Early Retirement - Financial Freedom (Investing, Tax Planning, Retirement Strategy, Personal Finance)

Why Asset LOCATION (NOT "Allocation") Overlooked In Retirement Planning

• Ari Taublieb, CFP®, MBA • Episode 292

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Everyone wants better returns. Almost no one talks about where those returns should live.
You can own all the right investments and still lose thousands a year if they sit in the wrong place.

Asset location is one of those quiet advantages that doesn’t make headlines but changes everything behind the scenes. It’s how you line up your accounts so they work together instead of against each other. The difference isn’t theoretical. It’s real tax savings, smoother withdrawals, and more flexibility when life doesn’t go according to plan.

Ari Taublieb, CFP®, shares how investors nearing retirement can rearrange what they already own to keep more of what they’ve earned. It’s not about being clever. It’s about being coordinated — so your Roth, IRA, and brokerage accounts each play their role in funding your next chapter.

This is the part of retirement planning most people never see, and that’s why it matters. The right structure doesn’t just build wealth. It buys time, peace, and choice.

Listen now to see how small moves today can open more space to live tomorrow.

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Advisory services are offered through Root Financial Partners, LLC, an SEC-registered investment adviser. This content is intended for informational and educational purposes only and should not be considered personalized investment, tax, or legal advice. Viewing this content does not create an advisory relationship. We do not provide tax preparation or legal services. Always consult an investment, tax or legal professional regarding your specific situation.

The strategies, case studies, and examples discussed may not be suitable for everyone. They are hypothetical and for illustrative and educational purposes only. They do not reflect actual client results and are not guarantees of future performance. All investments involve risk, including the potential loss of principal.

Comments reflect the views of individual users and do not necessarily represent the views of Root Financial. They are not verified, may not be accurate, and should not be considered testimonials or endorsements

Participation in the Retirement Planning Academy or Early Retirement Academy does not create an advisory relationship with Root Financial. These programs are educational in nature and are not a substitute for personalized financial advice. Advisory services are offered only under a written agreement with Root Financial.

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Ari Taublieb, CFP ®, MBA is the Chief Growth Officer of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.


SPEAKER_00:

