Proposed new wiki page: Retirement draw-down priority

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Topic Author
fyre4ce
Posts: 2616
Joined: Sun Aug 06, 2017 11:29 am

Re: Proposed new wiki page: Retirement income withdrawal priority

Post by fyre4ce »

aristotelian wrote: Mon Jun 03, 2024 7:07 pm Arguably, pretax up to the standard deduction should be high priority in most cases.
I would still say you should spend "cash" you have available (which could include non-EF cash, RMDs, regular income, etc.) first, and then if you have room in the 0% bracket, fill it up with Roth conversions. Depending on your tax plan it might make sense to convert at 10%, 12%, 15%, etc. too, and we're off to the races on the bigger problem of retirement tax planning, which is beyond the scope of this page. But, the page does allude to it by mentioning that tax planning transactions (like Roth conversions and tax loss/gain harvesting) might be beneficial separately from just what's necessary to meet spending needs. Roth conversions are also mentioned in the section for pre-tax withdrawals. If people want to know more, they can click the Roth conversion link and learn a lot more. I think that covers the topic sufficiently for my intent for this page.
Topic Author
fyre4ce
Posts: 2616
Joined: Sun Aug 06, 2017 11:29 am

Re: Proposed new wiki page: Retirement draw-down priority

Post by fyre4ce »

FiveK wrote: Mon Jun 03, 2024 5:20 pm It's also unfortunate that the otherwise good Which Assets to Spend First in Retirement? | White Coat Investor referenced article, with its various "it depends..." caveats, includes the egregious "you save marginal on traditional contributions but only pay effective on withdrawals".
I noticed that too, but I don't take an external link to be an endorsement of every point of content on the page - only that it may be useful as a second point of reference, which I think it is.
Agreed, and I just added it to the link list.
User avatar
FiveK
Posts: 16174
Joined: Sun Mar 16, 2014 2:43 pm

Re: Proposed new wiki page: Retirement income withdrawal priority

Post by FiveK »

fyre4ce wrote: Mon Jun 03, 2024 5:43 pm The second reason is more specific to Bogleheads, which is that they tend to be higher-wealth and higher-income than the average American.
1) The wiki should not contain any unstated assumptions.
2) Applying that particular assumption, even if stated, to the entire article would be elitist. See Is there a such thing as a blue collar Boglehead? - Bogleheads.org.
Topic Author
fyre4ce
Posts: 2616
Joined: Sun Aug 06, 2017 11:29 am

Re: Proposed new wiki page: Retirement draw-down priority

Post by fyre4ce »

I just added a third table in the bottom section for a 15 year life expectancy table. After taking another look, I thought adding a third data point would be helpful to readers. The tool and method that generated the data are the same as for the other two tables, so I don't think this affects earlier feedback.
Topic Author
fyre4ce
Posts: 2616
Joined: Sun Aug 06, 2017 11:29 am

Re: Proposed new wiki page: Retirement income withdrawal priority

Post by fyre4ce »

FiveK wrote: Tue Jun 04, 2024 2:04 pm
fyre4ce wrote: Mon Jun 03, 2024 5:43 pm The second reason is more specific to Bogleheads, which is that they tend to be higher-wealth and higher-income than the average American.
1) The wiki should not contain any unstated assumptions.
2) Applying that particular assumption, even if stated, to the entire article would be elitist. See Is there a such thing as a blue collar Boglehead? - Bogleheads.org.
The point I tried (ineloquently) to the other poster is: the explicit target audience of the wiki is investors, and it's a straightforward fact that investors have more wealth on-average than the general population, which includes investors and non-investors. The heirs of investors (who we are talking about here) may or may not be investors themselves, so on-average would have lower wealth than their benefactors. Therefore, one could expect that more than half the time, retired investors should lean toward Roth withdrawals due to a difference in tax rates between them in their heirs. I don't see this as an unstated assumption (the target audience of the wiki is stated) or elitist.

