Weekend Reading: Could Required Minimum Distributions Cause You to Overspend?

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
Weekend reading required minimum distributions overspending Weekend reading required minimum distributions overspending
Weekend Reading

Despite what many might believe, RMDs are required distributions, not required spending. While you must take withdrawals from tax-deferred retirement accounts starting at age 73, you can choose not to spend that withdrawn amount if you don't need it.


Life Expectancy: Retirement-spending strategies that incorporate an RMD-based system can help maximize your lifetime cash flows, but can also reduce remaining assets after 30 years of withdrawals. Additionally, life expectancy factors used in the Uniform Lifetime Table (which determines RMD amounts) provide an additional cushion by assuming joint life expectancies, versus individual life expectancies. The formula used for distribution periods labels the beneficiary spouse as 10 years younger, despite this not always being the case. As a result, RMD-based withdrawals tend to be conservative.

Reinvesting: For couples with significant age gaps, it may be prudent to reinvest a portion of RMDs to safeguard against premature asset depletion. You should also consider reinvesting if you wish to leave assets to relatives or charity. This can be done by investing the withdrawn amount in taxable brokerage accounts or contributing to a Roth or traditional IRA if you have sufficient earned income. A Roth IRA may be favored in this context, as it doesn’t require subsequent RMDs.

Take your RMDs per the government’s guidelines, but know once you do, how you handle those withdrawals is entirely at your discretion, not Uncle Sam’s.