RMD and expected life span

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scotgirl100
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RMD and expected life span

Post by scotgirl100 » Tue Jun 11, 2019 4:01 pm

I know when I reach 70.5 years old, I will have to start withdrawing Required Minimum Distributions from my IRA and 401K. And the RMD is based on the IRS calculation of expected life span.
But since people are living longer, has the IRS adjusted the expected life span and therefore the RMD amounts? How often is the expected life span adjusted?

22twain
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Re: RMD and expected life span

Post by 22twain » Tue Jun 11, 2019 4:23 pm

According to a blog post by Michael Kitces last year, the RMD divisor tables were last updated in 2002. If they were updated to reflect current longevity data, the first year's RMD would decrease from about 3.65% to maybe about 3.4%.
My investing princiPLEs do not include absolutely preserving princiPAL.

mpnret
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Re: RMD and expected life span

Post by mpnret » Tue Jun 11, 2019 5:30 pm

This doesn't directly answer your question but you may find it useful. It is the Schwab RMD calculator. I'm sure there are many others. When I plug in my numbers I don't see my RMD's dippping below six figures until I reach 110 years old.
https://www-pre.schwab.com/public/schwa ... lators/rmd

Spirit Rider
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Re: RMD and expected life span

Post by Spirit Rider » Tue Jun 11, 2019 6:32 pm

The IRS updated the RMD tables in 1987 and 2002, that would imply that they might update tables in the next few years.

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J G Bankerton
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Re: RMD and expected life span

Post by J G Bankerton » Tue Jun 11, 2019 6:51 pm

scotgirl100 wrote:
Tue Jun 11, 2019 4:01 pm
But since people are living longer, ...
Not all demographics are living longer.

Life Expectancy for White Americans Declines

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celia
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Re: RMD and expected life span

Post by celia » Tue Jun 11, 2019 7:12 pm

Without getting political, a few months ago I read that a government agency was tasked with looking into this. So, potential changes could happen (or not) at any time.

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Steelersfan
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Re: RMD and expected life span

Post by Steelersfan » Tue Jun 11, 2019 8:19 pm

J G Bankerton wrote:
Tue Jun 11, 2019 6:51 pm
scotgirl100 wrote:
Tue Jun 11, 2019 4:01 pm
But since people are living longer, ...
Not all demographics are living longer.

Life Expectancy for White Americans Declines
True, but the relevant statistic is life expectancy having reached age 70.5. I expect that continues to increase, while overall life expectancy's decline is due to the ravages of the opioid crisis, which causes death well before that in most cases.

22twain
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Re: RMD and expected life span

Post by 22twain » Tue Jun 11, 2019 11:11 pm

celia wrote:
Tue Jun 11, 2019 7:12 pm
a few months ago I read that a government agency was tasked with looking into this.
Yes, this is discussed in the Kitces post that I linked to.
My investing princiPLEs do not include absolutely preserving princiPAL.

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J G Bankerton
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Re: RMD and expected life span

Post by J G Bankerton » Wed Jun 12, 2019 7:33 am

Steelersfan wrote:
Tue Jun 11, 2019 8:19 pm
J G Bankerton wrote:
Tue Jun 11, 2019 6:51 pm
scotgirl100 wrote:
Tue Jun 11, 2019 4:01 pm
But since people are living longer, ...
Not all demographics are living longer.

Life Expectancy for White Americans Declines
True, but the relevant statistic is life expectancy having reached age 70.5. I expect that continues to increase, while overall life expectancy's decline is due to the ravages of the opioid crisis, which causes death well before that in most cases.
RMD life expectancy is the same for everyone. Men get the better deal as we die eight years younger than women. Overall life expectancy is flat so the tables won't be changing anytime soon.

Does RMD life expectancy take current age into account? My life expectancy is 85.5 years at this point in time. BUT if I make it to 85.5 I get another 6 years.

The IRS only breaks it down by sex and current age.
Life Expectancy Calculator

Spirit Rider
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Re: RMD and expected life span

Post by Spirit Rider » Wed Jun 12, 2019 10:11 am

When people talk about life expectancy, it is usually life expectancy from birth. There are significant survivorship changes as people die at a range of ages. The IRS RMD tables take that into account and state the life expectancy "duration" at specific ages. The life expectancy from birth can be flat or even decreasing and still have life expectancy durations in retirement increasing.

quantAndHold
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Re: RMD and expected life span

Post by quantAndHold » Wed Jun 12, 2019 10:18 am

I wouldn’t expect any tweaks the IRS might or might not make in the future to have any real effect on my retirement planning. Life expectancy hasn’t changed in any meaningful way since 2002. Changing a multiplier from 18.6 to 20.1 won’t really make much of a difference in my life.