Even if you disagree, I don't see how it matters to this page. Even if readers and their heirs were randomly chosen, then half the time the reader would have a higher tax rate than their heir, and Roth withdrawals should be considered. Covering a case that happens 50% of the time is easily frequent enough to be addressed by the wiki. Having a 457b, savings bonds, permanent life insurance, non-deductible tIRAs... these all apply to much less than 50% of readers and are worthy of mention. I can't say exactly where the cutoff should be (5%, 1%, 0.1%, etc.) - it's an editorial decision on a page-by-page basis - but the number is surely far lower than 50%.

That said, are there any edits you would like to see on this page?
User avatar
FiveK
Posts: 16174
Joined: Sun Mar 16, 2014 2:43 pm

Re: Proposed new wiki page: Retirement income withdrawal priority

Post by FiveK »

fyre4ce wrote: Tue Jun 04, 2024 2:38 pm
FiveK wrote: Tue Jun 04, 2024 2:04 pm
fyre4ce wrote: Mon Jun 03, 2024 5:43 pm The second reason is more specific to Bogleheads, which is that they tend to be higher-wealth and higher-income than the average American.
1) The wiki should not contain any unstated assumptions.
2) Applying that particular assumption, even if stated, to the entire article would be elitist. See Is there a such thing as a blue collar Boglehead? - Bogleheads.org.
The point I tried (ineloquently) to the other poster is: the explicit target audience of the wiki is investors, and it's a straightforward fact that investors have more wealth on-average than the general population, which includes investors and non-investors. The heirs of investors (who we are talking about here) may or may not be investors themselves, so on-average would have lower wealth than their benefactors. Therefore, one could expect that more than half the time, retired investors should lean toward Roth withdrawals due to a difference in tax rates between them in their heirs. I don't see this as an unstated assumption (the target audience of the wiki is stated) or elitist.
When people read a wiki article, they should be able to assume that it applies to them. To that end, advice should be couched in a way that applies regardless of income/wealth/etc. Not to say that one should do the same thing regardless of income/wealth/etc., but that any such influence should become part of the advice.
Even if you disagree, I don't see how it matters to this page. Even if readers and their heirs were randomly chosen, then half the time the reader would have a higher tax rate than their heir, and Roth withdrawals should be considered. Covering a case that happens 50% of the time is easily frequent enough to be addressed by the wiki. Having a 457b, savings bonds, permanent life insurance, non-deductible tIRAs... these all apply to much less than 50% of readers and are worthy of mention. I can't say exactly where the cutoff should be (5%, 1%, 0.1%, etc.) - it's an editorial decision on a page-by-page basis - but the number is surely far lower than 50%.
Again, no problem including reasonably comprehensive advice - just make it clear what applies to whom.
That said, are there any edits you would like to see on this page?
Adding another intermediate table wouldn't have been one of them. ;)

After rereading the entire thread, there was one item that arose occasionally but wasn't fully addressed (or maybe it was and I glazed over it). That is, how do these recommendations compare with what common Retirement Planning/Budgeting Software suggests?

It would be good if the wiki articles could say "these suggestions are consistent with results from common retirement planning/budgeting software" (or words to that effect). It would not be so good if the wiki articles and those software tools diverge. I don't think they do diverge, but it would be nice to confirm that.

Has anyone done such a comparison?
Topic Author
fyre4ce
Posts: 2616
Joined: Sun Aug 06, 2017 11:29 am

Re: Proposed new wiki page: Retirement income withdrawal priority

Post by fyre4ce »

FiveK wrote: Wed Jun 05, 2024 3:15 pm snip

When people read a wiki article, they should be able to assume that it applies to them. To that end, advice should be couched in a way that applies regardless of income/wealth/etc. Not to say that one should do the same thing regardless of income/wealth/etc., but that any such influence should become part of the advice.

snip

Again, no problem including reasonably comprehensive advice - just make it clear what applies to whom.
Completely agree. The tension with this page is that nailing down the "correct" withdrawal strategy for any given person requires some sophisticated tax planning, which is well beyond the scope of this page. But it still conveys some important basic principles - don't forget your RMDs, spend cash first, spend higher-basis taxable assets before lower-basis, spend HSAs before retirement accounts, borrow against your house and life insurance last, etc. The phrase "Pre-tax withdrawals up to a specific marginal tax rate" does a lot of heavy lifting, but once that tax rate is determined, I think the list and tables at the bottom cover most cases. If you have counterexamples of situations the page does not handle well, let me know and we can discuss.
FiveK wrote: Wed Jun 05, 2024 3:15 pm After rereading the entire thread, there was one item that arose occasionally but wasn't fully addressed (or maybe it was and I glazed over it). That is, how do these recommendations compare with what common Retirement Planning/Budgeting Software suggests?

