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?

Tom Lashnits Writer, Blogger