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One Ping
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Re: RMD and expected life span

Post by One Ping » Wed Jun 12, 2019 12:35 pm

Spirit Rider wrote:
Tue Jun 11, 2019 6:32 pm
The IRS updated the RMD tables in 1987 and 2002, that would imply that they might update tables in the next few years.
Anyone know where to find the RMD tables for 1) pre-1987 and 2) 1987-2001? Might be interesting to see how they changed when they DID change them.
"Re-verify our range to target ... one ping only."

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Steelersfan
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Re: RMD and expected life span

Post by Steelersfan » Wed Jun 12, 2019 1:54 pm

Spirit Rider wrote:
Wed Jun 12, 2019 10:11 am
When people talk about life expectancy, it is usually life expectancy from birth. There are significant survivorship changes as people die at a range of ages. The IRS RMD tables take that into account and state the life expectancy "duration" at specific ages. The life expectancy from birth can be flat or even decreasing and still have life expectancy durations in retirement increasing.
That's what I was trying to say. You said it better.

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J G Bankerton
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Re: RMD and expected life span

Post by J G Bankerton » Wed Jun 12, 2019 4:55 pm

Spirit Rider wrote:
Wed Jun 12, 2019 10:11 am
The IRS RMD tables take that into account and state the life expectancy "duration" at specific ages.
Is the RMD designed so one dies with no money in the account?
Life expectancy is the median, half will live longer and half will live less than the posted number. I hope the RMD is not that strict or one half of the people will have taken out all the money and still be alive.

My RMD is brutal as I'm in the 51% marginal tax bracket*

* SS hump tax.

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Steelersfan
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Re: RMD and expected life span

Post by Steelersfan » Wed Jun 12, 2019 5:15 pm

J G Bankerton wrote:
Wed Jun 12, 2019 4:55 pm
Is the RMD designed so one dies with no money in the account?
Life expectancy is the median, half will live longer and half will live less than the posted number. I hope the RMD is not that strict or one half of the people will have taken out all the money and still be alive.

My RMD is brutal as I'm in the 51% marginal tax bracket*

* SS hump tax.
The divisor increases slowly until you reach 115, then it's 1.9 for however long you live. It nevers get to 1.0.

At age 92 it's 10.2, so just under 10% of your year end balance.

https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf

Minot
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Re: RMD and expected life span

Post by Minot » Wed Jun 12, 2019 5:43 pm

J G Bankerton wrote:
Wed Jun 12, 2019 4:55 pm
Is the RMD designed so one dies with no money in the account?
Life expectancy is the median, half will live longer and half will live less than the posted number. I hope the RMD is not that strict or one half of the people will have taken out all the money and still be alive.
Only if you live beyond age 114. Take a look at the Schwab Ira RMD Calculator; it will give you an idea of how the RMD's go, especially as you play with the expected returns slider.

Edit: I see Steelersfan beat me to it, and more specifically.

BTW, none if this applies to Inherited IRAs. They will be empty by the time you reach the age you were expected to die when you inherited the money.

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Flobes
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Re: RMD and expected life span

Post by Flobes » Wed Jun 12, 2019 5:51 pm

J G Bankerton wrote:
Wed Jun 12, 2019 4:55 pm
I hope the RMD is not that strict or one half of the people will have taken out all the money and still be alive.
As noted above, few will outlive their IRA because of forced RMDs.

Here's the point you're missing: You are required to take the RMD, but you are not required to spend it. You can certainly save or invest the money.

Remember, your heirs may be much happier inheriting a stepped-up-basis taxable account than your IRA, subjecting them to RMDs.

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Re: RMD and expected life span

Post by The Wizard » Wed Jun 12, 2019 5:54 pm

J G Bankerton wrote:
Wed Jun 12, 2019 4:55 pm
Spirit Rider wrote:
Wed Jun 12, 2019 10:11 am
The IRS RMD tables take that into account and state the life expectancy "duration" at specific ages.
Is the RMD designed so one dies with no money in the account?
Life expectancy is the median, half will live longer and half will live less than the posted number. I hope the RMD is not that strict or one half of the people will have taken out all the money and still be alive.

