📝 Technical White Paper: This document was created with AI-assisted technology under guidance from Praxion Finance LLC. It describes the scope and capabilities of our withdrawal analysis engine.
1. The Problem with Simple Rules
Most retirement withdrawal strategies rely on rules created decades ago for a different financial landscape.
The 4% Rule (1994)
William Bengen's famous study suggested withdrawing 4% of your portfolio in year one, then adjusting for inflation. While groundbreaking at the time, it ignores:
- Tax efficiency across different account types
- Medicare IRMAA surcharges that can add $5,000+ per year
- Required Minimum Distributions (RMDs) that force withdrawals
- Roth conversion opportunities in low-income years
- Your actual spending needs (not an arbitrary percentage)
Sequential Bucket Strategies
"Spend taxable first, then tax-deferred, then Roth" sounds logical but fails to account for:
- Years when using Roth is actually more tax-efficient
- IRMAA thresholds that create sudden cost cliffs
- Tax bracket smoothing opportunities
- The compounding value of Roth tax-free growth
2. What Praxion Analyzes
Our engine evaluates withdrawal decisions across multiple dimensions simultaneously. Most tools consider one or two of these. Praxion considers all of them.
| Dimension | What It Means | Why It Matters |
|---|---|---|
| Income Tax Impact | Federal and state tax on Traditional withdrawals | Can range from 0% to 37%+ depending on bracket |
| Capital Gains Exposure | Tax on brokerage account gains when sold | 15-20% rate, but only on gains (not cost basis) |
| IRMAA Surcharges | Medicare premium increases for high earners | Crossing a threshold by $1 can cost $2,000-$5,000+ |
| Roth Opportunity Cost | Value lost by withdrawing Roth early | Tax-free growth compounds for decades |
| Future RMD Burden | Required distributions that force taxable income | Large Traditional balances = large forced withdrawals |
The key insight: These dimensions often conflict. Minimizing current taxes might increase future RMDs. Preserving Roth might trigger IRMAA. The engine finds a modeled balance for your situation each year.
3. Withdrawal Methods (How Much to Withdraw)
The engine supports six withdrawal methods — each defines how much you withdraw each year. These are the same options available in the Strategy Comparison tool.
| Method | Description | Best For |
|---|---|---|
| Expense-Based | Withdraw only what you need to cover expenses (expense gap minus Social Security, pension, etc.). | Wealth preservation; maximize legacy |
| Fixed Percentage (4%) | Classic 4% rule — withdraw 4% of portfolio annually, inflation-adjusted. | Simplicity; easy to understand |
| Manual (Fixed Amount) | Withdraw a fixed dollar amount each year (you set the amount), inflation-adjusted. | Predictability; pension-like income |
| Guardrails | Dynamic spending adjustment based on portfolio performance (up in good years, down in bad). | Flexibility; willing to adjust |
| Hybrid | Percentage-based with an expense floor — ensures you always cover minimum expenses. | Balance of growth and protection |
| Phased Spending | Time-segmented: higher spending (6–10%) in early retirement, lower (5.5%) later. | Tax efficiency; spend more early, less later |
4. Analysis Modes (Which Accounts to Tap)
Each withdrawal method can be combined with one of three analysis modes — these control which accounts to withdraw from and how tax exposure is modeled. The same modes appear in the Strategy Comparison tool.
| Mode | How It Works | Best For |
|---|---|---|
| Static (Your Bucket Order) | You set the withdrawal order (e.g. Traditional → Roth → Brokerage). System follows it every year. | Advisors with specific plans; users who want full control |
| AI Tax-Analyzed | System evaluates your situation each year and selects modeled accounts oriented toward lower lifetime taxes. | Maximum tax efficiency without manual tuning |
| Policy Engine | You declare your goal (minimize taxes, preserve Roth, avoid IRMAA, etc.). System computes the best approach. | Users who know what they want but not how to achieve it |
Policy Engine: Tell Us Your Goal
Rather than configuring technical settings, you simply select your priority:
- Minimize Lifetime Taxes — Focus on tax efficiency, even if income varies
- Maximize Legacy — Preserve Roth and taxable accounts for heirs
- Stable Income — Keep consistent annual income
- Balanced — Balance all factors equally
- Aggressive Drawdown — Deplete Traditional before RMDs
The system translates your intent into year-by-year decisions automatically.
