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New research shows most retirement calculators are not tax efficient

Latest research proves that most retirement income drawdown calculators are incorrect by six or more years due to lack of tax efficiency.

LEAWOOD, Kan., Aug. 30, 2016 /PRNewswire/ -- While it's no secret that all retirement calculators are not created equal and it's been well-reported that the same inputs receive varying longevity results across retirement tools, new research shows that many of these calculators cheat investors out of six or more years of retirement income by using inefficient drawdown strategies.

This discovery comes from the research article, "Tax-Efficient Withdrawal Strategies," published in The Financial Analysts Journal and written by William Meyer, CEO, Retiree Inc.; William Reichenstein, Co-founder, Retiree Inc. and Professor, Baylor University; and Kirsten Cook, Assistant Professor, Texas Tech University.

Within the article, the authors debunk the conventional wisdom around tax-efficient retirement withdrawals, which suggests that an investor should withdraw funds from one account at a time moving to the next one after the previous is exhausted, starting with tax-deferred accounts and moving to tax-exempt accounts. The paper clearly demonstrates that this conventional wisdom, which many retirement drawdown tools are built on, is not the most tax-efficient.

"Through our research, we found there are better strategies for creating retirement income than the ones the industry is currently using," said Meyer. "These strategies provide greater tax efficiency, creating six or more years of income. That's a game changer for a retiree."

The research demonstrates that the most tax-efficient strategies take into account progressive tax rates, consider drawing from multiple accounts concurrently and use Roth conversions – all while taking advantage of years when the investor has lower marginal tax rates. The research shows that using these unconventional strategies can add more than six years of portfolio longevity compared with a conventional strategy.

Access the entire research article here: http://www.cfapubs.org/doi/abs/10.2469/faj.v71.n2.2

About Retiree Income

Retiree Income was founded on the belief that there is a better way to serve retirees or people getting ready to retire—one that is smarter and more personalized. The company produces retirement income planning software for both financial professionals and consumers.

About William Meyer

Throughout his career, William Meyer has looked for new ways to deliver higher quality advice to people in retirement. He has a unique combination of experiences in leading the design and launch of innovative client centric services and products, as well as leveraging technology in service offerings.

Early in Bill's career, he learned financial planning techniques for the affluent, and has strived to apply those insights to all households regardless of wealth. He has a track record of successfully developing products and services in executive leadership roles at H&R Block, Advisor Software and Charles Schwab.

About William Reichenstein, PhD, CFA

Dr. William Reichenstein, CFA, holds the Pat and Thomas R. Powers Chair in Investment Management at Baylor University. His recent work concentrates on the interaction between investments and taxes. He is the author of In the Presence of Taxes: Applications of After-Tax Asset Valuations (FPA Press, 2008), and coauthored with William Jennings Integrating Investments & the Tax Code (John Wiley & Sons (2003).

SOURCE Retiree Income



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