It would be good if the wiki articles could say "these suggestions are consistent with results from common retirement planning/budgeting software" (or words to that effect). It would not be so good if the wiki articles and those software tools diverge. I don't think they do diverge, but it would be nice to confirm that.

Has anyone done such a comparison?
I'm sure the answer is no. I have not done so because I'm not aware of any tool that optimizes for heir's tax situation and for maximizing value to heirs. All the tools I've seen are for optimizing for your own retirement, which may or may not serve that goal. But, if you can suggest one or two (ideally free or cheap), I will gladly check them out and run some comparison cases.
User avatar
FiveK
Posts: 16174
Joined: Sun Mar 16, 2014 2:43 pm

Re: Proposed new wiki page: Retirement income withdrawal priority

Post by FiveK »

fyre4ce wrote: Wed Jun 05, 2024 5:35 pmIf you have counterexamples of situations the page does not handle well, let me know and we can discuss.
Other contributors have raised various salient points so if you have addressed those points to the contributors' satisfaction then it's all good.
I have not done so because I'm not aware of any tool that optimizes for heir's tax situation and for maximizing value to heirs. All the tools I've seen are for optimizing for your own retirement, which may or may not serve that goal. But, if you can suggest one or two (ideally free or cheap), I will gladly check them out and run some comparison cases.
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.

"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.

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.
Topic Author
fyre4ce
Posts: 2616
Joined: Sun Aug 06, 2017 11:29 am

Re: Proposed new wiki page: Retirement income withdrawal priority

Post by fyre4ce »

FiveK wrote: Thu Jun 06, 2024 12:08 am 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.
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.

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.
FiveK wrote: Thu Jun 06, 2024 12:08 am "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.
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.
FiveK wrote: Thu Jun 06, 2024 12:08 am 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.
Thanks, I'm on-board.
User avatar
FiveK
Posts: 16174
Joined: Sun Mar 16, 2014 2:43 pm

Re: Proposed new wiki page: Retirement income withdrawal priority

Post by FiveK »

fyre4ce wrote: Thu Jun 06, 2024 1:56 am 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.

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)....
That works for people who have "more than enough". In other words, spending $90K/yr won't be a problem and the issue is how much will be left to heirs.

Other people might flip the question to "We have $750K invested. What is the most we can safely spend per year and what is the best way to draw from our various accounts to achieve that?"

Yes, life expectancy plays a role but people asking that question, while they might care about leaving something to their kids (because that's generally human nature), probably care more about avoiding Alpo for dinner and heirs' concerns are secondary.

And yes, this is Bogleheads so there might be some "with $5 million invested, is $90K/yr really a safe amount" but I digress. :)

It's the people looking to maximize spending when that maximum will be closer to "needs" vs. "luxurious wants" I had in mind for "determining how to optimize "die with zero" (or thereabouts) for one's own retirement becomes a more likely topic."
Topic Author
fyre4ce
Posts: 2616
Joined: Sun Aug 06, 2017 11:29 am

Re: Proposed new wiki page: Retirement income withdrawal priority

Post by fyre4ce »

FiveK wrote: Thu Jun 06, 2024 3:48 am
fyre4ce wrote: Thu Jun 06, 2024 1:56 am 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.

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)....
That works for people who have "more than enough". In other words, spending $90K/yr won't be a problem and the issue is how much will be left to heirs.

Other people might flip the question to "We have $750K invested. What is the most we can safely spend per year and what is the best way to draw from our various accounts to achieve that?"

Yes, life expectancy plays a role but people asking that question, while they might care about leaving something to their kids (because that's generally human nature), probably care more about avoiding Alpo for dinner and heirs' concerns are secondary.

