Combining Investment and Tax Strategies for Optimizing Lifetime Solvency under Uncertain Returns and Mortality

We consider an investor who is looking to maximize their probability of remaining solvent throughout their lifetime by using an algorithm that aims to optimize their investment allocation strategy and optimize their tax strategy for withdrawal allocations between tax deferred accounts (TDAs), Roth accounts, and taxable stock and bond accounts. Our optimization works with stochastic investment returns and stochastic mortality. We find that optimizing the investment strategy (via dynamic programming) has a much larger impact on the investor remaining solvent than optimizing the tax strategy (via Monte Carlo and numerical optimization). This result is key to effectively optimizing both strategies simultaneously. We show that our optimized investment strategy soundly beats a standard target date fund strategy, while our novel optimized tax strategy displays the optimal desired properties suggested by non-stochastic tax optimization research.