Despite the fact that retirees are only obligated to withdraw a specified proportion of their retirement funds annually as distributions, a study by JPMorgan Chase indicates that there are probably valid reasons to withdraw more. The financial services firm discovered that a withdrawal strategy predicated exclusively on required minimum distributions (RMDs) not only falls short of satisfying the yearly income requirements of retirees but may also result in unutilized funds during their final years.
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By leveraging internal data and an Employee Benefit Research Institute database, JPMorgan Chase conducted a study spanning from 2013 to 2018 that examined the retirement transitions of 31,000 individuals. A significant majority (84 percent) of retirees who had attained the RMD age withdrew only the bare minimum. The study found that 80% of retirees who had not yet attained RMD status had not yet withdrawn funds from their accounts, indicating a preference for capital preservation during later years of retirement.
However, the prudence of retirees with regard to withdrawals might be misguided.
“The RMD approach has a number of obvious flaws,” Katherine Roy and Kelly Hahn of JPMorgan Chase wrote. “The generated income fails to sustain the declining purchasing power of retirees in current dollars, a phenomenon that is characteristic of the aging process.” In fact, the RMD strategy can leave a substantial account balance at age 100 and tends to generate more income later in retirement.