And yes, this is Bogleheads so there might be some "with $5 million invested, is $90K/yr really a safe amount" but I digress. :)

It's the people looking to maximize spending when that maximum will be closer to "needs" vs. "luxurious wants" I had in mind for "determining how to optimize "die with zero" (or thereabouts) for one's own retirement becomes a more likely topic."
Makes sense. I can think of at least three things that someone might want to optimize for:
  • Given a desired income/spending, maximize the time the portfolio will last. This will probably result in tapping taxable assets earlier and retirement accounts later with a T/R split optimized for the owner's tax situation. This might not make sense for someone with relatively high assets and compared to their spending - tax-planning so that your portfolio lasts until age 160 rather than 150 isn't a real benefit. But it could make a lot of sense for someone where spending mostly on "needs" only gets them to age 85 - good planning that extends the portfolio to age 90 would be a big benefit.
  • Given a desired income/spending and life expectancy, maximize the value of one's estate for heirs. This could result in tapping retirement accounts first if life expectancy is short. But if life expectancy is long, taxable assets should be tapped first (see the 30 year table). In either case, the T/R split will be optimized for heirs. This probably makes the most sense for those who have more than enough for their own retirement (probably many Bogleheads) and care about leaving money to heirs. Having a short and reasonably well-known life expectancy would included in this group.
  • Given a life expectancy and desired amount to leave to heirs (which may be zero or some other fixed value), maximize income/spending. This is really a safe withdrawal rate problem. I see this making sense for those with "enough" but who get a big benefit from more spending - maybe someone who loves to travel.
Optimality is in the eye of the beholder (what's optimal for the wolf isn't optimal for the rabbit). Someone can't maximize all three of these things at the same time. The choice of what to optimize for is a personal decision that does depend somewhat on the investor's specific situation. But I see this decision as mostly beyond the scope of this page. A lot of folks probably mix these goals in practice, wanting to increase all three somewhat but not hard-optimizing for just one. The principles conveyed by the draw-down order - spend cash before retirement accounts, etc. - apply in almost all cases, and the optimizing happens within the tax planning that is beyond the scope of this page. I briefly looked through other retirement spending wiki pages (like Withdrawal methods) and didn't see a discussion about overall goals like this one. Maybe that would be a good topic to add to your page?
MHA556
Posts: 114
Joined: Wed Sep 01, 2021 8:01 am

Re: Proposed new wiki page: Retirement draw-down priority

Post by MHA556 »

One thing I would fix on the draw down priority page, it mentions 457b’s as being owned by the employer until rolled out, etc..

That is only true for private employers using a 457b, and most 457b plans are actually government sponsored plans, so the info should talk about those plans.

Have not read further yet.
Topic Author
fyre4ce
Posts: 2616
Joined: Sun Aug 06, 2017 11:29 am

Re: Proposed new wiki page: Retirement draw-down priority

Post by fyre4ce »

MHA556 wrote: Thu Jun 06, 2024 1:08 pm One thing I would fix on the draw down priority page, it mentions 457b’s as being owned by the employer until rolled out, etc..

That is only true for private employers using a 457b, and most 457b plans are actually government sponsored plans, so the info should talk about those plans.

Have not read further yet.
Thanks. I agree the distinction between governmental and non-governmental 457(b)'s is important. I edited that section to discuss the differences - let me know what you think.
User avatar
FiveK
Posts: 16174
Joined: Sun Mar 16, 2014 2:43 pm

Re: Proposed new wiki page: Retirement draw-down priority

Post by FiveK »

Another thing to consider: it was many months and thousands of views before this forum post: Retiree Portfolio Model - Bogleheads.org led to this wiki article: Retiree Portfolio Model - Bogleheads.

Under the philosophy that a wiki is not a publisher of original thought or research, the spreadsheet section should be omitted from the wiki until it has been vetted by a larger audience. It's a gray area, but discretion does seem the better part of valor.
Topic Author
fyre4ce
Posts: 2616
Joined: Sun Aug 06, 2017 11:29 am

Re: Proposed new wiki page: Retirement draw-down priority

Post by fyre4ce »

FiveK wrote: Mon Jun 10, 2024 7:38 pm Another thing to consider: it was many months and thousands of views before this forum post: Retiree Portfolio Model - Bogleheads.org led to this wiki article: Retiree Portfolio Model - Bogleheads.

