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I've looked at several different RMD calculators. One of the required inputs to the calculators is the Annual Growth Rate that you expects their their IRA account(s) to experience over time.

Some calculators have notes suggesting that you should use 4% as your Annual Growth Rate once you retire and are no longer contributing to the IRA account.

Some calculators provide notes on the long-term annual average growth rate for the S&P 500. This is generally reported as being between 8-9 percent.

My IRA accounts compound annual growth rate since retiring is 11.75%. Using this rate in the RMD calculators produces fantasy world results of $600K RMD withdrawals in my mid-nineties and IRA account balances three times my current balances.

What would you consider a more appropriate Annual Growth Rate input to an RMD calculator?
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I generally don't use on-line calculators as you can't 'see' how the calculation unfolds....only the results. Building an Excel SS takes a bit of time, but once completed, if you set it up right, you can vary the expected annual rate of return to get difference pictures of gradual account balance and size of RMDs.

The other thing I don't like about the on-line calculators is the assumption seems to be that the IRA owner is going to withdraw the RMD, go out and spend it and not have it anymore. For the vast majority, unless they designed the RMD to time household cash flow need....the RMD is not a household cash flow event, but is only a tax event. So projecting out the RMD amount is a useful tool to project your growing tax bill as you age. Kind of depressing, actually....

BruceM
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BruceM:"The other thing I don't like about the on-line calculators is the assumption seems to be that the IRA owner is going to withdraw the RMD, go out and spend it and not have it anymore. For the vast majority, unless they designed the RMD to time household cash flow need....the RMD is not a household cash flow event, but is only a tax event. So projecting out the RMD amount is a useful tool to project your growing tax bill as you age. "

All depends how much money is in your IRA.

In my case, I only had 10 years to contribute to a 401K plan before I retired so I didn't accumulate a lot of bucks in it. Didn't touch it for 17 years after I retired early.

It only provides a portion of my annual spending needs. Add in SS and teeny pension, and that covers my basic living expenses and some fun money. There is no giant excess money flowing from it.

For many boomers, I suspect not all will likely spend what is in their RMD......and more from their non-tax deferred stock accounts. Not all boomers will stash it all in tax deferred vehicles.

We'll see....

If I had worked till 65, it would probably be double in value..... but still even with RMD, less than 4% of my net worth which I should be taking but don't come close to doing so......

t.
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BruceM:"The other thing I don't like about the on-line calculators is the assumption seems to be that the IRA owner is going to withdraw the RMD, go out and spend it and not have it anymore. For the vast majority, unless they designed the RMD to time household cash flow need....the RMD is not a household cash flow event, but is only a tax event. So projecting out the RMD amount is a useful tool to project your growing tax bill as you age. "

All depends how much money is in your IRA.
...
It only provides a portion of my annual spending needs.


I disagree with the notion that RMD is only a tax event. It is both a cash flow and a tax event. The cash doesn't disappear after taxes on the RMD are paid. How you deploy the cash is up to you.

Also, I disagree with the notion that the value of your IRA is really significant. When I retired in 2013 at age 68, I had contributed to tax-deferred 401(k)/IRA accounts for 31 years.

RMD started 2 years after I retired. Social Security and two small pensions provide enough income to cover my normal living expenses and pay the Federal and state income taxes on my RMD withdrawals.

In the 5 years that I've made RMD withdrawals, none of them have been used pay living expenses or to pay income taxes. The RMD withdrawals have been transferred to a taxable investment account and invested.
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"Also, I disagree with the notion that the value of your IRA is really significant. When I retired in 2013 at age 68, I had contributed to tax-deferred 401(k)/IRA accounts for 31 years."

Oh, but it really is.

If your IRA balance is 20% of your nest egg.......let's throw out some big round numbers.....

Your IRA balance is 1 million. Your taxable investments are 3 million.

You are 70 years old. The government thinks you'll live less than 20 more years. Maybe you think you'll make 100.

So you use a 30 year SWR. You now have 4 million in assets. You could take $200,000 a year out happily for life. Inflation adjusted. If you use a 20 year SWR, probably $250,000 a year - pretax of course.

The government makes you take about 3.3% or so out of your IRA at 70. Or $33,000 roughly.

That is not even 1/4 of what you probably should be thinking of spending - after taxes of course.

When I retired in 1999, I had only had 10 years or so to contribute to an 401K that I converted to IRA.

t.



If you do the full 4% withdrawal of nest egg to live on, after taxes, you'll still have well over $100,000 in most states in the country after taxes.

