Could Required Minimum Distributions Cause You to Overspend?

Plus, what's the best-performing asset type, can you recession-proof your portfolio, and more. [Morningstar](?utm_source=eloqua&utm_medium=email&utm_campaign=newsletter_improvingfinances&utm_content=45362&elqTrackId=8ff37d0a079a459d9e60d4ef2d31b999&elq=4e59ffe0d3af4f5286dc9b562b5ac720&elqaid=45362&elqat=1&elqCampaignId=22134) [Improving Your Finances] Improving Your Finances with [Christine Benz]( [Christine Benz] Whether RMDs could force overspending is the question I get the most when I’m out and about talking about retirement and retirement income. By far, hands down. The glib answer is that it’s required minimum distribution, not required minimum spending. You have to take the funds out and pay taxes, but you can always reinvest part of the distribution in a taxable brokerage account if you think your RMD is too large. But I don’t think most retirees should worry about spending their RMDs, especially if the funds could enhance their quality of life. For one thing, [the RMD tables got an update in 2022]( to account for longer life expectancies. (The data embedded in today’s RMD calculations don’t include coronavirus-related declines in life expectancy, however.) More important, the life expectancy factors that underpin RMD amounts are themselves conservative, in that they make generous assumptions about beneficiaries’ life expectancies. In short, I think fears about RMDs causing premature asset depletion are overblown, [a topic I wrote about this week](. Of course, retirees using RMDs to guide their portfolio spending may not be thrilled with the volatility of their cash flows from year to year, but that’s [a separate issue](. Jeff Ptak and I hit on retirement spending in [our recent conversation with tax and Social Security expert Mike Piper](. Mike said he encounters clients who are underspending relative to what they could spend “all the time,” so he made financial planning considerations for people who have more than enough the subject of [his wonderful new book](. I picked up lots of helpful tips and good food for thought in our discussion, and I know you will, too. (Mike also covered his own “by far, hands down” most-asked question: whether to convert traditional IRAs to Roth.) Unrelatedly, I’ve been fielding a good number of press calls about [the debt-ceiling drama](. I’m not an economist or a political pundit, so I don’t profess to know what the resolution will be. (My armchair view is that Congress will find a compromise. I know, I’m an optimist.) What I do know, though, is that sound portfolio management isn’t about building your portfolio for a single outcome. A better strategy is to assemble a group of investments where at least something will be performing—or at least holding up—reasonably well in a whole range of macroeconomic climates. While it may be tempting to jettison Treasury bonds because of worries about a government default, for example, Treasuries are [the very category likely to hold up best in a recessionary environment](. In other words, “it’s always something!” but you just don’t know what that something will be. A straightforward, well-diversified portfolio, plus a dash of cash, makes sense for all types of climates. I hope that you’re enjoying some beautiful spring weather! With warm regards, Christine Benz [Could Required Minimum Distributions Cause You to Overspend?]( The calculations for RMDs are more conservative than many people realize—especially now. [Read More]( Share: [facebook]( [twitter]( [linkedin]( ADVERTISEMENT [media]( [media] [Mike Piper: Financial Considerations for People Who Have Enough]( How having sufficient assets for one’s own lifetime affects decision-making for investments, charitable giving, estate planning, and taxes. [Listen Now]( [What's the Best-Performing Asset Type During a Recession?]( While bonds disappointed as diversifiers in 2022, they’ve historically performed well during economic downturns. [Read More]( [Should Investors Worry About the Debt-Ceiling Drama?]( Investors can look to history for lessons on what the political battle means for their portfolios and the markets. [Read More]( [Required Minimum Distribution Confusion in 2022]( Morningstar is an investment research company offering mutual fund, ETF, and stock analysis, ratings, and data, and portfolio tools. Discover actionable insights today. [Watch Now]( [Can You Recession-Proof Your Portfolio?]( Be sure to have some exposure to one asset class in particular. [Watch Now]( [Should Your Retirement Withdrawals Mirror RMDs?]( Like all variable strategies, a required minimum distribution system entails trade-offs. [Read More]( Listen Now Get the latest investing insights and market updates with [Morningstar’s podcasts]( available on your iPhone, iPad, Android, PC, or smart speaker. Stay connected: [twitter]( [facebook]( [linkedin]( [instagram]( [YouTube]( [Apple News]( [View online]( | [See all newsletters]( | [Share your feedback]( [Unsubscribe]( from this newsletter. Or update your [email preferences](. © 2023 Morningstar, Inc. All Rights Reserved. 22 W. Washington St. Chicago, IL 60602