How Asset Location Prolongs Your Income Longevity with Lower Taxes

‍Most people preparing for retirement focus on how much they’ve saved -
not where that money lives or how they’ll draw from it. But for savvy retirees, how you take income is just as important as how much you have.

The truth is: you can have the same portfolio, the same withdrawal rate, and the same goals - but with smart planning, one person could pay $30,000–$100,000 less in taxes over their retirement than another.

That difference could mean the ability to:

• Delay Social Security and increase guaranteed income
• Avoid higher Medicare premiums (IRMAA)
• Leave more behind to your family
• Or simply sleep better knowing your money will last

The Simple, Powerful Shift Most People Miss

There are many small levers that - when pulled thoughtfully - make a profound difference in retirement. One of the most overlooked is asset location.

It’s simple in concept, powerful in execution, and almost always ignored by default planning.

But here’s the key: asset location only works if you have your savings spread across all three key “buckets.”

The 3 Buckets You Should Have

1. Taxable - brokerage accounts, savings accounts, individual investments
2. Tax-Deferred - Traditional IRAs, 401(k)s, SEP IRAs
3. Tax-Free - Roth IRAs, Roth 401(k)s, HSAs (used properly)

If you don’t yet have all three, building them should become a core part of your pre-retirement plan. Having flexibility in where you pull from each year is the key to managing taxes and sustaining income.

What Most People Do (and Why It’s Costly)

Most investors - and frankly, many advisors, use the same allocation across all accounts. That means your IRA, Roth IRA, and taxable account all hold the same 60/40 or 70/30 mix of stocks and bonds.

This “pro-rata” approach feels balanced, but it completely ignores how different types of income are taxed.

That oversight can cost you thousands.

The Smarter Approach: Asset Location

Asset location is the strategy of placing investments in accounts based on how they’re taxed:

• Taxable accounts should hold tax-efficient assets, like stocks and ETFs with qualified dividends and capital gains treatment.
• Tax-deferred accounts (IRAs) are best for tax-inefficient income like bonds and REITs, since all withdrawals are taxed as ordinary income anyway.
• Tax-free accounts (Roth) are ideal for high-growth assets like small-cap or aggressive equity funds, so all the growth happens tax-free.

Real-Life Comparison: Same Portfolio, Different Results

Let’s say two retirees each have:

• $1.5M portfolio (divided evenly across all three buckets)
• Same 60/30/10 asset allocation
• Same 4% annual withdrawal rate, adjusted for inflation

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As illustrated in the tables above, over 25 Years:

• Scenario A pays: ~$306,000 in taxes
• Scenario B pays: ~$279,000 in taxes
  → That’s a $27,000 difference - with the same investment performance.

Even more savings (over $60,000) are possible when combining this with other planning strategies.

Why Paying Some Taxes Early Can Save You Later

Many people assume delaying taxes is always better - but that’s not always true. Strategic Roth conversions in the early years of retirement can help you:

• Lock in lower tax brackets (12% or 22%)
• Reduce future RMDs from IRAs
• Avoid IRMAA surcharges later
• And create more tax-free income options later in retirement

In other words, sometimes it makes sense to front-load taxes now to reduce your total tax bill over time.

Combine Asset Location With a Bigger Retirement Income Strategy

Asset location is powerful - but it’s not a silver bullet.
To truly maximize your retirement plan, you need to combine it with:

• Withdrawal sequencing to manage brackets and minimize Social Security taxes
• Roth conversion strategy to reduce long-term tax exposure
• Social Security timing to increase guaranteed income and reduce provisional income
• IRMAA management to avoid surprise Medicare premium increases
• Legacy planning to ensure your assets transfer tax-efficiently

The Bottom Line

Smart retirees don’t just ask, “Do I have enough?”
They ask, “Am I using what I have in the smartest possible way?”

With thoughtful planning - even small decisions like where you hold your investments - you can reduce taxes, stretch your income, and build a retirement that’s both secure and aligned with your goals.

Want to see how your retirement buckets are positioned?

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I offer a Retirement Tax Clarity Session where we walk through your income plan and explore how much tax savings may be hiding in plain sight. Take the important step to review not just how but where your assets are invested to boost you retirement income.