Do RMDs Beat the 4% Rule as the Best Retirement Withdrawal Strategy?

We are 68 and retired for 7 years, luckily we had enough cash to live on until I started taking SS at 66. Our combined SS is $54k per year and honestly we don't spend even that much. Our current withdrawal strategy is to take the maximum we can every year from our IRA's so that we don't owe any income tax. That money goes into a regular brokerage account in money market or CD's for emergencies. That amounts to around $20k per year, or a 2.3% withdrawal rate. We will have to increase that when we hit 73 (RMD age) but we'll worry about it then.

RMDs? I am doing QCDs.

Most calculations that say you will get 30% more social security if you wait till 67 as opposed to 62, assume that in the former case you are working until you are 67. If you retire when you are in your 50s and not contributing to SS after retiring, you will NOT get 30% more. No calculator tells us how much differential you will get if you hold off until FRA if you are not contributing to social security. They also do not take into account the present value of the amount you get if you start taking payout at 62 when the say that anyone over life expectancy of 78 is better of waiting until FRA as against starting payout at 62.

Well..... You can't take out less than the RMD (without penalty). So I guess that part is a no brainer .

Waiting to 70 to take money out? Male life expectancy is 73.1 years old. You will lose 8 years of SS and you have 3.1 years of higher SS to make it up. Wow, no Roth conversions? Leaving too much money on the table. My basic rule is simple for me I can take out 4% or less if I don't need it. If your account balance stays the same or goes up you will never run out of money.

Brilliant

we live on S.S. and our pensions. We take out our RMD's and either give away that money and pay taxes with the RMD's. We do not touch our other investments. In retirement, our expenses are fairly low.

spend taxable assets until 70-72 years of age then do RMD ?

Retirees who struggle to meet their basic needs are the ones who could not accumulate enough money during their active years to meet their needs. Retirement choices determine a lot of things. My parents both spent same number of years in the civil service, but my mom was investing through a wealth manager, and my dad through the 401k.

Why not let Vanguard take the RMD automatically every year from a Vanguard of your choosing. So simple nohassel I'm 76 & have doing this for 4years

I’d be retiring or working less in 5 years, and considering this financial recession, I’m curious to know best how people split their pay, how much of it goes into savings, spendings or investments, I earn around $250K per year but nothing to show for it yet

Great video, I didn’t see it live but it seemed as good as all the others!
Seems from the comments that a hot topic is Roth conversions. Have you done a video dedicated to that topic?
Thanks for all you do!

But if you’re spending down your savings, that’s money that could have compounded for your spouse to make up the difference. You’re just stealing from one bucket to satisfy the other. I’m all for delaying SS but to spend down savings to do it is stupid.

All depends on the 3 tax buckets but that has to be planned as you invest.

Keep it simple : 3.5% withdrawal rate at All Times...never run out of $$$$

Also...I a retired at 59...living off savings and Pension at 60...Lower Taxes and RMDs by doing Roth IRA conversions Now before 2nd pension at 62 and SS at 68.

Let me School Berger again. BILL BENGEN updated the 4% rule increasing it due to adding in more Stock sub sectors.

Rob, I appreciated the video very much and in a way, it stated what I was already planning to do. The only thing I would add, and suggest it to be added to the overall approach, is to align your Roth conversions do that the RMDs are not a lot more than your SS income plus required spending. I have been trying to calculated what my RMDs will be at the required age and increasing my Roth conversions accordingly. Obviously, it is not an exact science, but I am trying to be at least directionally correct. Basically, I am trying to avoid having my marginal RMD dollars being taxed at the 37%+ tax bracket. Thanks again for the video.

I spend safely in retirement knowing my beneficiaries will enjoy my money more than I have and will in the future .

I like this strategy for several reasons, one of which is that I don’t need to do any messy Roth conversions, which would catapult my earnings into the highest Medicare premium bracket.

How do you figure out your number with this strategy if you're retiring early?

Rob, I actually like your last approach. I am a planner. I am about 12 years to retirement unless I am lucky to leave early. I calculate the minimum spend on utilities each year and set it aside for the following year, plan to do the same for retirement. As you mentioned going to think of big ticket items to spend on like house, renovation etc which could leave a legacy for my offspring and travel of course. But I am thinking of leaving my Super in the high growth even in retirement. What do you think about that? My goal is to leave it in the estate and keep earning minimum for living expenses doing what I would love to do rather than my current job. I plan to be active until I don't know when.

