The formula for computing required minimum distributions is very conservative in terms of its combination of life expectancy and size relative to the portfolio. It is built on the idea of 0% growth, which is obviously a fallacious one. With even very conservative growth rate assumptions, a retiree needn't worry about RMDs resulting in them running out of money, though their portfolio balance is likely to decline over time. Apart from a desire to leave behind an estate, this is not really a problem.asterix0 wrote: ↑Sun Jan 21, 2018 10:44 pmI have read several pages of this thread and have wondered if the minimum required distributions for tax sheltered accounts can be addressed. Even if one only spends at the SWR, taxes (at a marginal rate) will also deplete a retirement account for required distributions beyond the SWR as money moves from sheltered to non-sheltered vehicles.
For instance, using the Schwab RMD calculator, a retiree born 1/1/1948 with a $1M portfolio as of the end of 2017 and experiencing 2% annual growth would have an RMD this year of $36,496. A graph of this is shown below. The retiree's portfolio becomes depleted over time, but the actual dollar amount of the RMDs does not begin decreasing until age 86, when they would be $43,806. At age 95, they would be $37,748; at age 100, $28,394. So unless you plan on outliving over 99% of the population, you don't really have to worry about running out of income due to RMDs. Sequence of returns risk is a FAR bigger factor to be concerned about.
The graph below is the same with the exception that the growth rate of the portfolio is 4% instead of 2%. Here, the nominal dollar amount of the RMDs does not begin decreasing until age 94 ($64,368 that year) when the portfolio would still have $461k.
RMDs are not the bugaboo that many think they are. And if you don't need the RMDs, you can just reinvest them through a taxable account. Plus, if you can do Roth conversions along the way, this can also help to minimize the issue even more.
Wade Pfau has a nice, though a bit technical, blog post on the topic that is worth reading.