I have 90% of my IRA in cash because I am scared of the stock market. I bailed last March when things went south. I believe interest rates are about to start ticking up with inflation. I’ve seen retirees earn 15% on savings accounts back in the 70’s. Where will we go this time?

What I got out of the article is that many did not take much out of their IRA in the last 20 years. I think they said the average was like 12% were used.

Could be many reasons for that. One being the market has been pretty bullish for a good portion of that time. So maybe those accounts appreciated substantially over that period.

But I think the crux is that I would not be afraid to withdrawal funds early in retirement. Whether using the 4% rule, whick I like or another formula. Just make sure you have a balanced portfolio for your age and risk tolerance. Pay attention to all the factors. Economy, inflation etc. Then go enjoy the fruits of your labors.

I just started moving some of my cash into a gold ETF that holds bullion in a vault in London.

I have some of my IRA in physical gold and silver, but the ETF is much easier, no premium to pay on buying, easy to move in and out of the ETF.

As inflation goes higher, the expectation is that gold will be worth more as the dollar is worth less. It's not a good long-term investment, but it holds its value in unstable and inflationary times.

Regarding RMD's (also known as MRD's): do a spreadsheet calculation of future RMD's assuming some estimated rate of return, and using the RMD factor based on your (and your spouse's) age. If you live into your late 80's and 90's--as many of us will--the percent of your IRA required to be taken out and taxes paid gets to be very high, so your gross income may put you in a much higher tax bracket. The idea is to have you withdraw everything by the time you die so you don't have anything to pass on. It only works for you if you don't spend all that RMD money, but invest it.

BTW if you're thinking about taking the RMD and converting that money to a Roth IRA, forget it, you can't.

quote:

Originally posted by sjtill:

The idea is to have you withdraw everything by the time you die so you don't have anything to pass on. It only works for you if you don't spend all that RMD money, but invest it.

That's what it seems like but why should the govt care where my assets are held? Does it make a difference to them if they are in a 401k vs some personal, post-tax equity/bond fund?

I don't understand the basis behind the law. What societal benefit are they trying to drive here?

I was planning to live primarily off SS. 401K would be supplemental, as needed and for the occasional splurge / vacation. This will force me to divest, quite possibly prematurely under suboptimal returns (ie - bear markets), when I'd prefer to just let the money just sit. And If I don't withdraw enough, they penalize on the order of 50% of the undrawn amount. That's outrageous. I see no personal benefit to this law.

You may some of this but here goes. 401k’s are pretax dollars. Your mutual funds you buy (or whatever) are post tax dollars. Think of it this way, the government either taxes the seed or the harvest. In a Roth vehicle they tax the seed. You get no tax benefit by using a Roth (401k or IRA) when you put your already taxed dollars into these. When you “harvest” this money it is tax free because they taxed the seed. Conversely your 401k gave you a nice tax benefit when you filed your taxes. It lowered your taxable income so the government is coming after the harvest. RMD’s are designed to ensure they get their share and not to your advantage.

You can hate them all you want but you can’t get around them and if you try and they catch you the penalties are steep.

Quit trying to figure out why this is fair. It isn’t fair it’s just the way it is. What you need to do is figure out how to reduce your tax burden as much as possible while staying within the law.

Easy thing first is to use the Roth options if you can. It sucks upfront but does wonders on the long run.

I get that the gov wants its due taxes. But why are they dictating when? They should get their due taxes when an investment is liquidated; fine. But why are they forcing liquidation when the investor doesn't want / need to liquidate? Over the span of my retirement, they will be likely forcing me to liquidate investments when the market is down.

This seems to be a law you guys find acceptable. I don't feel that way. Perhaps I can't do anything about it. But I don't find it acceptable.

It's a law just like the gun roster is a law. Or laws prohibiting concealed carry. Or the vaccine mandates.

I accept taxes for the greater good (but believe our taxes are wasted and squandered in bloated budgets). But I don't accept forcible divestures just so that I pay taxes on some govt timeline.

The rules are that the Govt wants the tax money. On tax deferred investments, they want their cut before you die. That is why RMD. If you process an estate, you find the tax man gets their cut up front.

I am sure they would like inheritance tax to be 110 percent.

What is the old saying "Don't save your silver bullets you may never get a chance to use them." I retired at 52 after 25 years as an LEO. My pension allows me to earn 57% of my best three years of pay. 57% of that is very little but It will pay some bills. I decided to spend a fair amount of my 401K despite the tax penalties on things I always wanted but really couldn't justify. I am more worried about the economy than running out of money. So I bought some things I always wanted after realizing I didn't want to leave the money to the government, or my loser brother and sister. I bought some guns, made some improvements on my home which adds value to my life and I am pretty happy with the decision.