Under the philosophy that a wiki is not a publisher of original thought or research, the spreadsheet section should be omitted from the wiki until it has been vetted by a larger audience. It's a gray area, but discretion does seem the better part of valor.
You make a fair point, but part of my goal with this thread has been exactly that - a review of the spreadsheet and the data it generates. This page has been under review for about a year, lots of people have looked at it, and anyone has been free to raise concerns about that part of the page, and none have surfaced. How many people took an in-depth look into it? Probably a handful at best. But I can't force people to review it, I can just put it out there and respond to the feedback I receive.

Are you willing to review it yourself? You're a sharp guy and I bet you could spot something out of place. The latest version of the spreadsheet is much more reader-friendly and has a one-click macro that generates the tables. Most of the math is actually very simple - (1+r)^t and (1 - mtr) and such. The taxable equations are a bit more complex but they are accepted formulas and are elsewhere on the wiki.

Did you find any other retirement tax planners that optimize for heirs? A comparison to an existing tool would probably be best (if one exists).
User avatar
FiveK
Posts: 16174
Joined: Sun Mar 16, 2014 2:43 pm

Re: Proposed new wiki page: Retirement draw-down priority

Post by FiveK »

fyre4ce wrote: Tue Jun 11, 2024 12:25 am
FiveK wrote: Mon Jun 10, 2024 7:38 pm Another thing to consider: it was many months and thousands of views before this forum post: Retiree Portfolio Model - Bogleheads.org led to this wiki article: Retiree Portfolio Model - Bogleheads.

Under the philosophy that a wiki is not a publisher of original thought or research, the spreadsheet section should be omitted from the wiki until it has been vetted by a larger audience. It's a gray area, but discretion does seem the better part of valor.
You make a fair point, but part of my goal with this thread has been exactly that - a review of the spreadsheet and the data it generates. This page has been under review for about a year, lots of people have looked at it, and anyone has been free to raise concerns about that part of the page, and none have surfaced. How many people took an in-depth look into it? Probably a handful at best. But I can't force people to review it, I can just put it out there and respond to the feedback I receive.
Yes, there is that limitation. ;)

For the type of analysis you prefer, consider submitting to the JOURNAL OF PERSONAL FINANCE or the like (e.g., I forget offhand where McQ publishes but that would be "the like"). Then those published articles could be wiki references. :)
Are you willing to review it yourself? You're a sharp guy and I bet you could spot something out of place. The latest version of the spreadsheet is much more reader-friendly and has a one-click macro that generates the tables. Most of the math is actually very simple - (1+r)^t and (1 - mtr) and such. The taxable equations are a bit more complex but they are accepted formulas and are elsewhere on the wiki.
Thanks for the vote of confidence but "probably not" because it just seems an exercise in precision not supported by accuracy. I could have the wrong impression, or could change my mind....
Did you find any other retirement tax planners that optimize for heirs? A comparison to an existing tool would probably be best (if one exists).
Didn't look for any, because for that optimization Roth conversion questions are primary and we already have good treatment for those in the wiki. It's the people looking to maximize spending when that maximum will be closer to "needs" vs. "luxurious wants" I had in mind for "determining how to optimize "die with zero" (or thereabouts) for one's own retirement becomes a more likely topic."
Topic Author
fyre4ce
Posts: 2616
Joined: Sun Aug 06, 2017 11:29 am

Re: Proposed new wiki page: Retirement draw-down priority

Post by fyre4ce »

FiveK wrote: Tue Jun 11, 2024 3:41 pm
fyre4ce wrote: Tue Jun 11, 2024 12:25 am
FiveK wrote: Mon Jun 10, 2024 7:38 pm Another thing to consider: it was many months and thousands of views before this forum post: Retiree Portfolio Model - Bogleheads.org led to this wiki article: Retiree Portfolio Model - Bogleheads.

