Can Retirees Base Wealth Withdrawals on the IRS’ Required Minimum Distributions?
The brief’s key findings are:
- Retiring baby boomers need a strategy to draw down their 401(k)/IRA balances to avoid either outliving their savings or scrimping on consumption during retirement.
- Traditional strategies include spending only the income, consuming assets based on life expectancy, and drawing 4 percent of initial assets each year.
- A comparison found that a new option using the IRS’ Required Minimum Distributions (RMD) does about as well as the traditional options and actually outperforms the 4-percent rule.
- The RMD option is also easy and creates no adverse incentives.
- A somewhat more complicated version of the RMD option does even better, approaching an optimal withdrawal pattern.