Good for you gw ! I am beginning to look at my 401K much differently after reading this thread and watching the government potentially begin taxing 401K's/IRA's. (yes, higher earners to start, but we all know how long that will last)

Ok I agree with you. I disagree with the law. So what? RMD’s aren’t some “new hell” as you call them. They have existed for quite some time. The new aspect is a change to distributions but it sucked before and it still sucks. Sounds like you didn’t know this law existed.

Your time would be spent better by recognizing how, when, and in what order you take your retirement funds out is in order. If this is the first tine you have heard of RMD’s then prepare for a rough ride in retirement as you learn the ropes the hard way.

Between the different buckets of money you may have there are good and bad ways to liquidate as you move through retirement. It can be complicated. Stop bitching and start reading. Seriously. It could save or conversely lose you a small fortune in taxes.

No disrespect intended but it sounds like you just learned about RMD’s. I’ve known about them for as long as I can remember so it’s hard to get excited about something you just have to plan for and deal with. Covid gave a temporary respite that is all. It’s not new and of course it sucks.

Roth 401k and Roth IRA are your best bets when putting retirement funds away. It hurts to lose the tax break but I’ve read the arguments and basically in no case in reality are you better off going the non Roth route. Roth avoids the whole RMD pitfall. Do it early as you can.

The author is a journalist.

<<Block joined Kiplinger in June 2012 from USA Today, where she was a reporter and personal finance columnist for more than 15 years. Prior to that, she worked for the Akron Beacon-Journal and Dow Jones Newswires. In 1993, she was a Knight-Bagehot fellow in economics and business journalism at the Columbia University Graduate School of Journalism. She has a BA in communications from Bethany College in Bethany, W.Va.>>

I am not taking financial advice from a journalist.

--K

I'm not worried about preserving my principle so I'm different than most. I have one heir and I told her not to plan on inheriting a lot of money, I'm spending it all. She will get my physical assets but not a large sum of money.

So, I'll pull out money as I need from my 401 regardless of how it's performing. I also have two small pensions to live off for primary expenses, my 401 nest egg will cover the rest. My house has been paid for and I can pay off my vehicle loans any time I want with cash (interest rates are low on the loans so I'd rather invest my money than pay off vehicles). Spending my money will not be a problem.

quote:

Originally posted by mcrimm:
I have 90% of my IRA in cash because I am scared of the stock market. I bailed last March when things went south.

You missed out on making a bunch of money. I said earlier in this thread that I bought a car for $41K cash in March and by June the market had done so well for me that I made $60K between March and June, so I was ahead of where I started before I bought the car.

quote:

Originally posted by Kranky:
The author is a journalist.

<<Block joined Kiplinger in June 2012 from USA Today, where she was a reporter and personal finance columnist for more than 15 years. Prior to that, she worked for the Akron Beacon-Journal and Dow Jones Newswires. In 1993, she was a Knight-Bagehot fellow in economics and business journalism at the Columbia University Graduate School of Journalism. She has a BA in communications from Bethany College in Bethany, W.Va.>>

I am not taking financial advice from a journalist.

--K

I don't take financial advice from anyone who isn't self employed and a millionaire. If they don't know enough about making money to be self employed and a millionaire, they don't know enough to tell others how to handle their money.

i just thought the point the author made that many had drawn little out of the 401k's after 20 years in retirement was interesting. That is all. Lots of factors go into that, but interesting none the less.
The other thing that is sad is that we are heading into uncharted territory as a country. So those of us headed into retirement need to keep informed and be a bit leery of the financial future I am thinking. I do not think the past in going to be indicative of the future in the next twenty.

quote:

Originally posted by old rugged cross:
i just thought the point the author made that many had drawn little out of the 401k's after 20 years in retirement was interesting. That is all. Lots of factors go into that, but interesting none the less.

I wonder where the author got the data that shows people had drawn little out of their 401Ks after 20 years in retirement. I'm betting that the author looked at how much they had in the 401K prior to retirement and then how much they had in it 20 years later.

That doesn't mean they didn't take a lot of money out of it, it merely means they have about the same amount left after 20 years, and if they invested wisely, that's the way it should be.

I've got around 40% more in my investments now than I did when I retired 17 years ago but I have drawn money out. I just invested wisely and the money increased accordingly.

