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Taxes, time diversification, and asset choice at retirement

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  • Thomas Howe
  • David Mistic

Abstract

This study extends existing research by examining the effect of personal income taxes on the expected relative performance of asset classes as viewed from the retirement date. Results suggest that tax status does not affect the basic conclusions of previous time diversification studies. However, the fund's tax status affects the size of withdrawals that can be sustained, the performance of stocks relative to bonds, and the risk of the retirement fund. In general, for a given size fund and after-tax withdrawal proportion, tax-deferred funds have not only a greater expected return, but also greater risk than non-tax-deferred retirement funds. *** DIRECT SUPPORT *** A00DH017 00009 Copyright Springer 2003

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  • Thomas Howe & David Mistic, 2003. "Taxes, time diversification, and asset choice at retirement," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 27(3), pages 404-421, September.
    • Handle: RePEc:spr:jecfin:v:27:y:2003:i:3:p:404-421
    DOI: 10.1007/BF02761574
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    1. Butler, Kirt C. & Domian, Dale L., 1992. "Long-run returns on stock and bond portfolios: Implications for retirement planning," Financial Services Review, Elsevier, vol. 2(1), pages 41-49.
    2. Bawa, Vijay S. & Lindenberg, Eric B., 1977. "Capital market equilibrium in a mean-lower partial moment framework," Journal of Financial Economics, Elsevier, vol. 5(2), pages 189-200, November.
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