Since I have this spiffy spreadsheet I decided to create a retirement where the TIRA was left intact, allowed to grow and RMD, same SS structure, same COLA adjustments. Instead of low growth 3% I went with moderate growth 6%
Here is a recap of the 3% 500K model
Here is the 6% 1.5M TIRA model
Moderate growth means higher volatility to cash flow. A bigger TIRA means you run out of 0% cap gains protection MUCH sooner, by year 4. It means you leave the 12% bracket and quickly start filling the 22% tax bracket. At age 92 in this model you are still in the 22% bracket, barely. Virtually all of your extra growth goes to paying extra taxes. At 92 the IRA is just starting to erode it’s value so you still have plenty of money.
What did the 1M Roth conversion buy you?
This is what you would have in the Roth account if left untapped. 3M buys you a lot of protection, plus you can dole some out along the way to pay for “fun” with no tax consequence, or die leaving your kids filthy rich even in the light of bad SOR. Since the Roth aspect of the portfolio is closed some bad years don’t matter. It only starts to matter when the Roth is open. That’s actually quite a bit of protection.
I looked at the difference between low and moderate portfolio risk. I misjudged the risk in my initial 3% TIRA it was probably risked too low. If you chose the tangent portfolio asset mix as your low risk mix you would see
It means a 20/80 asset mix with least volatility.
A 60/40 mix has a lot more volatility and makes the ride bumpier more than twice as bumpy. During accumulation you can’t wait to make that return and build up that war chest. You build that war chest by buying risk. When you have more than you need is it smart to continue owning a pile of risk?
So those are the advantages of my approach. You leave some “return” on the table for a care free life. It won’t work in the case where your success is heavily levered. In that case you need the return. Living in the levered case however is optional I think with some planning. It also calls to question some of the maxims of accumulation like “risk tolerance” Some “number” you pluck out of thin air to satisfy your greed need. What’s a “good” risk tolerance under W2 accumulation may be a horrible choice in the face of spend down.
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