One of the reasons for the RMD, or supporting objective of getting Uncle Sugar his ASAP, is that balances in non-Roth IRA pass to beneficiaries at death, generally to individuals. They aren't taxed at that time but as they withdraw from account as well. The less you are able to defer taxes on by having it sitting in an IRA, more revenue sooner for .gov

Here's one more thing really toast your bread; your beneficiary will also have to continue RMDs on that amount regardless of whether they are over 70.5 or not. The age used for those RMDs is a little complicated and different for spouse vs. non-spouse beneficiaries but that money will keep flowing out, and being taxed.

This is part of what makes absolutes like "always use a Roth vehicle" complex as well. If you're going to likely/possibly have significant IRA assets passed on the deferral of taxes and continued growth on that deferral is real. Also most beneficiaries are going to be a generation or two younger, allowing them to benefit from that deferral potentially quite a while. Lastly if your earnings and tax rate are significantly higher while working than planned for in retirement that has to be taken into account as well.

Fun times.

Some people may want to go to calculator.net. Click on the retirement link. There is a feature that lets you plug in your funds saved and how long you expect to live and spits out how much you can take per month. Of course it is not fool prove, there will be drops in the market etc. But it may give you an idea.

One thing that we have found hard, and we are still not there, is that all our lives we have been saving to build a nest egg and now we should not worry if it starts to drop some.

Jim

George I hear you. The reality though is I disagree. I stand by the you almost always are better in a Roth statement. Taxes are going up not down. That is a pretty easy bet to make. Also Roth vehicles have no RMD requirement. Both of those are huge.

There can be outlier cases where you aren’t better taking the Roth option. They are so few though that if you aren’t willing to do your own math or you aren’t sure, then go Roth. The odds are in your favor you made the correct decision. Not every angle time but overwhelmingly so.

As for the article, I agree with the above. Garbage input. He’s more than likely just looking at balances which tells you nothing. The market has been gang busters for a long time. When we do have a correction that sticks for awhile lots of people will be shocked. When I was in my late 20’s I thought I would be a multi millionaire in no time. I remember the downturns. Ouch.

People with no defined benefit style pension plan aren’t really a good group for this article. Consider the group that only has self funded assets for retirement and this article becomes the hot mess that it reads like.

The first paragraph shows the shoddiness. Research shows people spend 12% of their investment in the first 20 years. No accounting for how they arrived at that. 12% of the original investment, total value, what? What was the old financial planner number? Pull 3 or 4 percent a year? With the market over that 20 year period your portfolio would actually be bigger than when you started. Nonsense in, nonsense out. Bad article.

quote:

Originally posted by konata88:
So the gist as I skim it: before retirement, put money into retirement account (401k). after retirement, take it on a govt determined schedule (anticipating death by a certain age).

I should do this because why? RMD doesn't seem like it benefits me. Who benefits and why should I support that? Or is this actually beneficial to me (in ways that are not obvious to me)?

Why the hell is non-RMD compliant withdrawals taxed so heavily? That seems ridiculous.

What happens if I live much longer than anticipated and I run out of money? I guess what I could be doing is taking RMD out on 401k and then investing it in a personal equity or bond fund. But why do I need to do this?

I don't get it. And how does one go about learning about this kind of stuff? Is there some retirement class we're supposed to take?

RMD doesn't benefit you; it benefits the government that wants its pound of flesh in taxes that you deferred while saving.

The pitfalls of RMD is that

1) You may be forced to withdraw an amount that pushes you into a higher tax bracket so that a portion of your withdrawal is taxed at a much higher rate than the tax rate you would have paid on it had you not deferred taxes on it in the first place.

2) If your RMD forces your income to go over $176,000 for married couples, then you'll be paying more for your Medicare Part B and and D premiums two years later. The Required Minimum Distribution is a percent of your tax deferred accounts that goes up as you get older.

3) If your RMD forces your income to go over $250,000 then your income from investments is subject to an additional 3.8% tax.

You don't have to spend everything that you withdraw from your IRA if you don't need to. The gov't just wants its tax. You can put it under your mattress or stick it in an investment. But from then on, the interests and capital gains will be taxed. A way around it is to convert early ahead of the RMD and convert it to a Roth IRA. The downside to that is that you can't touch the money you deposit in a Roth IRA for 5 years or else you pay a penalty. The upside is any capital gains or income from the Roth IRA can be withdrawn free from income taxes (for now).

I got clued in by watching videos on YouTube searching for "retirement." The videos just clued me into the issue then I've been researching on my own on the different topics on the .gov sites to get the actual formulas and tables for the Excel file I'm creating. The only hard work is programming the logic for "efficient" tax harvesting (Maximizing IRA withdrawals ahead of the RMD without triggering any additional tax penalties.