My RMD is brutal as I'm in the 51% marginal tax bracket*

* SS hump tax.
As mentioned, the max RMD for age 115 and older is just over 50% of your year end balance, so your tax-deferred shrinks significantly after that point, but never goes to zero.
But realistically...

And you need to get over that 51% hump tax thing, somehow.
85% of my SS is taxed in the 24% federal bracket AND I get to pay an additional IRMAA amount on my Medicare.
It's much more productively fun to commiserate about IRMAA than the rather narrow SS humps...
Attempted new signature...

Alan S.
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Re: RMD and expected life span

Post by Alan S. » Wed Jun 12, 2019 6:54 pm

J G Bankerton wrote:
Wed Jun 12, 2019 4:55 pm
Spirit Rider wrote:
Wed Jun 12, 2019 10:11 am
The IRS RMD tables take that into account and state the life expectancy "duration" at specific ages.
Is the RMD designed so one dies with no money in the account?
Life expectancy is the median, half will live longer and half will live less than the posted number. I hope the RMD is not that strict or one half of the people will have taken out all the money and still be alive.


Those that limit distributions to the RMD amount will never run their IRA dry, although the buying power of the distribution can sharply diminish.
The main reason is that the Uniform Table used by owners is a joint life table with a beneficiary 10 years younger than yourself. That means the divisors are not only determined using two lives, but the other age is 10 years younger than you are. Further if you are married to someone > 10 years younger then Table II applies and your RMD % of the balance is even less. Also, the tables are unisex so men draw down their IRAs relatively slower in relation to their actual life expectancy and women relatively faster.

On the flip side, just as in the case of a life annuity, there is an issue of buying power. Income "for life" does not mean that the income is sufficient to cover your increasing expenses in later years. It may just cover your electric bill and pet food. If the RMD does not cover your needs and/or your needs are excessive, the IRA will be drained unless there are other assets to spend.

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Re: RMD and expected life span

Post by willthrill81 » Wed Jun 12, 2019 7:05 pm

scotgirl100 wrote:
Tue Jun 11, 2019 4:01 pm
But since people are living longer..
Since the 1950s, the average remaining lifespan of a 70 year old has only increased by about one year every decade (e.g. in 20 years, 70 year olds gain two years of life expectancy). So since the tables have been updated, we could expect only about two additional years of life expectancy for those of beginning-RMD age, not enough to move the needle much.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: RMD and expected life span

Post by oxothuk » Wed Jun 12, 2019 7:13 pm

willthrill81 wrote:
Wed Jun 12, 2019 7:05 pm
scotgirl100 wrote:
Tue Jun 11, 2019 4:01 pm
But since people are living longer..
Since the 1950s, the average remaining lifespan of a 70 year old has only increased by about one year every decade (e.g. in 20 years, 70 year olds gain two years of life expectancy). So since the tables have been updated, we could expect only about two additional years of life expectancy for those of beginning-RMD age, not enough to move the needle much.
IIRC, the average life expectancy of a 70 year old is about 15 years. Another year is a 7% increase. Seems like a pretty big deal to me.

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Re: RMD and expected life span

Post by willthrill81 » Wed Jun 12, 2019 7:20 pm

oxothuk wrote:
Wed Jun 12, 2019 7:13 pm
willthrill81 wrote:
Wed Jun 12, 2019 7:05 pm
scotgirl100 wrote:
Tue Jun 11, 2019 4:01 pm
But since people are living longer..
Since the 1950s, the average remaining lifespan of a 70 year old has only increased by about one year every decade (e.g. in 20 years, 70 year olds gain two years of life expectancy). So since the tables have been updated, we could expect only about two additional years of life expectancy for those of beginning-RMD age, not enough to move the needle much.
IIRC, the average life expectancy of a 70 year old is about 15 years. Another year is a 7% increase. Seems like a pretty big deal to me.
The life expectancy factor at age 70 is 27.4, so the RMD is 1/27.4 = 3.65%. Increasing the life expectancy factor by two years would decrease the RMD to 3.4%. That might seem like a big deal to you, but it doesn't to me.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: RMD and expected life span

Post by Steelersfan » Wed Jun 12, 2019 7:23 pm

oxothuk wrote:
Wed Jun 12, 2019 7:13 pm

IIRC, the average life expectancy of a 70 year old is about 15 years. Another year is a 7% increase. Seems like a pretty big deal to me.
At age 70 your RMD is 3.65% of your portfolio. If in fact it goes up 7% (conjecture), it goes to 3.90%.

Not a big deal.

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willthrill81
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Re: RMD and expected life span

Post by willthrill81 » Wed Jun 12, 2019 7:33 pm

Steelersfan wrote:
Wed Jun 12, 2019 7:23 pm
oxothuk wrote:
Wed Jun 12, 2019 7:13 pm

IIRC, the average life expectancy of a 70 year old is about 15 years. Another year is a 7% increase. Seems like a pretty big deal to me.
At age 70 your RMD is 3.65% of your portfolio. If in fact it goes up 7% (conjecture), it goes to 3.90%.

Not a big deal.
Life expectancy increasing would make RMDs decrease, not increase.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Steelersfan
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Re: RMD and expected life span

Post by Steelersfan » Wed Jun 12, 2019 8:05 pm

willthrill81 wrote:
Wed Jun 12, 2019 7:33 pm

Life expectancy increasing would make RMDs decrease, not increase.
Good point. I stand corrected.

So not only not a big deal, a good deal.

JoeRetire
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Re: RMD and expected life span

Post by JoeRetire » Wed Jun 12, 2019 8:14 pm

J G Bankerton wrote:
Wed Jun 12, 2019 7:33 am
Men get the better deal as we die eight years younger than women.
Eight years?

Not in the US.

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Re: RMD and expected life span

Post by flyphotoguy » Wed Jun 12, 2019 8:33 pm

from smithsonianmag, in the US: Broken down by gender, men could expect to live an average of 76.1 years, down from 76.2 in 2016, while women could anticipate living until 81.1, the same age projected in 2016. The lower rate for men are due to higher suicides/drug overdose.

But from SSA, the numbers show the reality for those living an ok life.

"According to data we compiled:

A man reaching age 65 today can expect to live, on average, until age 84.0.
A woman turning age 65 today can expect to live, on average, until age 86.5.
And those are just averages. About one out of every three 65-year-olds today will live past age 90, and about one out of seven will live past age 95."

As for RMD, it goes up as you age so the burden gets higher (I was reading the table incorrect). But how much will it impact your holdings/investments if you've saved a lot in the impacted accounts? And I'm not sure if they'll change the distribution in the future too.
Last edited by flyphotoguy on Wed Jun 12, 2019 8:45 pm, edited 1 time in total.

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Re: RMD and expected life span

Post by willthrill81 » Wed Jun 12, 2019 8:34 pm

flyphotoguy wrote:
Wed Jun 12, 2019 8:33 pm
As for RMD, it goes down as you age so the burden goes lower.
RMDs increase as you grow older.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: RMD and expected life span

Post by flyphotoguy » Wed Jun 12, 2019 8:44 pm

willthrill81 wrote:
Wed Jun 12, 2019 8:34 pm
flyphotoguy wrote:
Wed Jun 12, 2019 8:33 pm
As for RMD, it goes down as you age so the burden goes lower.
RMDs increase as you grow older.
Oh sorry my mistake, let me edit that, I'm just forgetful, old and bald wishing I'm the Rock or that other action guy.

Alan S.
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Re: RMD and expected life span

Post by Alan S. » Wed Jun 12, 2019 10:51 pm

The dollar amount of the RMD will go down if the account losses plus the lower balance from the prior year RMD more than offset the higher RMD %.

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celia
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Re: RMD and expected life span

Post by celia » Wed Jun 12, 2019 11:58 pm

Alan S. wrote:
Wed Jun 12, 2019 10:51 pm
The dollar amount of the RMD will go down if the account losses plus the lower balance from the prior year RMD more than offset the higher RMD %.
Alan, Instead of comparing dollar values to percentages in the same sentence, I think it is simpler to say:

The account value (and thus the following year RMD amount) will increase each year as long as the percentage withdrawn is less than the percentage of growth on the account. (It should be a comparison of the two percentages.)

Even though the percentage to be withdrawn always increases, if the percentage of growth is less than that (or is negative), the account value (and the RMD amount for the following year) will decline.

Note that the "percentage of growth" can include any withdrawals that were taken during the year, whether they were RMDs or not.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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