.