If you wait until age 70 for social security, the annual payout will be maximized. Then at age 73, RMD's become mandatory. The combined amount could put a married couple into a higher tax bracket every year going forward. Further, that combined amount could subject the couple to Medicare penalties that will apply to both partners every month. The couple may not have enough flexibility to try to avoid the Medicare penalty. Reducing tax deferred accounts through Roth Conversions before RMDs become mandatory could result in significant tax savings in many circumstances. Taxes are not likely to decrease in the future. Any thoughts? I like the live format. It may take less time for you to prepare and edit allowing more time to respond to comments?

My wife and I have big pensions and a lot of emergency savings so we have high risk tolerance. Our 401k accounts are still 100% S&P 500, now a year into retirement. I predict a bond market crash, so I am avoiding bonds. I just started fixed monthly installments on my larger 401k at 6% of its current value divided by 12. Holding off on drawing from my wife's smaller 401k until age 73. Same monthly installment for decades, no inflation adjustment. RMDs don't reach 6% until age 83. Our pensions and future SS benefits will have COLAs. People tend to spend less as they get older, so why adjust for inflation? With a pessimistic 6% return on investment (S&P averages 11%), my 401k will last greater than 30 years. No having to adjust each year, until age 83 when I will recalibrate to meet RMDs. By age 73 my wife's 401k should be double in size and we will do RMD'S on that. So I am currently exceeding the 4% rule but not adjusting for inflation, not going 50-50 stocks and bonds, and not having to readjust each year. Seems simpler and not over-though with steady reliable income.

Update: I may go 50/50 S&P and bonds once the S&P hits a new all time high. That will lock in some gains, still allow some growth, mitigate losses from a crash, and allow me to go back to 100% S&P during the next -20% bear market. If the market loses more than 20% I can always turn off the installment spigot until it recovers.

for me i dont expect to live too long. sounds macabre but its the truth. i'm overweight, high blood pressure, and heart issues. so i plan around retiring no later than 62 and if i live past 70 its a bonus. i'm pushing 50 and sometimes surprised i made it this long lol. maybe thats a incorrect strategy, but it's just how i feel. i also feel like every dollar spent is going to bring less joy the older i am. i'll enjoy spending money a lot less when age is hitting me hard later. advertisers target younger viewers because old people naturally go into a shell and stop spending money LOL. so i also plan to spend more early in retirement, like more spending in early 60's and even late 50's is my plan. just some thoughts. I know a guy who was retiring in may of that year. That March he left work, went to a gas station and keeled over. Turned out he had a brain tumor. He waited his whole life and two months before he retired he found out he had a deadly tumor. That also influences my thinking, although it could happen at any time so not much you can do.

Thanks Rob! Excellent content!

Elderly spend more than young.

Rob, This is my first time posting. I am a 64 year old attorney and have paid attention to personal finance for the last dozen years. I watched this video last night. Great advice. I like your courage to go live. I am going to stop reading, watching and listening to other financial advisors. - Michael F. Burns

As to whether to do LIVE videos…

This would appear to be completely a question for yourself since doing live streams might a lot easier for you - no retakes, no laborious editing and uploading, etc… of course at the expense of potentially less polish. But from this regular viewer’s perspective, this video was just about as polished as your non-live video. Kudos on that, not an easy thing to accomplish!

From the viewer perspective, I’d guess they’re watching the video on their schedule either way - even if it were pre-announced - at least that’s the case for me.

It seems the normal reason to do live videos is for live interaction with viewers via the comments - certainly a different animal, with less control on your part.

Good luck either way, I’m certainly appreciating your content…

Excellent video Rob. I will keep this one saved and refer back to it. Keep up the great work!

Thanks Rob. I love your Withdraw Strategy discussions. Quick note: I notice (for me at least) when using "NewRetirement" with the "Spending Needs" withdrawal assumption, this is pretty much what they recommend.

When planning retirement distributions, consider that assisted living now costs ~$8,000/month and memory care could easily be $10,000/month. My mom has been in assisted living for 5 years and is 94. Medicaid, for the indigent requiring assisted living, is not a pleasant thought - visit an assisted living facility that accepts Medicaid to see for yourself.

Excellent info. Thanks for pointing this out. It makes a lot of sense. Thanks so much.

“If I had heard about this six months ago I would have said this is not for me.” That is hilarious because I emailed you about it 6 months ago Rob.😂

@RobBerger, thanks for the video. Would single people use the Uniform Table III for RMDs?