5. Wealth Metrics & Goal Glossary
Praxion displays two different wealth metrics throughout the app, and which one you see depends on what question is being answered. They are not interchangeable. Mixing them up is the most common reason a recommendation feels contradictory.
The two time anchors
Every wealth number on a strategy surface (the Roth Analyzer, the Dashboard Roth card, the Tax Optimization scenarios) is anchored to one of two ages:
- Retirement Wealth @ Age N — the after-tax value of all your accounts while you're still alive and using them in retirement. The age N is your Retirement Evaluation Age (RA), a profile setting in Edit Profile that defaults to your Planning Horizon minus 5 years (so if you plan to age 95, the default RA is 90). Formula: Cash + Brokerage + Roth + Traditional × (1 − expected withdrawal tax rate). This metric assumes you, not your heirs, are spending the money.
- Legacy Value @ Age N (Life Expectancy) — the after-tax wealth delivered to heirs at death. Anchored to your Planning Horizon (Life Expectancy). This metric models the SECURE Act 10-year heir tax rules on Traditional balances and the step-up in basis on brokerage accounts, so it is materially different from Retirement Wealth even at the same dollar amount.
Why this matters: A Roth conversion strategy can simultaneously reduce your Retirement Wealth (because you paid taxes earlier) and reduce your Legacy Value (because the up-front tax payment shrinks the inheritable pool) while still being the engine's recommendation under a Tax & RMD efficient goal — because the strategy is being scored on combined tax + RMD reduction that isn't fully represented by either wealth metric. The recommendation is internally consistent; the trade-off is real.
The three goal axes
The Tax Optimization page asks you which of three canonical goals to rank scenarios against. Each goal optimizes a different metric:
- Spendable Wealth — maximize your Retirement Wealth @ RA. Use this when your priority is supporting your own retirement lifestyle.
- Maximize Legacy — maximize Legacy Value @ Life Expectancy. Use this when the priority is what reaches heirs after taxes.
- Tax & RMD efficient — minimize the combined lifetime tax burden (your retiree taxes + heir taxes on inherited Traditional balances) and shrink future RMDs. The trade-off is sometimes lower Retirement Wealth or Legacy Value if the lowest-tax path delays growth.
Badges and banners you may see
- "Tax & RMD Savings Recommended" badge on the Roth card — the engine recommends Roth conversions to advance your Tax & RMD efficient goal, even though your wealth-axis metrics may decline. The card's tradeoff explanation lists what you give up.
- "Currently active" badge on the Roth card (instead of a green "Recommended" badge) — the card is showing your current configured strategy, but the engine actually recommends a different bracket. An amber divergence banner appears with a link to review the alternatives in the Roth Analyzer.
- Retirement Evaluation Age field on Edit Profile — the age N used for the Retirement Wealth @ Age N label and value. Changing this changes which projection year the engine snapshots for wealth comparisons. Picking a higher RA captures more of the Roth conversion and RMD long-term consequences; a lower RA emphasizes near-retirement wealth. The default (Planning Horizon − 5) is recommended for most users.
6. Strategy Combinations & the Comparison Tool
Every projection in Praxion is a strategy combination: one withdrawal method (how much) plus one analysis mode (which accounts). For example:
- Expense-Based, AI Tax-Analyzed — Withdraw only what you need; the system picks modeled accounts each year.
- Hybrid, Policy Engine — Percentage-based with expense floor; the system follows your stated goals (e.g. minimize taxes, preserve Roth).
- Fixed Percentage (4%), Static — Classic 4% rule with your chosen bucket order.
The Strategy Comparison tool in the app runs simulations for multiple combos using your profile data. It simulates all six withdrawal methods (using your selected mode) and all relevant analysis modes (using your selected method), so you can see side-by-side results — final assets, taxes, success rate, and fragility — for each combination.
Each combo is run with full rigor (no cached results), and the order of combos is randomized each run so no single strategy gets an artificial timing advantage. The UI shows "Running Simulations with Strategy combinations: [Method], [Mode]" and a log of combos as they complete. The example results in the next section use the same engine with the sample data below.