Today's episode might blow your mind, and I don't say that every episode, and I try never to be clickbaity or cringe when I do these episodes because I watch a lot of YouTube, I listen to a lot of podcasts, and I hate when I hear that, but I did not learn what I'm about to be explaining today until I was in my CFP curriculum to become a certified financial planner, and I was an undergrad in a finance department. I went to grad school, I got my MBA, and I still did not know any of this until I actually was diving deep into the math to understand the value of what's called asset location. That's what today is all about. I have one question for you before I begin. If you don't mind, let me know have you heard of asset location? So you can choose to email me and just literally say, yep, I've heard of it, or no, I have not. You can also just drop a comment on YouTube. No matter where you're listening, whether it be the podcast app or YouTube, I'm able to see all of it. But I'm curious if this is the type of content that resonates with you because I view it as my role to tell you things you otherwise couldn't have known, not due to competency, but because you just don't see it. You're not doing it all day, every day. And this blew my client's mind. So I'm gonna go over asset location today. My name is Ari. I'm a CFP, and that is not why you should listen to me. Hopefully the content resonates, but I'll joke and say how many doctors would you never let touch your body? And there's probably a lot of them that you may have come across in your life. I know there's many that I would not want to operate on me, but I've also had surgeons do incredible work. So I'm so grateful that they exist because if not, I would not be able to play soccer or be nearly pain-free. So I am grateful. But I'm a CFP and I know other CFPs I would never let manage a dime of my money. So I hope you listen to this and resonate with the style and approach I take. Now, I'm also the host, as you know, of this podcast, Early Retirement, and I am the chief growth officer at Root Financial. So if you listen to this and go, look, I can tell you like this stuff, but oh my gosh, that went over my head, or I just cannot grasp what you just said, but I can actually see the value. Well, that's what we specialize in. Now, hopefully you do fully understand it, and that is my goal. So we're gonna go into an example now. So asset location. The first time I actually learned this, my mind was blown, and I went to my client and I was explaining it to them. And at this point, they had heard me talk about asset allocation a lot, and they know I don't like risk tolerance questionnaires. So the fun story I'm gonna tell you today before going through the example is I had a client that was close to joining, and then they eventually said, Hey, before we officially join root, I just have a concern I'd like to share with you. I said, I'm a very transparent person. I actually like hearing concerns, and when you don't bring them up, that makes me more anxious. So please do. And they said, Well, you haven't asked me my risk tolerance between like one to ten. And normally that's what I think you people do, right? So I kind of laughed and I said, Let's do it right now. And they said, Okay. I said, so what is yours? And they said, Well, I'm about an eight. I said, Okay, what about your spouse? Let's let me ask them. They said, well, I'm about a two. I go, okay, let's pretend markets went like this. And I showed them the exact opposite. I said, What is your risk tolerance now? One person moved from an eight to a four, and the other person moved from a two to about a negative two thousand. I said, You see why that answer isn't really helpful for me? Imagine you're like, well, my risk tolerance with pain is I'm like a seven out of ten. And then you get punched by a bear. Your risk tolerance is not a seven, okay? At that point, you're looking at fear in a completely different way. So the reason people ask it, I fully understand, because it's like, hey, I got to gauge generally how do you view risk? But to me, risk is very complicated. Some people might view risk as running out of money. Other people might view risk as dying with too much money. So, yes, I want to gauge where you fall, but the way I can do that is much more effective by asking other questions like how much would you like to spend every year in retirement? Do you think you're gonna want to spend more at the beginning based off health and energy? Do you think you have a strong desire to leave a legacy gold? Do you want to help your child with a down payment? What about healthcare? So those help me way more than risk tolerance one to ten. So the way I explain it to my client, I said there's something called asset allocation. That's how much should we have in equities, bonds, and cash? All of these have different terms. So the industry people like me get to feel smart. Equities, it's stocks. They're the same thing. Bonds, fixed income. It's the same thing as far as you need to know. Cash, oh, that could be money market funds or CDs. Yeah, there's variations, but it's all pretty much very similar. Okay. So with that being said, we're just gonna say stocks, bonds, cash. Keep it simple. So what you want to know is are you doing as best as you can? Like do you have the right mix? So when they're talking to me about their risk exposure, they were saying, well, we're worried if we retire early and we're invested too aggressively, markets go down, and that's gonna scare us because if we're no longer working, we don't have the same time to make the money back, and therefore we won't recover. I said, that's a valid point. I love that. I said, what else? They said, well, we also don't want to like have too much money later on, but that's not our main concern. Our main concern is running out of money. I said, Yep, you're like almost every single client, and that's a good thing. So they