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Investing Specialists

3 Tax-Efficient Bucket Portfolios for Retirees

Our model portfolios are designed to facilitate in-retirement cash flows--and to limit Uncle Sam's take.

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One of the easiest things you can do to improve your portfolio's take-home return is to pay attention to tax efficiency, and it's arguably never been more important. 

Sure, capital gains and dividend tax rates continue to be pretty low. But continued strong market performance and outflows from actively managed funds mean that many mutual funds have made significant capital gains distributions in recent years. And while it's hard to get excited about bond income, period--before or after the haircut of taxes--taxes exact just as big a toll, if not larger, in percentage terms as they ever did. The Medicare surtax that went into effect in 2013 creates an added incentive for high-income investors to pay attention to tax efficiency. In an era in which returns could be constrained going forward, paying a tax-cost ratio of 1% or 2%--not uncommon among many mutual funds that are not explicitly managed for tax efficiency--will be a significant drag on take-home returns.

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Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.