Can retirees base wealth withdrawals on the IRS' required minimum distributions?

Abstract

The brief's key findings are: (1) Retiring baby boomers need a strategy to draw down their 401(k)/IRA balances to avoid either outliving their savings or scrimping on consumption during retirement. (2) Traditional strategies include spending only the income, consuming assets based on life expectancy, and drawing 4 percent of initial assets each year. (3) A comparison found that a new option using the IRS' Required Minimum Distributions (RMD) does about as well as the traditional options and actually outperforms the 4-percent rule. (4) The RMD option is also easy and creates no adverse incentives. (5) A somewhat more complicated version of the RMD option does even better, approaching an optimal withdrawal pattern.