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The 'Good Old Days' And RMDs (Required Minimum Distributions)

Thursday, August 22, 2013 - 6:34 AM
From AssetBuilder:
Required minimum distributions (RMDs) aren’t a big deal for most people. They don’t have to make them, for one thing. If you aren’t at least 70 ½— the age at which you have to start making them— the subject isn’t very high on your “need to know” list.

But if you are 70 ½, or have some friends who are, required minimum distributions are a big deal. They are a major source of retiree anxiety, and may also be one of the reasons consumer spending has been persistently weak.

There is a reason for that retiree angst: The good old days are over. Today, from the day you make your first required minimum distribution, you’ll be distributing principal as well as interest and dividends. And you’ll be distributing more principal every year.

Read more

Scott Burns examines the impact over time of taking RMDs from a portfolio with a 50/50 mix of stocks and bonds.  Everyone who turned 70 1/2 after 1998 has had the same experience— distributions have exceeded portfolio income by ever increasing amounts.
pearlbrownpearlbrown1,473 posts since
Nov 2, 2010
Rep Points: 6,402
1. Thursday, August 22, 2013 - 7:45 AM
I believe that our IRA's and other savings  were meant to help us through retirement.  I really don't think the retirement accounts were set up so that we could live off from earnings and expect the principal to continue to grow. I believe the RMD % was changed quite a few years ago so that the accounts would last longer. The links to the charts in this article and in Allen Roth's article from a few days ago showed that the interest rates or rates of return now or in the 80's did not cover inflation.  I would think the accounts are there and we saved in those accounts to help us in retirement. If we don't need it we can invest it, give it away or just spend it on something we ordinarily would not spend money on or even save it to address our anxieties. Why are we complaining? As long as we have enough to care for ourselves for our basic necessities and are not a burden to society I really don't think we have a lot to complain about. Think of all the younger people that have no jobs, have lost their homes and have not had the opportunities that many of us in our generation have had if we have had decent health. 

Statistics have come out recently that the difference in income between the high school educated and the college educated is narrowing substantially. I think that some of us have concerns that our savings are not earning as much as it used to but as the links showed our earnings in the 80's did not cover inflation then anymore than they do now. Actually I believe we are better off now according to the charts when compared to the 80's.  

There are so many things we can do that does not cost a lot of money. We can go to the free concerts in the parks, we can go on hikes with our friends or grandchildren, a picnic, audit a college class, go to a lecture, we can go to high school games, or plays, have a potluck and play bridge, canasta, cribbage. We can volunteer at the schools, at the hospitals, at the nursing homes. So many fulfilling things we can do that makes our life complete.
Ally6770Ally6770934 posts since
Jan 16, 2010
Rep Points: 2,717
2. Thursday, August 22, 2013 - 8:15 AM
There is only really one thing I agree with in the posted article:  " their investment income plummet."  It is true that we can no longer rely on our interest income to support us these days but if you have done well before you are in your 70's having to do the RMD should not cause you "angst" as the article states.   I don't live my days worrying about the RMD or outliving my investments.  The one good thing about learning to live frugally your entire life is that if the well does begin to run dry as you age, you can just spend less.  As long as I have enough to cover the necessities in life, rent, food, utilities, healthcare and emergency bills, I can always cut back on everything else.  Life is too short to spend our days worrying about outliving our money.  In the worse case scenario, we can always fall back on our government for help.  Isn't that why we pay taxes?  Please notice, I said "in the worse case scenario". 
paoli2paoli21,401 posts since
Aug 10, 2011
Rep Points: 6,135