Why Multi-Phase Withdrawal Strategies Beat Proportional Withdrawal Strategies

Abstract

Fidelity and Schwab recommend proportional withdrawal strategies in retirement. Proportional withdrawal strategies ignore the rising and falling pattern of marginal tax rates due to the taxation of Social Security benefits and income-based Medicare premiums. We present several cases that demonstrate that multi-phase withdrawal strategies that navigate this marginal-tax-rates pattern can add substantial additional value to retirees’ portfolios compared to proportional withdrawal strategies.