Are you saying that you DON"T want to live on savings in non-tax deferred acounts before dipping into your tax-deferred assets? That is exactly opposite of what I've always heard.
Exactly.
Take an unreasonably simple case to easily illustrate.
Case 1: You retire at 50, and draw $20,000 a year from after-tax portfolio that has been declining, so you're drawing only principle. You do that for 10 years. Because the money is after-tax, you pay no income tax.
Then you start drawing $20,000 a year from an IRA. Because it's taxable, you pay taxes. But you have roughly $15,000 a year exemptions and deductions if you're typical. So you pay only, say, $1,000 a year on the $20,000 a year withdrawal.
By age 70, you've paid $10,000 in taxes for the past 20 years.
Case 2: You retire at 50, and draw $15,000 a year from your IRA, and another $5000 from your after-tax portfolio that has been declining, so you're drawing only principle. You do that for 20 years. The IRA withdrawal is tax free because it is matched by your $15000 exemptions and deductions. Because the rest of the money is after-tax, you pay no income tax.
By age 70, you've paid nothing in taxes for the past 20 years.
Circumstances vary, and this is simplistic. ORP handles the complexity well I think, as a non-tax-guy.
But the moral is, take enough from your IRA to use up the deductions available to you, because they are "use it or lose it" tax breaks.
The downside is, you have to live within the discipline of a SEPP.
Does that help? Anyone else have a thought on this?
Dory36