wanted to make sure that they had the right mix. So they had about$2 million across their different accounts. They had about a million dollars in a 401k, about$500,000 in Roth IRAs, another$500,000 in a brokerage account. And I said, Can I see your investment statements to see your current allocation? And they said, Yeah. So I looked at them and I said, What do you guys think your allocation is? And they said, We're 8020. I said, Yes, you are. And they're like, Great. We're glad we got that answer right. I said, but you're not doing it efficiently. And they said, What do you mean? I said, you're 80-20 in every single account, meaning your 401k is 80% equities, 20% fixed income. Or as we're calling it today, 80% stocks, 20% bonds. And your Roth is 80% stocks, 20% bonds. And your brokerage or superhero account is 80% stocks, 20% bonds. And they said, Yeah, what's the problem with that? I said, well, the problem is you're just not being efficient tax-wise. If we determine that 80-20 is the right mix for you, which I have other episodes on how to actually determine what that is, well, that's one thing, but to own it efficiently is a completely different thing. They said, Okay, well, can you go into detail? I said, of course. They said, you have what's called your asset allocation, how much should be in stocks and bonds. You've got that. It's 80-20. Asset location is where's the most efficient place to own them so that you total an 80-20 allocation? They go, okay, I kind of get it, but I'm kind of lost. I said, okay, well, you want to make sure you have the right mix, right? They said, of course. I said, well, let's think about a Roth account. Do you think you're gonna want those dollars at the beginning or end of your retirement? And they were smart. They said, well, probably the end because that account grows tax-free forever. So theoretically, we might not touch those dollars for a very long time. I said, great. So would we want to have bonds in that account if that's an account we're not gonna touch for a while? Meaning when we look at our Roth account with$500,000 in it, we don't really need those dollars, do we? They said, no. I said, we want them to probably grow as fast as possible, right? They go, that's right. So that Roth that has$500,000 shouldn't have any bonds in it. That probably should be 100% equities stocks growing as much as possible because we're not going to touch that money until the brokerage account and the 401k are at kaputs. So at this point, they said, okay, I get that. So if I switch that though from 500,000, because today, once again, let's look at the math here, they have 80-20. 20% of that$500,000 is, as you can see here,$100,000. If we switch that$100,000, they take that 20% and put it into equities, it's no longer 80-20. Now we have more in the stocks and less in the bonds, because we just switched that$100,000. So now we might be 81 or 82% equities as a whole. So we need to think about it and go, well, what's the right mix? Well, if we were going to put 100% in equities in the Roth account, what we might need to do is dial back a different account so that we still achieve the 80-20 goal. Because that's the same. We just want to own it efficiently. So if we go to the brokerage account and we were to say we want to pull from this first, which is generally what I'll see in retirement. If you have the ability to pay capital gains taxes, that's better, aka more preferential, you'll pay less, than if you were to pull from a 401k. So what we'll want to do is go to a brokerage account and maybe make that a little bit more conservative. So instead of having 80-20 there, maybe it's 7030. Maybe we actually are gonna go as far as 6040, because 6040 is taking a 20% shift because remember it was 80-20. So 80% was in equities. I'm dropping that by 20%. Now there's 60% in equities. Now on the flip side, the Roth IRA was 80% in equities, and I just flipped that 20%, that just went to 100%. So what if I didn't touch the 401k at all? I left that at 8020, but I dropped the brokerage account to 60% equities, and I increased the Roth to 100% equities. Do you see how the 80-20 still is the exact same? I didn't change anything other than the Roth moved from 80% equities to 100%, and the brokerage or superhero moved from 80% to 60%. So all I did was move things around. Now, when you move things around in a brokerage account, what happens? There are tax implications. If you bought Apple stock for$100,000, it grew to$500,000. And I'm over here going, I'm a genius, look at asset location. How cool is this? I just showed you. Well, you might be going, hey, you think you're Mr. Smarty over here, but the truth is, what you don't know is I bought Apple stock at 100, now it's worth 500. So I know what you're thinking. You're thinking, why don't I I go over here and kind of reduce maybe some risk and pull from the Apple stock first, because then I'm gonna get to pay capital gains taxes. But what you, Mr. Advisor, is forgetting is you're forgetting that I'm gonna have to pay taxes on those gains. And that's where we need to then do an additional analysis on what's called tax gain harvesting. Because if you're married finally jointly, you can spend, you basically realize up to 126,000 of gains, assuming you have no other income, and pay 0% taxes. So what you could do is you could go, yep, I'm gonna intentionally go sell Apple stock in order to purchase maybe some money market funds or other bonds that are gonna be less risky in my brokerage account in exchange for having less volatility, so I can pull from that money in retirement. And an added bonus is if I don't have other income because I'm retired. Well, now I can what's called realized gains 0%, potentially based off of your tax bracket and other income you have. I have other videos on tax gain harvesting. So if that fascinates you, definitely look that up. But that's what I want to go through in this little episode