In What Order Should I Spend Down My Assets in Retirement?

David McKnight addresses the most efficient order in which to spend your assets in retirement.

Online programs and algorithms that forecast and run calculations related to your retirement assets suggest starting with your tax-deferred assets like 401(k)s or IRAs.

Such tools recommend spending down your tax-deferred assets now, when tax rates are low, and your tax-free assets later – when tax rates are likely to be higher than they are today.

Reminder: regardless of the distribution strategy you choose, it should aim to maximize the likelihood that your money lasts as long as you do.

David's recommended strategy involves spending small slivers of each of your assets all in the same year.

In other words, instead of mowing through one asset class all at once and then moving on to the next, you spend a little from each asset over time.

There's a scenario in which you could receive your Social Security 100% tax-free – this could extend the life of all your other resources by five to seven years.

David explains why you shouldn't aim to spend down all your tax-deferred assets in the early years.

David touches upon using a Roth conversion as a strategy.

Roth IRAs, Roth 401(k)s, and tax-free Social Security (when you can keep your provisional income low enough) are other sources of tax-free income you may accumulate along the way.

David discusses why it may be better to take a more nuanced approach, rather than simply spending down your tax-deferred assets first and your tax-free assets later.

 

 

Mentioned in this episode:

David's national bestselling book: The Guru Gap: How America's Financial Gurus Are Leading You Astray, and How to Get Back on Track

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter 

@davidcmcknight on Instagram

David McKnight on YouTube

Get David's Tax-free Tool Kit at taxfreetoolkit.com