The Cash Flow Clock: For Retirees - Book - Page 79
The Cash Flow Clock
used in retirement, especially if we expect tax rates to
increase in the future. Since our time horizon on tax
deferred investments is shorter, the amount of risk
that we take should be less. This helps us in other
ways. Less risk leads to less return, at least over
time. We want all of our assets to grow as much as
possible. But we want the least amount of portfolio
growth in the accounts that incur the highest taxation.
By taking less risk in the tax deferred bucket, our
overall portfolio is more risk efficient as well as more
tax efficient.
Roth accounts grow tax free, can be accessed tax
free, can be passed to beneficiaries tax free, and can
continue to grow tax free up to ten years after they
are inherited. They are the best way to pass on assets
as part of an estate. Accordingly, they should be the
last money we spend.
Because our time horizon for Roth assets is the
longest of our portfolio, our risk in these investments
should be the highest simply because we have
enough time to endure downturns in the market. This
does not mean we should invest Roth assets in the
highest risk we can find. It means that investments in
our portfolio with the highest risk should be in our
Roth accounts. The purpose of taking higher risk is
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