New research may have proven that many retirement calculators cheat the people using them at least 6 or 7 years of retirement income which is not a good thing for their retirement benefits savings. The approach adopted by people to withdraw funds from one fund at a time was said to be not tax efficient. The researchers claim that there are several better ways that can help increase the savings of a retiree.
The Research on Retirement Calculators and Fewer Retirement Benefits Savings
The research showing that the retirement calculators are not a great option for maximizing retirement benefits savings was done by William Meyer who serves as the CEO of Retiree Inc. and William Reichenstein who is a Co-founder for Retiree Inc. and a Professor at Baylor University. They also had Kirsten Cook whose serves as the Assistant Professor at Texas Tech University as a partner. The research was published in Financial Analysts Journal and was entitled Tax-Efficient Withdrawal Strategies
The Key Findings
The research proved that the retirement calculators are cheating investors out of six or sometimes more than 6 years of retirement income as these calculators make use of several inefficient drawdown strategies. In the article, the authors threw light on the fact that the conventional wisdom related to tax-efficient retirement withdrawals which state that people should only draw funds from one retirement account until it’s empty before moving on to the next one and exhausting tax-deferred accounts before moving to tax-exempt accounts is not beneficial.
The researchers claim that there are better financial strategies that create an enhanced retirement income and offer an investor with greater tax efficiency along with creating about six or more years of income for the investor. They claim that the extra years of income are a game changer for a retiree.
The Better Option
The research discovers that the best and tax efficient strategies take into account various factors like progressive tax rates. These strategies also consider the option of withdrawing the funds from multiple accounts alongside and using Roth conversions while taking the most advantage of years when the investor has the benefit of lower marginal tax rates. The research also says that using these three not so conventional strategies can add over six years of portfolio longevity as compared to the one that follows only the conventional strategies to maximize retirement benefits.