Under the philosophy that a wiki is not a publisher of original thought or research, the spreadsheet section should be omitted from the wiki until it has been vetted by a larger audience. It's a gray area, but discretion does seem the better part of valor.
You make a fair point, but part of my goal with this thread has been exactly that - a review of the spreadsheet and the data it generates. This page has been under review for about a year, lots of people have looked at it, and anyone has been free to raise concerns about that part of the page, and none have surfaced. How many people took an in-depth look into it? Probably a handful at best. But I can't force people to review it, I can just put it out there and respond to the feedback I receive.
Yes, there is that limitation. ;)

For the type of analysis you prefer, consider submitting to the JOURNAL OF PERSONAL FINANCE or the like (e.g., I forget offhand where McQ publishes but that would be "the like"). Then those published articles could be wiki references. :)
Are you willing to review it yourself? You're a sharp guy and I bet you could spot something out of place. The latest version of the spreadsheet is much more reader-friendly and has a one-click macro that generates the tables. Most of the math is actually very simple - (1+r)^t and (1 - mtr) and such. The taxable equations are a bit more complex but they are accepted formulas and are elsewhere on the wiki.
Thanks for the vote of confidence but "probably not" because it just seems an exercise in precision not supported by accuracy. I could have the wrong impression, or could change my mind....
Did you find any other retirement tax planners that optimize for heirs? A comparison to an existing tool would probably be best (if one exists).
Didn't look for any, because for that optimization Roth conversion questions are primary and we already have good treatment for those in the wiki. It's the people looking to maximize spending when that maximum will be closer to "needs" vs. "luxurious wants" I had in mind for "determining how to optimize "die with zero" (or thereabouts) for one's own retirement becomes a more likely topic."
There's no way I'm going to submit this to a peer-reviewed journal, haha, mostly because it's a simple one-page spreadsheet and that would be massive overkill. The complexity isn't any more than things already on the wiki like this or this or this. It's a gray area with how much math takes things from routine calculations to original research. The BH wiki certainly has a higher bar than Wikipedia, but I think there are good reasons for it. Regardless, this is a top-level policy decision for the wiki we're not going to settle here. A moderator is free to chime in if they disagree, but as this has undergone over a year's worth of peer review in the forum and is consistent with the type of content throughout the wiki, I don't take this to be an obstacle to publishing it.

I took a look at existing tools and found MDM's Roth conversion spreadsheet does consider heirs' tax rates. (As far as I can tell, McQ's spreadsheet and the RPM do not.) The purpose and setup are different (my tool looks at spending, MDM's looks at Roth conversions) but the underlying math should be the same so I set them up to do a side-by-side comparison. The results are below:

Tax rates: 32/35.8/18.8% owner, 37/40.8/23.8% heir
Investment: 8% total return, 2% yield, 90% qualified yield, taxable basis 40%
Dividend tax rates: 20.5% owner, 25.5% heir
Life expectancy: 15 years
Heir withdrawal strategy: lump sum
Cash needed now: $10,000

Pre-tax nominal value: $14,705.88
Pre-tax future value (my spreadsheet): $63,449.11
Pre-tax future value (MDM's spreadsheet): $63,449.11

Taxable nominal value: $11,271.42
Taxable future value (my spreadsheet): $62,721.08
Taxable future value (MDM's spreadsheet): $62,721.08

Roth nominal value: $10,000
Roth future value (my spreadsheet): $68,484.75
Roth future value (MDM's spreadsheet): $68,484.75

By my table, the recommendation is to first tap taxable with a basis more than 35%, then pre-tax, and this is consistent with these results. They all have the same present value after taxes to the owner, so the owner should tap the asset with the lowest future value first, which in this case is the taxable asset with a 40% basis, which is slightly better than pre-tax, and Roth is worst. You are welcome to check other cases, but I am satisfied with this spot-check.

