TITLE

Do Required Minimum Distributions Endanger 'Safe' Portfolio Withdrawal Rates?

AUTHOR(S)
Spitzer, John J.
PUB. DATE
August 2008
SOURCE
Journal of Financial Planning;Aug2008, Vol. 21 Issue 8, p40
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
• In the retirement planning literature, withdrawals of 4 percent of the starting portfolio balance, adjusted for inflation, are generally regarded as safe." But the reality of required minimum distributions (RMDs) imposed by the Internal Revenue Code would appear to threaten this goal since required distributions could easily exceed the "safe" withdrawal amount. • This paper a 2007 Financial Frontiers Judges Grant winner, uses a bootstrap algorithm incorporating RMDs to find the probability of running out of money and to determine the balance-remaining amounts under a variety of conditions. • Conditions include three different starting balances ($500,000, $1 million, $1.5 million), three withdrawal horizons (25, 30, and 35 years), and four withdrawal strategies: a "No RMDs" case (the benchmark) and three other coping strategies that might ameliorate the effect of the mandatory accelerated withdrawals. The coping strategies include reinvesting excess withdrawals into a brokerage account and converting tax-deferred IRA money to a Roth IRA, both before and during the required distribution process. • The brokerage account strategy results in portfolio runout rates that are indistinguishable from the runout rates that occur when there are no RMDs; that is, the runout risk is not increased by RMDs when using this coping strategy. • Coping strategies that use Roth conversions result in higher risks of runouts. • RMDs do have a large negative effect on the remaining balance, resulting in smaller estates for all starting balances and for all three withdrawal horizons used in the study.
ACCESSION #
33941669

 

Related Articles

  • Pension pointers for the self-employed. Vann, John // Accountancy;Jan1974, Vol. 85 Issue 965, p46 

    This article deals with the benefits provided by pension and private plans to self-employed individuals in Great Britain. The Social Security Act of 1973 is basically aimed at increasing the pension benefits of employed persons from April 1975. The self-employed are excluded from the provisions...

  • Retirement Income Industry Gears Up for Exciting Year.  // Money Management Executive;1/21/2008, Vol. 16 Issue 3, p4 

    The article provides information concerning the developments in the retirement income industry in the U.S. According to industry experts, 2008 will be a pivotal and exciting year of opportunity for the retirement income industry, as more Americans start planning for the future. The education...

  • A review of IRA and retirement plan tax changes. JONES, GEORGE G.; LUSCOMBE, MARK A. // Accounting Today;Jan2015, Vol. 29 Issue 1, p19 

    The article examines a number of tax changes affecting individual retirement accounts (IRA) and other qualified plans through guidance issued by the U.S. Internal Revenue Service (IRS) and court decisions. Topics discussed include taxable and non-taxable distributions, longevity annuities, and...

  • FACING THE ROLLOVER QUESTION. Caudill, April K. // Journal of Financial Service Professionals;Jan2005, Vol. 59 Issue 1, p34 

    This article focuses on the issue of rolling over retirement funds to an individual retirement account (IRA) versus leaving them in the employer plan. According to some estimates, about 14 million workers will lose their jobs in 2005 alone. While a great many of these individuals will cash out...

  • Transitioning retirees need access to super. Taylor, Mike // Super Review;Mar2005, Vol. 19 Issue 2, p5 

    Reports on the Australian Institute of Superannuation Trustees' (AIST) support of the key plans of the Federal Government's retirement incomes policy. Key provisions of the plan; Institute's agreement with the government's proposal that workers transitioning to retirement, but still working,...

  • Private Pensions: Participants Need Information on Risks They Face in Managing Pension Assets at and during Retirement: GAO-03-810.  // GAO Reports;7/29/2003, p1 

    The decisions that retiring workers make about how and when to draw down their pension plan assets determine in part whether they will have pension income that lasts throughout retirement. Individuals will need pension and other retirement income to sustain them over a longer period of time than...

  • Professionals advise to start retirement planning early. Archer, Rick // Westchester County Business Journal;5/30/2005, Vol. 44 Issue 22, p15 

    Solicits the advice of professionals and executives on the importance of starting early retirement planning. Paul Levis, president of Summit Financial Consultants; Joe Murtagh, a board member of the Financial Planning Association of the Greater Hudson Valley Heath System Inc.; Recommendation of...

  • DESIGNATED BENEFICIARIES FOR RETIREMENT ACCOUNTS: THE NEW RULES. Cooley, Glen // Journal of Accounting & Finance Research;Summer II 2004, Vol. 12 Issue 3, p95 

    Individuals with Individual Retirement Accounts (IRAs) or qualified retirement plans have new rules to follow with respect to designated beneficiaries. On April 16,2002, the IRS issued the "final" regulations on Required Minimum Distributions (RMD). These rules are supposed to simplify the old,...

  • Retirement Plan Strategies. Steiner, Bruce D. // Journal of Retirement Planning;Jan/Feb2008, Vol. 11 Issue 1, p5 

    The article discusses the Internal Revenue Service technical advice memorandum (TAM) regarding the use of Individual Retirement Account (IRA) to fund a pecuniary bequest in the U.S. It explains that the ruling regarding the assignment of a portion of the IRA to the charities did not result in...

Share

Read the Article

Courtesy of VIRGINIA BEACH PUBLIC LIBRARY AND SYSTEM

Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics