Message Font: Serif | Sans-Serif
No. of Recommendations: 3
brewer writes:

As far as the taxation thing goes, I suspect that its not all that significant. In any case, I suspect that it was largely ignored due to lack of data. After all, how many times did the tax code change over the past 100 years? Some 10 year periods didn't even have a tax code. In any case, if you are really worried about it, there is an easy solution. Simply set up your portfolio in a set of non-qualified variable annuities with a low cost provider like TIAA-CREF or Vanguard. Voila! You can rebalance all you like without incurring any tax liability.

I agree it would be decidedly inconvenient to attempt to properly reflect the impact of taxation on the results of the SWR study. I disagree that we can safely ignore the impact and declare as emminently correct the study results. I'm not worried about it as I will not be using the SWR study. I worry more for others who rely on its results.

I also disagree that the effect is insignificant. This has not been demonstrated. In a year in the historical record that dividends were 7%, a $1M portfolio with a 4% withdrawal would incur taxation on about $30,000. At 25% the tax would be $7500. At the very least, in any year where the portfolio is deemed to have survived by having a positive balance of $7500 or less, the portfolio actually failed. And this is without even considering the compounding effect of leaving this $7500 in the portfolio as if it had never been taxed.

Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.