today. It's asset location. So if you're wondering, wow, should I put all my money into equities? Maybe not in every single account, maybe in one account. So what you want to do is make sure that you first determine your asset allocation, which I'm gonna tell you how to do real quick in two minutes, and then I'm gonna make sure that you understand asset location. So I'm gonna explain how to create asset allocation in the next two minutes, just to summarize this episode for you, because it would be hard for me to sleep at night if I said, hey, go look up my other asset allocation videos or podcasts, which I do have, but then you have to go search for it. You're already listening here. Why don't you just get it here? You get them two birds, one stone. So asset allocation. That's what I'm about to do. Asset location, that's what I just did. Hopefully you're sticking with me so far. Asset allocation. So pretend that you have a million dollars and you want to spend$50,000 a year in retirement. Let's do a more fun example. Pretend you have$2 million and you want to spend$100,000 in retirement, okay? And you want to spend, let's say,$100,000, that's your main goal. That's after taxes adjusted for inflation. Maybe you need$120,000 that you're going to withdraw from your$401k so you can pay taxes to end up with$100,000. Because if we don't think about taxes or inflation, all of a sudden the whole plan doesn't work. Okay, so you want$120,000. That's so that you can end up with$100. Following? Hopefully so. So great,$120. What's$120,000 times five? Why do I pick five? I like to have five years worth of just expenses, just money on the sidelines. So no matter what's happening, you don't have to worry. Now, some people would argue validly that you probably want closer to two to two and a half years because that's the average market downturn until it recovers. But I like to be a little extra safe. It's just my personality. I deal with early retirees. They need income for 40 plus years generally, as a minimum to plan for. Sometimes, well, all the time. We don't know how long we're going to live, but we want to be cautious here. So I just did it on my calculator. You can see I'm very fancy here. 150,000, excuse me, 120,000 times five, that's 600,000. So 600,000, that's five years. What's 600,000 divided by 2 million? Because once again, that's your total portfolio. 0.3, aka 30%. What does that tell me? That tells me that if I have$2 million, I might want a 30% allocation to fixed income, aka five years worth of bonds or cash alternatives, which is aka conservative money I can pull from to withdraw money. So that's 70% in equities. That's how you do it. It's that simple. What if it turns out I'm like, no, no, no, I'm a big spender. I'm a big spender. I want minimum$200,000 a year. Guys, but I only have two million in this example. What's$200,000 times five?$200,000 times five? What is that? A million dollars. So what should our allocation be? Well, I could do the math on my calculator, but you probably could do it in your head. A million dollars? That's half of two million dollars. So that means 50% should be in stocks and 50% in bonds. So you have five years. Now maybe you don't want five years, maybe you want four years. Great. Now you can have a little bit less. So you can choose, but generally five years is what we recommend. So why does this matter? Well, what if you have other income coming in? What if you have Social Security? What if you have rental income? What if you have part-time? What if you're inheritance? Well, if you have other income coming in, 70-30, that's the most you should have in fixed income. That's assuming you have no other income coming in. What if you do? If you have other income, then you can just subtract that. So it makes it even easier. What you can then do is say, well, if I want to spend$120,000, and if I take that from my 401k, I'm going to net$100,000. So that's what I'm actually living off of. But I have another$40,000 coming from Social Security, you really only need$60. So$60 times five is$300,000. So theoretically, if you were to say, I want to retire today and I have$2 million, okay, and you have Social Security coming in today, and that's bringing in$40,000 a year. Maybe that's you and your spouse, just an example. I'm just keeping it simple here. You want to spend$100,000. So you need to withdraw$120,000 to pay$20,000 in taxes to end up with$100. But you have$60 coming from Social Security. Now, Social Security, we're just going to assume some simple tax rates here. Let's just say you're going to be paying$5,000. Now it depends what state you live in, and there's something called provisional income, which is how Social Security is taxed. Don't worry about that today. So we're going to do it with we're going to do it together. You can look at my screen or just listen if you're on the podcast app.$120,000, subtract$20,000 for taxes. We're left with$100. Then we're going to subtract$40,000, which is your Social Security, minus some Social Security taxes. That leaves us with$55,000.$55,000 times 5 is$275,000.$275,000, that is it, and you can follow along. Obviously, you can slow this video down or speed it up based off of my speed. We divide that by your$2 million portfolio. 13.75%. Which means$13.75 should be your fixed income allocation. And that's how you do it. And then from there you put the asset location based off of your different accounts. So if you have$2 million, that's let's just say in$1 million brokerage,$500K 401k,$500K Roth, you want to make sure you're manipulating those numbers so that you get that overall allocation of 13.75% in fixed income. So hopefully that helps. I know I gave you that example in way more detail than you may have wanted, and I said two minutes, and I just did that in seven minutes. So apologies there, but hopefully you resonated with today of asset location and asset allocation. See you guys next time.