Of course it makes a difference of the ratio of tax deferred to non-tax deferred assets!

If you are IRA heavy, even 100%, well, even then, if you believe in the SWR philosophy, for the first ten years, you probably should be spending ALL your RMD. It's under 4% inflation adjusted on your starting balance!

Not that you have to - unless you want to keep piling up assets for Uncle Sam to tax away at your death.


t
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I disagree with the notion that RMD is only a tax event.

I respectfully disagree with your disagreement.

I retired from the FP industry. Over the years we worked with literally hundreds of retiring households. From my experience, I've concluded that very few use their IRA balances as part of their retirement household CF planning without professional help. The primary reason for this, I believe, is the urge to save and conserve continues from the late working years into retirement....it doesn't just stop when one leaves their job for the last time. Now, if there is no pension and SS is moderate relative to household CF need, then yes, withdrawals from retirement savings will begin at retirement by necessity. If this exceeds about 3.7% of the IRA balance, then there effectively is no RMD at 70.5 and beyond, as the required withdrawal already exceeds it, and one only need watch as the IRA owner ages and the required % increases. For everyone else, this is purely a tax event.

But as you allude, many will sell in the IRA, withdraw cash and feel compelled to go out and spend it. This really makes no sense. That this asset exists in one place and is moved to another, does not change how the household assets are planned, managed and consumed...it only changes the household's tax bill for the year.

A well planned household CF plan for retirement will time RMDs to coincide with CF need, if household assets allow for it. This lessens the effect of the tax bill at 70.5. If the IRA is not required, or marginally required, at retirement, this will usually involve planned timing of Roth conversions up to the top of the tax bracket each year the household is in to reduce the IRA size and spread out the tax bill, particularly with large IRAs. it also preserves savings in a much more tax favorable vehicle. But some of the unhappiest retired households I saw were those who went into retirement with moderate to large TIRAs, never withdrew anything up to RMDs and invested aggressively with success. Imagine such a household....adequate cash flow, moderate to low Fed + State tax bill and then suddenly, a high 4 digit increase in annual household expenses, recurring year after year, with nothing to show for it. That can be hard on the psyche.

BruceM
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"Also, I disagree with the notion that the value of your IRA is really significant. When I retired in 2013 at age 68, I had contributed to tax-deferred 401(k)/IRA accounts for 31 years."

Oh, but it really is.


The difference in our perspectives may be a function of when we retired. As I was employed until I was 68 and eligible to immediately claim Social Security and pension benefits, my traditional IRA was viewed as a pool of money to supplement my Social Security and pension income were they insufficient to cover my living expenses. During my first five years of the IRS mandated RMD withdrawals, there was no need to use the withdrawals to supplement my Social Security and pension income. The RMD was simply transferred to a taxable investment account and used to purchase securities.

My wife died this year. So, next year I will undoubtedly need to use a portion of my RMD withdrawal to supplement my Social Security and pension income due to changing from filing taxes as married filing jointly to single and significant increases in Medicare premiums.

You are 70 years old. The government thinks you'll live less than 20 more years. Maybe you think you'll make 100.

The government seems to have differing views on how long one will live. Social Security hopes that you are in the 50% of the population that doesn't live beyond your life expectancy when you claim benefits--roughly 82 years of age. The IRS Uniform Lifetime Table is tailored to require you to make RMD withdrawals and pay taxes until you reach the age of 115.

Using the IRS Uniform Lifetime Table and an average annual growth rate of 3%, my RMD withdrawals should exceed $100K until my 101st birthday. The IRS' life expectancy factors appear to provide a withdrawal rate that is as safe as Bengen's 4% rule.
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I disagree with the notion that RMD is only a tax event.

I respectfully disagree with your disagreement.


I was a computer scientist/software engineer prior to retirement. I view distributions from tax-deferred 401(k) and IRA accounts as part of my cash flow. The rationale for this view is that I am only a beneficial owner of the accounts. The custodian for the account is holding it in trust for my benefit and doesn't become mine until it is distributed to me via RMD or requested withdrawal.

My cash flow model incorporates Social Security, pensions, and RMD withdrawals along with dividends and interest earned in taxable bank and investment accounts as inputs to the model. The cash flow model's outputs are expenses incurred for housing, utilities, food, clothing, entertainment, and taxes. To the extent that the cash model's inputs exceed its outputs, the excess is put into bank and investment accounts to cover future expenses.

I get the impression from reading your last paragraph that IRS mandated RMD withdrawals are not considered to be part of your cash flow model until they are used to cover expenses.
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