Here's how I see it, and you can let me know if you agree. I see the decision of "optimize for my own retirement" vs. "optimize for heirs" as tied to uncertainty over life expectancy.Optimizing for heirs often goes hand in hand with having more "unavoidable" income than expenses. For that we have articles such as Roth conversion, Tax-efficient fund placement, etc.
Let's say someone retires at 65 and somehow knows they will live exactly another 20 years. I don't see how there is an optimize for self vs. heirs trade-off. This person should pick an after-tax income amount they want from their assets (say, $90k/year), and run the numbers and find the withdrawal strategy that will leave their heirs with the maximum after-tax value of their estate, from among all the possible strategies that will yield $90k/year to themself. This will probably involve spending more HSA and taxable early in retirement, and then more of pre-tax or Roth (whichever gives the better rate arbitrage with the heir) later in retirement. But given a fixed income from the portfolio, I don't see how this person has anything to optimize for themselves - they are getting the same income any which way.
There is of course the trade-off of spend more or less and leave less or more money to heirs, but that's a separate decision from tax optimization. Obviously, if you party like a rock star your heirs will have less to inherit, but the wiki can't tell someone whether to do this.
Optimizing for self vs. heirs comes into play when you consider uncertainty in life expectancy. If this person at 65 thinks they have a short life expectancy, they will preferentially tap retirement accounts over appreciated taxable investments. But if they end up living to 95, they will have less money than if they had tapped the taxable assets first. They may have also chosen a T/R split optimized for heirs if they died at 70 (maybe tapping Roth heavily), but is not optimal for themself over 30 years. That's where the trade-off comes in.
There will always be some amount of uncertainty over life expectancy - sometimes more or less. Optimizing for self means withdrawing in a way that will maximize the time you can stretch your portfolio if you live a very long time. The tables are meant to optimize the value of your estate given a fixed life expectancy - although there is a 30 year table which will cover long retirements for many. The overall strategy here is similar to in other areas - take your best guess and periodically reevaluate. I did add a short paragraph summarizing this issue though, because it's important - thanks for pointing it out. Let me know if you have more thoughts on it.
I agree with the bolded sentence. But this table also handles the degenerate case you describe. If someone wants $90k/year and they get $110k from RMDs and SS net taxes, then the only question is how should they invest $20k in a taxable account. So they only get 2 or 3 lines down the table. The more interesting decisions come into play when one has discretion in which assets to tap. But there is still the choice between optimizing for longevity vs. heirs, which I tried to address above."Draw-down" implies having more expenses than unavoidable income. Depending on the size of one's investments there could still be inheritance considerations, but determining how to optimize "die with zero" (or thereabouts) for one's own retirement becomes a more likely topic.
Thanks, I'm on-board.I posted in the What Retirement Planning/Budgeting Software Are You Using - Page 3 - Bogleheads.org topic. Let's see if that generates any feedback.
Statistics: Posted by fyre4ce — Thu Jun 06, 2024 1:56 am — Replies 158 — Views 14755