“Sailors plan for safety. For escape. For survival. Sailors rely on plans, on strategies that have worked before. Trust me. Most mariners are conservative. We stick to the tried and true. The familiar." -- Randall Peffer, "Listen to the Dead"

Saturday, August 13, 2022

Will My RMD Save Me?

     Last week I took the annual RMD from my IRA account. Probably most people schedule monthly withdrawals from their IRA or 401K, but for various reasons -- including the fact that Social Security sends me money every month -- I choose a lump sum.

     In completing this exercise I found out a few things. Some good, some bad.

     The good news is that according to the Federal government my life expectancy has somehow gone up -- and yours probably has too. Last year my life expectancy was 24.7 years. Now, even though I'm a year older, the government says my life expectancy has increased to 25.5 years. Don't ask me why. But you can't argue with the government.

     The other good news is that my RMD -- by the way, that's Required Minimum Distribution, the amount of money we withdraw from our IRA or 401K per year -- is $953 more than last year. That's thanks to a booming stock market in 2021. So I'm getting a raise!

     However, the balance in my IRA plan has gone down by about 5% since the beginning of the year. So unless the stock market gets better soon, next year's RMD will be less than what I'm taking this year -- and again, the same probably goes for you too. So we'll all be living longer, but getting less money.

     More bad news. Well, it's not news. I've known it all along. I do not have a pension. (I admit it, I am jealous of those of you who have a pension.) The pension I was supposed to get was rolled over by my company in the 1990s into what they call a cash balance plan, which eventually became my IRA. So in effect, what I have is an IRA instead of a pension. 

     In other words, I'm on my own. Which is okay as long as the stock market goes up. Yes, the majority of my IRA is in stocks (well, in stock mutual funds). And yes, that might be considered a little risky. But there's no way a bond fund or a money market fund will keep up with inflation.

     But that's okay, because of Social Security. I don't have to worry about the value of Social Security going down like my IRA has. In fact, Social Security is tied to inflation. So I got a 5.9% raise for 2022. We all did. And for next year they're talking about an increase of up to 9% (although it'll almost surely be less than that).

     So I'm okay. Maybe not quite keeping up with inflation, but close to it.

     But here's the thing. The government says I'll live another 25 years, bringing me up to 2047. But the government also tells us that unless things change, Social Security will run out of money in 2035. The proverbial lock box will be empty. And that means benefits will have to be paid out of then-current payroll taxes, which in turn means Social Security will only be able to pay out about 80% of earned benefits. Goodbye raise, hello decrease.

     So if we go by the government, after 2035 I'll still be alive, but old and poor. Will my RMD save me? Who knows. But still, that's 13 years from now. What me worry?

13 comments:

gigi-hawaii said...

I recently invested in a $100,000 annuity, which pays me $555 per month for life. Part of it is principal, part interest. At the end of 2 years, I'll get a 1099 to pay tax on the interest. But we are low income so we don't pay income tax. I like the security of being paid for the rest of my life. My heirs will get the balance including interest. Gigi hawaii

ApacheDug said...

Tom, I am much like you--no pension, but my company had a cash balance plan which was rolled over into my IRA. I have to admit, the whole RMD thing frightens me a little, as there are substantial penalties if you don't do it right. Do you figure your own, or does your investment company? At least I don't have to worry about it for awhile, since I'm still a whippersnapper my 'start age' was changed to 72.

PS. Also like you, my stock portfolio is mostly that--stocks. But you're only down 5% since the start of the year? I just looked at mine, I know things are getting better but mine is down 13%. I'm not worried though, about social security either. Politicians know better than to rile the 'Boomer Generation'.

Arkansas Patti said...

So I have 13 years of SS left? Well if I make it to 96 then I doubt I will have enough brain cells left to worry about where my next bowl of soup comes from. Totally agree, what's the worry.

Tom said...

Gigi -- My wife B has an annuity; I don't. She likes security. I'm more in Patti's of what me worry? camp. Doug -- I hope you're right ab out the politicians!

DavidH said...

I went to ssa . Gov and got my life expectancy as 86. I will live for 12.9 years more. Thus 2035 is the year I will die so the reduction in benefits will not impact me. Congratulations, only 1 in 4 will live to age 90 and you are living eight years beyond that,

Wisewebwoman said...

That's a hell of a lifespan Tom and do we ever know? I've lost so many of my healthier friends to cancer and aneurisms and the unexpecteds.

I'm exposed to the much more poorer off than myself on a regular basis. I don't have very much but enough. But so many elders are in dire poverty. Us over 75s recently got an unexpected payment from the Canadian government but the over 70s were infuriated and have every right to be. So many still working to make ends meet in these inflationary times.

XO
WWW

Tom said...

David and Wise -- That's what they have me down for ... now, if only I believed government figures!

Rita said...

I'm fortunate to have a pension. I also have IRAs. In this current downturn, I lost $30,000 on my investments at it's lowest point. Since the stock market is going up, I'm only down $23,000 now. When I talked to my financial planner, I told him it was like Monopoly money.

Linda Myers said...

It's annoying to have the RMD coming every year. As it happens, we don't need this yet, and having the extra income means we're going to owe more taxes. I know, First World Problem. But still.

Rebecca Olkowski said...

I've never had anything like that as I always worked freelance, but I do have a tiny pension from the Screen Actor's Guild. Emphasis on tiny. I'll have to work forever.

Anonymous said...

I am retiring this year (December) I have 44 years with the aerospace industry. I am blessed to have a pension and have been drawing SS (66 full age) for the last two years and putting it in savings. I also have a smallish IRA and a smallish 401K. I am debt free other than what everyone pays out. I was widowed last year so I lost my best friend and his income. I believe even with the horrible inflation we are in that if I am mindful with my money I will be fine. These are trying times to live in but what can one do? Sherry

Kay said...

Illinois teachers were not allowed to take part in Social Security. We had our own Teacher Retirement System from which we receive a pension (so long at Illinois doesn't go broke, I guess). I won't even get to collect my husband's social security if he leaves me first. However, he does get a military pension so I would technically get some of that. That's the last I heard. I am not good with finances. He and my daughter take care of it all. Thank goodness somebody knows what's what.

Terra said...

IRAs are dependent on the stock market, or affected by it, my account was down 14 percent thus far this year. Yikes. Also, my Social Security increase was not as large a percent as yours. I do appreciate the increase though.