Withdrawing retirement assets in the right order can add three to four years to your nest egg, according to a leading
estate planning accountant. And tapping
Social Security later rather than sooner should be a part of that plan.
The first step in making wealth last longer is to look at all the different types of accounts a client has, including brokerage accounts, individual retirement accounts, defined contribution plans, deferred compensation plans and any others and consider the tax implications of each of the assets. The financial planner then has to then consider the clients' age, their investment mix and tax bracket, Robert Keebler of Keebler & Associates LLP, told a attendees at the Financial Planning Association's annual meeting in San Diego.
"Financial planners have to work very hard on a person's retirement to figure out the order of withdrawals," Mr. Keebler said.
The bad news is that there is no commercial software to make this time consuming process easier.
"Everyone who comes to see you that's retired is already 60 to 65 years old, they have 40 years of adult financial life behind them and the mosaic of what makes up their assets is so different that it's hard to build a piece of software to take all of this into account," he said. "So you have to build your Excel spreadsheets."
Figuring out the best drawdown order is further complicated by the tax code that applies differently to annuities, IRAs and Roth IRAs. They all have different rules, and those are always susceptible to changes from Congress.
"We have no way to know what Frankenstein nightmare might be coming out of Congress in the next six to eight months," Mr. Keebler said.
Given today's rules, he offered some specific guidance on tax treatment. He pointed out that brokerage accounts are always taxed, an IRA is not taxed until taken out and Roth IRAs and life insurance are never taxed if handled correctly.
Additionally, there is research today that suggests waiting until age 70 to take out social security "is the way to go," he said.
If a client has a deferred compensation plan, it's usually best to draw from that before tapping IRAs because those funds could be in jeopardy if the client's former company were to run into fiscal problems, such as what occurred with Enron, Lehman Brothers, Bear Stearns and others.
"You want to get that wealth out of harm's way as quickly as possible," Mr. Keebler said.
Roth conversions in this volatile market also continue to be a big opportunity, he said.
April Caudill, senior advanced planning attorney for Northwestern Mutual, agreed that such strategies could probably lengthen retirement savings by about three to four years.
"You're taking advantage of the best tax strategies," Ms. Caudill said. "The less income tax you're paying the more your money can stay put and last longer," Ms. Caudill said.
