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Tax-Efficient Investing, Part 2. What These 5 Client Cases Show About Tax-Smart Asset Allocation

Updated: May 19, 2021

RL064 - Retirement Lifestyle: Tax-Efficient Investing, Part 2. What These 5 Client Cases Show About Tax-Smart Asset Allocation

Today on the Retirement Lifestyle Show, Roshan Loungani, Erik Olson, and Adrian Nicholson continue their discussion on tax allocation by focusing on 5 client cases. They analyze proper asset allocation strategies, delaying social security, and the factor of life expectancy when planning for retirement.

[05:50] Why you Need Proper Asset Allocation Strategies

[07:00] Tax Location Versus Tax Allocation

[09:39] The Withdrawal Sequence

[11:45] The Four Components of a Tax-Efficient Allocation Strategy

[24:55] The Value of Having a Tax-Efficient Portfolio

[26:50] Presenting the Ideal Client Scenario

[30:53] The Best Case Scenarios Versus Doing Nothing

[42:27] Why You Should Delay Social Security

[43:54] Software Analysis of Ideal Client Scenarios

[01:11:45] How Life-Expectancy Can Affect Your Retirement

[01:16:40] Benefits of Consulting with Your Financial Advisor

For the full show notes keep scrolling down!

Roshan Loungani can be reached at or at 202-536-4468.

Erik Olson can be reached at or 815-940-4652.

Adrian Nicholson can be reached at or at 703-915-8905.

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Full Show Notes:

Why you Need Proper Asset Allocation Strategies

If you are an avid listener of our podcast, you may have noticed that we tend to emphasize the need for proper asset allocation. This is because building your portfolio through optimal asset allocation saves you money that would have otherwise ended up in the taxman’s pocket. Your asset allocation strategy explains which portions of your portfolio end up in different investment categories, such as bonds, cash, stocks, bonds, etc. In retirement or when planning for retirement, asset allocation is even more imperative as you try to maximize your investment returns while factoring in age, risk tolerance, and investment objectives.

So, you might be wondering why is this important? First, the investment world is never static. Thus, the value of your investments will eventually be subject to change. If a specific category of your investments increased significantly, another one might stagnate, and another decrease in value. Rebalancing shifts your asset diversification back to normal while ensuring you remain in a favorable tax bracket.

Difference Between Tax Location and Tax Allocation

Right after allocation, the next important step in planning for retirement is asset location. Asset location essentially determines which parts of your portfolio should be held in taxable accounts and which ones should be in the tax-deferred accounts. If you have 50% of your investment portfolio in bonds, 40% invested in stocks, and 10% in cash, that’s asset allocation. On the other hand, asset location is, for example, thinking about how much you should add to your online brokerage account.

The Benefits of Tax-Efficient Liquidation of your Portfolio

In investing, how much you make is unimportant if you don’t end up keeping it after taxes. Taxes are such a normal part of every person’s life, yet people only pay attention to them when filing their returns. Furthermore, most financial advisors don’t implement these strategies and the ones that do only run strategies that only they can understand. When you start tapping into your portfolio during retirement, coordinating between both taxable and tax-deferred becomes even more critical. Most people believe that taxable accounts should be used up first, as tax-deferred accounts compound over time. However, there is a massive chance that the tax-deferred accounts, such as the IRA, will grow to the extent that future withdrawals will drive the retiree into higher tax brackets.

How Life Expectancy Affects Retirement

When planning for future retirement, life expectancy is one critical factor most people seem to overlook. Experts agree that life expectancy will likely shoot in the future; thus, you must strategically plan your investments to enjoy the most out of your golden years. Most financial advisers factor in extreme longevity in their plans to boost the odds of success against longevity risk. Hence, numbers that assume a lifespan of 95 or 100 shouldn’t come as a surprise when your advisor presents your retirement plan. It makes sense to pick an age beyond your perceived life expectancy since there’s more than a 50% chance of actually getting there.

All opinions expressed by podcast hosts and guests are solely their own. While based on information that they believe is reliable, neither Arete Wealth nor its affiliates warrant its completeness or accuracy, nor do their opinions reflect the opinion of Arete Wealth. This podcast is for general informational purposes only, and should not be regarded as specific advice or recommendations for any individual. Before making any decisions, consult a professional.

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