Seeking tax alpha in retirement income

Authors

  • James A. DiLellio aDepartment of Decision Sciences, Information Systems and Strategy, Graziadio Business School, Pepperdine University
  • Andreas Simon bLeventhal School of Accounting, Marshall School of Business, The University of Southern California

DOI:

https://doi.org/10.61190/fsr.v30i4.3160

Keywords:

Retirement income, Asset location, Tax efficiency, Longevity risk

Abstract

We provide a framework to find an optimal decision for tax-efficient retirement income. By developing a model for income and capital gains tax with stock and bond investments in tax- deferred, tax-exempt, and taxable accounts, we identify three categories of retirees based on their income needs and net worth. We propose and evaluate a simple heuristic to determine the optimal retirement income strategy, quantifying a 0.5% annual return benefit. We call this benefit tax alpha and show its robustness to varying model input parameters. We also suggest approaches for large institutions or FinTech firms to improve their existing financial planning tools.

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Published

2023-08-11

How to Cite

DiLellio, J. A., & Simon, A. (2023). Seeking tax alpha in retirement income. Financial Services Review, 30(4), 223–249. https://doi.org/10.61190/fsr.v30i4.3160

Issue

Vol. 30 No. 4 (2022): Winter 2022

Section

New Original Submission

License

Copyright (c) 2023 James A. DiLellio, Andreas Simon

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