Finally, I'll comment briefly about your concerns about precision and accuracy (which, by the way, I can't see how they would be an obstacle to you checking the tool's math if you were so motivated, but I digress). You and I have discussed it before, and I don't expect we'll see eye-to-eye, but I want to put my response on the record here. Basically all financial tools and calculators perform calculations with high precision, including the other tools you and I mentioned above. They take in some user inputs, they have some stored math formulas, they run those inputs through the formulas and produce outputs. Usually, those outputs are also reported with high precision, because that's how the data is stored within the tool, though sometimes they are rounded off. (If they are not rounded off, the user can do this themselves if they want.) I take your point that the accuracy of the outputs depends on the accuracy of the inputs, and of course that's true of any tool, including this one. This is not a problem with the tool. It only becomes a problem when the user assumes that the accuracy of the output equals the precision, which is a mistake in their mind and not something the tool or I suggest. Users should understand that when we are talking about predicting tax rates and investment returns decades in the future, you can't expect accuracy down to the penny. Even if the table says the basis cutoff is 35%, that doesn't guarantee that 36% will be the correct choice 25 years from now. Nonetheless, we need to make a decision today, and the best we can do is run the numbers based on our best estimates and act on those predictions. I'm not sure what else anyone can do. I worked for several years as an analyst in industry and I can tell you this is how it's generally done.

===========

I believe that resolves all the issues that have been raised. Any final comments before it goes live?
User avatar
FiveK
Posts: 16174
Joined: Sun Mar 16, 2014 2:43 pm

Re: Proposed new wiki page: Retirement draw-down priority

Post by FiveK »

fyre4ce wrote: Wed Jun 12, 2024 1:09 am The complexity isn't any more than things already on the wiki like this or this or this.
...
I took a look at existing tools and found MDM's Roth conversion spreadsheet does consider heirs' tax rates...The results are below: <in short, identical :)>
Well done! No guarantee that either of the two is correct, but having two tools created by different people get the same answer is good circumstantial evidence. I'm happy to see that you took that step.

I'll agree with not seeing eye-to-eye on various things, but hey, that's diversity! That there are many people in this community with practical experience combined with book learning, and willing to share their perspectives, is a good thing.
I believe that resolves all the issues that have been raised. Any final comments before it goes live?
Nope. I assume both pages will go live at ~the same time.
dknightd
Posts: 3864
Joined: Wed Mar 07, 2018 10:57 am

Re: Proposed new wiki page: Retirement income withdrawal priority

Post by dknightd »

fyre4ce wrote: Wed Jun 05, 2024 5:35 pm Completely agree. The tension with this page is that nailing down the "correct" withdrawal strategy for any given person requires some sophisticated tax planning, which is well beyond the scope of this page.
I agree. And the "correct" answer will not be known until it is too late.
It is difficult enough to plan our taxes, let alone what potential heirs might pay. For simplicity I assume they will be the same, or nearly the same. Which is still basically impossible to predict.

In case it helps your thought process, I recently inherited some money. Not live changing, but not insignificant. My favorite kind of inherited money is Roth, then taxable (which I have not received yet), then tax deferred.

I've read
https://www.bogleheads.org/wiki/User:Fi ... e_planning
and
https://www.bogleheads.org/wiki/User:Fy ... n_priority

Both seem reasonable to me. Both contain useful information.
My suggestion would be to post them at the same time - with links to each other.

This wiki is a tremendous resource. Thanks to the people contributing to it.

I have not found a table of contents, or an index, to the wiki. Is there one?
Is there a way to just search for wiki content?
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
Topic Author
fyre4ce
Posts: 2616
Joined: Sun Aug 06, 2017 11:29 am

Re: Proposed new wiki page: Retirement draw-down priority

Post by fyre4ce »

FiveK wrote: Wed Jun 12, 2024 2:57 am snip
dknightd wrote: Wed Jun 12, 2024 7:14 am snip
Thanks to both of you for the suggestions. I went into both pages and added links and a couple sentences at the top to describe how they relate to each other, and links at the bottom. FiveK- I also added an abbreviated discussion of overall goals to your page, because I think it's useful information and definitely belongs on your page as a planning consideration. If you're ok with these changes, we can publish.
User avatar
FiveK
Posts: 16174
Joined: Sun Mar 16, 2014 2:43 pm