- Expense-Based, AI Tax-Analyzed
- Fixed Percentage (4%), AI Tax-Analyzed
- Guardrails, Static (Your Bucket Order)
- Hybrid, Policy Engine
- … and more, depending on your profile
7. Industry Comparison
How does Praxion compare to common withdrawal approaches?
| Capability | 4% Rule | Bucket Strategy | Guardrails | Praxion |
|---|---|---|---|---|
| Tax bracket analysis | ✗ | ✗ | ✗ | ✓ |
| IRMAA cliff awareness | ✗ | ✗ | ✗ | ✓ |
| RMD integration | ✗ | Partial | ✗ | ✓ |
| Multi-account coordination | ✗ | ✓ | ✗ | ✓ |
| Year-by-year adaptation | ✗ | ✗ | ✓ | ✓ |
| Roth conversion integration | ✗ | ✗ | ✗ | ✓ |
| User intent customization | ✗ | ✗ | ✗ | ✓ |
| Social Security tax analysis | ✗ | ✗ | ✗ | ✓ |
8. Real-World Results (Example Data)
What difference does multi-objective analysis actually make? We ran this exact scenario through the Praxion Finance engine to produce validated, real results:
Validated Example: Married Couple, Age 62 (Retiring at 65)
Starting balances: $1.5M Traditional 401(k), $300K Roth IRA, $1.5M Brokerage, $100K Cash
Total portfolio: $3.4 million
Annual spending need: $100,000 (inflation-adjusted)
Social Security: $48,000/year combined (starting at 67)
Life expectancy: Age 92 (30-year projection)
| Metric (30-Year Projection) | Static Bucket | Praxion Dynamic |
|---|---|---|
| Lifetime Federal Taxes | $319,834 | $265,542 |
| Lifetime State Taxes | $67,078 | $55,456 |
| Total Roth Conversions | $0 | $400,000 |
| Ending Roth Balance | $721,446 | $1,875,670 |
| Ending Traditional Balance | $514,392 | $383,264 |
| Ending Brokerage Balance | $5,074,987 | $3,786,367 |
| Additional Tax-Free Roth | — | +$1,154,224 |
Testing Methodology: To demonstrate the full potential of AI Dynamic mode, we enabled Roth conversions ($50K/year) for the Dynamic profile while keeping them disabled for Static. This showcases the power of intelligent tax analysis — the AI strategically converts Traditional to Roth in lower-tax years, resulting in significantly more tax-free assets at the end of the projection.
The advantages shown above require Roth conversions to be enabled in your profile. Without Roth conversions, Dynamic mode has fewer analysis levers and may produce similar results to Static mode.
Dynamic mode achieves maximum tax savings when:
- ✅ Roth conversions are enabled — allows shifting money from Traditional to Roth in low-income years
- ✅ Significant Traditional 401(k)/IRA balances — provides room for strategic conversions
- ✅ Years before RMDs begin — allows conversions in lower tax brackets before age 73
- ✅ Gap between current income and higher tax brackets — creates space for tax-efficient conversions
If your profile has Roth conversions disabled or no Traditional account balances, consider enabling conversions and using the Strategy Comparison tool to see the difference.
For illustrative purposes only. These projections were generated using AI-assisted modeling and are intended solely to demonstrate the capabilities of the Praxion Finance engine. They should not be used as the basis for financial decisions.
AI can make mistakes. While we strive for accuracy, automated projections may contain errors, and actual results will vary based on market conditions, tax law changes, and personal circumstances.
Consult a qualified professional. Before making any financial decisions, please consult with a Certified Financial Planner (CFP®), Chartered Financial Analyst (CFA), or other qualified financial advisor who can evaluate your specific situation.
This example assumes 7% average market returns and 2.5% inflation. Past performance does not guarantee future results.
How Dynamic Mode Achieved These Results
- Roth Conversions (Ages 65-72): Converted $50,000/year from Traditional to Roth, totaling $400,000. Paid taxes on conversions at lower rates before RMDs kicked in.
- Tax Bracket Smoothing: Conversions filled the 22-24% brackets instead of leaving money to be taxed at potentially higher rates during RMD years.
- 20+ Years of Tax-Free Growth: The $400K converted grows tax-free from age 65 to 92, compounding to the $1.15M additional Roth balance.
- Reduced RMD Impact: With less in Traditional accounts at 73, RMDs are smaller, keeping the couple in lower tax brackets throughout retirement.
