2015 Conference
October 15–16, 2015
Orlando, FL
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An Exact, Optimal Strategy for Traditional vs. Roth IRA/401(k) Consumption during Retirement
Keywords: 5 words maximum
optimization, retirement, algorithm, Traditional IRA, Roth IRA
Very short description for use in the program to help attendees understand more than a title can describe
We establish an algorithm that exactly determines a strategy for American retirees to optimally withdraw funds between their tax-deferred accounts and tax-exempt accounts. This optimal strategy can be used to maximize the size of a retiree’s bequest to an heir or, alternatively, to maximize a retiree’s portfolio longevity. We give examples where retirees following the approach currently implemented by major investment firms, like Fidelity and Vanguard, will reduce their bequests compared to our optimal approach. Further, our strategy and algorithm can be applied to any case where the retiree has additional, known yearly sources of money.
Lead & Corresponding Author
James DiLellio, PhD, Pepperdine University
Job Title
Assistant Professor of Decision Sciences
Additional Authors
Dan Ostrov, PhD, Santa Clara University
Job Title
Professor of Applied Mathematics