Would be easier for first timers using this chart is IRS used % of RMD withdrawal instead of these factors.. ie at age 73.. your RMD is 3.77% of your total Qualified money balance.
SO should it be mentioned that the 4% rule is designed to keep up with inflation.. not just making your money last until ones death. Never see it mentioned how a person should calculate your personal inflation rate.. meaning if your house is paid off, cars paid off at retirement.. then inflation on house prices doesn't affect you..and your have the advantage of
downsizing if your portfolio gets stressed, and you could say if a couple had 2 new cars on day one of retirement, inflation on cost of new cars may not be a factor for you, especially if you plan on being a one car couple in 10 years or so. Same with inflation of travel once you hit 80 or so.. as travel not likely occurring much..

This is what I plan on doing. Roth conversions didn't make sense to me. Pay all your taxes up front and hopefully reap the reward 10 years from then. I'll pay as I go. I'll retire at 63 and pull money out when I need it, but will put off social security until 70. Spouse will continue to work up until 65. She's two years younger. RMD's will be much more than I need, but will just invest it or give to the kids. Anyway, I love that you acknowledge that nobody follows the process to a tee. Life's too short to worry about the little things. Keep it up.

Rob - your shorter video like this are really subject matter focused and personally I learn more then your live session. In live session after first 10 minutes it is not interesting. Something you may want to consider.

Interesting. I made a table where I take a starting balance, say $1 million, add a conservative 5% annual growth, then subtracted the annual RMDs based on the Uniform Lifetime Table III, with the extrapolation back to my current age (70) per the way you described it, using Table II data. It took ten years before the percentage taken out due to RMDs was larger than the 5% growth rate I assumed. It then took another ten years of increasing RMDs before the balance dropped below my original $1 million starting point. I started with a 3.42% RMD at age 70 and ended with an 8.2% RMD at age 90. The starting balance can be any number and the percentages don't change. Only the dollar amounts do. Here are a few of the lines from this table. Of course, in the real world, I won't achieve a flat 5% annual growth every year:

Age RMD Factor Balance 5% Growth RMD $ RMD %
70 29.2 $1,000,000 $50,000 $34,247 3.42%
73 26.5 $1,044,566 $52,228 $39,418 3.77% (When my forced RMDs will actually start)
80 20.2 $1,101,915 $55,096 $54,550 4.95% (RMD almost equals growth rate)
90 12.2 $976,823 $48,841 $80,067 8.20%



Total RMD withdrawals: $1,167,843
Total decrease in IRA balance $23,177 at age 90

ROM the space knight in the background?!?! I need a closeup.

4% rule is mentioned a lot, and so are different percentage withdrawal rates: 3%, or maybe 5%, etc. Isn’t an individual’s RMD set by the IRS?

While I can see why many people use this method since it is the “no think”, let it all happen to us method, it seems shortsighted not to consider your own situation.

In our case our SS + moderate pension (won’t kick in until 65) will more than cover our needs.

So letting our RMDs smack us in the face has the potential to wreck our tax situation. And smack even harder if one of us dies earlier, forcing single tax filing status.

So our plan is to do Roth IRA conversions to get that tax-infested 401K balance down to a more reasonable balance.

Zeroing it will be a challenge, but would be a nice simplification for my wife if she outlives me. And a nice tax simplification for our kids so they don’t get smacked with tax bracket pain due to having to distribute all of the 401K within 10 years of our deaths.

A mistake I made was to start Social Security at 65. In the long run it seems better to bridge to 70 by drawing down from tax-deferred accounts. This reduces the taxable income that creeps up on us in our later years when tax deferred balances are apt to be higher and the RMD factors definitely are. Especially when one of the couple dies, and taxes are assessed on the survivor at individual, rather than joint, rates.

What if your spouse is 18 or 19 years old? Out of luck I guess! LOL (Yes, I'm just kidding--though it's true the tables don't cover those two ages; just 20 years of age onward--in some states even younger than 18--yikes!)

Live show is well done. Didn’t really seem any different from the regular one. 🤷🏻‍♂️. Either way, I liked it. Although I would have liked more explanation of the last strategy, the one you liked.

As always, good stuff! Thanks,

This was a great presentation. Live or not, it matters not to me unless you are taking questions.

Interesting and thanks for sharing. I like the idea of spending more in the go-go years. I see neighbors in their 85+ walking every day and many with a stroller. At the stage in life, you probably want to stay home and thus spending less. It's about enjoying life not how much you end up with at the end.

Did I miss the part on what someone who retires early is supposed to live on with this strategy? I’m not waiting until 72-75 to enjoy retirement, more like 55.

This is exactly I have been planning to do once RMD kicks in 2 years. Having retired at 70 a year ago, have been living off of social security & taxable accounts while implementing Roth conversions. I will continue with Roth conversions maximizing the tax brackets & thereby limiting my RMD’s as I age solely for the legacy . QCD will be great reducing the tax burden. Hope to make the plan work.