Research

Optimal Asset Allocation, Asset Location and Drawdown in Retirement

Assessing the impact of tax deferral and municipal bonds on retirement income generation.

Executive Summary

  • This paper investigates how differences in tax treatment across asset classes and investment accounts affect retiree behavior, including desired asset allocations and the location and timing of withdrawals.
  • We find that the distribution of wealth across accounts does not materially affect the aggregate asset allocation.
  • However, asset location – the allocation within each account – is highly dependent on the tax treatment of each account.
  • Despite lower tax rates on equities, retirees should consider holding more stocks in tax-deferred accounts to maximize their tax benefits.
  • Retirees may be able to optimize after-tax income with allocations to muni bonds in their taxable accounts.

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The Author

Sean Klein

Client Solutions & Analytics

Steve Sapra

Client Solutions & Analytics

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The "risk-free rate” can be considered the return on an investment that, in theory, carries no risk. Therefore, it is implied that any additional risk should be rewarded with additional return. All investments contain risk and may lose value.

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CMR2019-1030-422039