📊 View Year-by-Year Balance Comparison (Click to expand)
Static Bucket Order (No Roth Conversions)
| Age | Traditional | Roth | Brokerage |
|---|---|---|---|
| 65 | $1,193,551 | $220,410 | $1,906,588 |
| 70 | $1,111,159 | $274,290 | $2,101,165 |
| 73 | $1,050,158 | $311,835 | $2,347,347 |
| 80 | $888,767 | $417,070 | $3,038,030 |
| 85 | $784,819 | $509,592 | $3,658,722 |
| 92 | $588,446 | $668,174 | $4,714,991 |
Praxion Dynamic (With Roth Conversions)
| Age | Traditional | Roth | Brokerage | Conv. |
|---|---|---|---|---|
| 65 | $1,159,651 | $271,547 | $1,820,900 | $50K |
| 70 | $1,097,277 | $617,280 | $1,611,761 | $50K |
| 73 | $928,083 | $810,732 | $1,772,336 | — |
| 80 | $729,567 | $1,084,330 | $2,269,109 | — |
| 85 | $593,670 | $1,324,875 | $2,719,387 | — |
| 92 | $438,441 | $1,737,168 | $3,515,810 | — |
- Age 65-72: Dynamic converts $50K/year while both strategies grow brokerage.
- Age 70: Dynamic Roth is already $617K vs Static's $274K — a $343K difference.
- Age 73+: RMDs begin. Dynamic has less Traditional, so smaller RMDs = lower taxes.
- Age 80: Dynamic Roth exceeds $1M while brokerage remains at $2.3M.
- Age 92: Dynamic Roth is $1.74M vs Static's $668K — a $1.07M advantage.
- Brokerage: Both end with substantial brokerage ($4.7M Static vs $3.5M Dynamic).
During the Roth conversion years (65-72), Dynamic mode strategically draws from brokerage for expenses instead of Traditional. This is intentional tax analysis:
- Brokerage gains are taxed at 15% (capital gains rate)
- Traditional withdrawals are taxed at 22-24% (ordinary income)
- By using brokerage for expenses, the $50K Roth conversion fills the 22-24% bracket without stacking
- If Dynamic used Traditional for both expenses AND conversions, income would spike to $116K+ (pushing into 32% bracket)
Result: Both strategies end with substantial brokerage ($4.7M vs $3.5M), but Dynamic has $1.07M more in tax-free Roth.
✓ When Dynamic Mode Shows the Strongest Modeled Results
The Praxion Dynamic strategy tends to show the largest modeled benefit when:
- Significant Traditional balances — Large 401(k) or IRA accounts that will generate substantial RMDs
- Goal: Minimize lifetime taxes — Willing to pay some taxes now at lower rates to avoid higher taxes later
- Goal: Maximize tax-free legacy — Want to leave heirs tax-free Roth assets instead of taxable Traditional
- Long time horizon — 15+ years for converted assets to grow tax-free
- Brokerage available for conversion taxes — Can fund Roth conversion taxes without touching retirement accounts
✗ When Static Mode May Be Preferred
- Liquidity priority — Need to preserve brokerage for unexpected expenses or flexibility
- Short time horizon — Less than 10 years for conversions to pay off
- Already in low tax brackets — RMDs won't push you into higher brackets anyway
- No legacy goals — Planning to spend down all assets, not leave inheritance
Technical Configuration (Click to expand)
• withdrawal_strategy: expense-based
• withdrawal_strategy_mode: static
• withdrawal_bucket_strategy: [traditional_401k, traditional_ira, brokerage, roth_401k, roth_ira, cash]
• roth_conversion_enabled: false
Dynamic Mode Profile:
• withdrawal_strategy: expense-based
• withdrawal_strategy_mode: dynamic
• withdrawal_bucket_strategy: [traditional_401k, traditional_ira, brokerage, roth_401k, roth_ira, cash]
• roth_conversion_enabled: true
• roth_conversion_annual_amount: $50,000
• roth_conversion_start_age: 65
• roth_conversion_end_age: 72
• target_tax_bracket: 24%
• roth_taxes_funding: brokerage_then_cash
9. For Financial Professionals
See It In Action
Create a free account and see how Praxion analyzes your specific situation.