Re: Proposed new wiki page: Retirement draw-down priority

Post by FiveK »

fyre4ce wrote: Wed Jun 12, 2024 12:00 pm
FiveK wrote: Wed Jun 12, 2024 2:57 am snip
dknightd wrote: Wed Jun 12, 2024 7:14 am snip
Thanks to both of you for the suggestions. I went into both pages and added links and a couple sentences at the top to describe how they relate to each other, and links at the bottom. FiveK- I also added an abbreviated discussion of overall goals to your page, because I think it's useful information and definitely belongs on your page as a planning consideration. If you're ok with these changes, we can publish.
That's a fair chunk of added text. Family obligations upcoming so it will be early next week before I'll have uninterrupted time to digest and edit as needed. No problem with the cross-linking so if you want to go with just that for now it's ok by me.
Topic Author
fyre4ce
Posts: 2616
Joined: Sun Aug 06, 2017 11:29 am

Re: Proposed new wiki page: Retirement draw-down priority

Post by fyre4ce »

FiveK wrote: Wed Jun 12, 2024 12:34 pm
fyre4ce wrote: Wed Jun 12, 2024 12:00 pm
FiveK wrote: Wed Jun 12, 2024 2:57 am snip
dknightd wrote: Wed Jun 12, 2024 7:14 am snip
Thanks to both of you for the suggestions. I went into both pages and added links and a couple sentences at the top to describe how they relate to each other, and links at the bottom. FiveK- I also added an abbreviated discussion of overall goals to your page, because I think it's useful information and definitely belongs on your page as a planning consideration. If you're ok with these changes, we can publish.
That's a fair chunk of added text. Family obligations upcoming so it will be early next week before I'll have uninterrupted time to digest and edit as needed. No problem with the cross-linking so if you want to go with just that for now it's ok by me.
Fair enough, so here's what I decided to do. I published my page and it's now live. I changed the links to point to https://www.bogleheads.org/wiki/Retirem ... e_planning which technically doesn't exist until you publish yours. I also changed the links on your page to point to the new live page. Edit yours at your convenience and when you publish, it will line up. Remember to remove the subpage banner when you do.

I also added links to both pages to the appropriate templates as it seemed to make sense.
User avatar
LadyGeek
Site Admin
Posts: 96985
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: Proposed new wiki page: Retirement draw-down priority

Post by LadyGeek »

fyre4ce wrote: Wed Jun 12, 2024 1:10 pm ...I also added links to both pages to the appropriate templates as it seemed to make sense.
Nice idea, but remember that most readers won't see this discussion. All they'll see are broken links and wonder what's going on. I removed the links to keep everything organized.

The effort isn't lost. All changes appear in that page's (and template's) "View history" tab. Just look at the difference between revisions to see what was done.

You (or any editor) can put those links back after FiveK's page is moved "live".

===========================
Administrative - I added the page to the wiki's 2024 - 2025 new pages template (which I also created).

This template appears on the wiki's home page Welcome section as:
Regular visitors may want to look at our new articles.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
Topic Author
fyre4ce
Posts: 2616
Joined: Sun Aug 06, 2017 11:29 am

Re: Proposed new wiki page: Retirement draw-down priority

Post by fyre4ce »

LadyGeek wrote: Thu Jun 13, 2024 7:14 am
fyre4ce wrote: Wed Jun 12, 2024 1:10 pm ...I also added links to both pages to the appropriate templates as it seemed to make sense.
Nice idea, but remember that most readers won't see this discussion. All they'll see are broken links and wonder what's going on. I removed the links to keep everything organized.

The effort isn't lost. All changes appear in that page's (and template's) "View history" tab. Just look at the difference between revisions to see what was done.

You (or any editor) can put those links back after FiveK's page is moved "live".

===========================
Administrative - I added the page to the wiki's 2024 - 2025 new pages template (which I also created).

This template appears on the wiki's home page Welcome section as:
Regular visitors may want to look at our new articles.
My thinking was that, for a few days, readers would be no worse off with broken links than no links - and the next ~2 weeks will be very busy for me, so I didn't want to have to remember to go in and clean things up later. But I understand why you didn't favor this approach. Maybe you or FiveK can restore the page once his page is published. I will check too if I have time.
Post Reply