How Retirees Spend the Savings They Are Forced to Withdraw

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At some point in your 70s, the tax-free ride that you enjoyed for decades on your 401(k) and traditional IRA investments finally comes to an end.

That’s when you must begin taking required minimum distributions (RMDs) — and paying taxes on that money — each year. The exact age at which your RMDs start has been 72 for most people, although a recent federal law is pushing it back to 75 over the next decade.

The government-mandated amount you must withdraw is based on your life expectancy and account balances and thus changes annually.

So, like it or not, millions of older seniors have to withdraw money even if they don’t need it. But what do they do with that cash?

Recently, the Employee Benefit Research Institute polled 1,988 adults between the ages of 62 and 75 for its 2022 Spending in Retirement Survey. One thing the EBRI asked these folks was what they are doing with their RMDs.

Following are the answers they gave.

Spending all of it

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Retirees who said they are doing this with their RMDs:

  • In the 2022 survey: 21%
  • In the 2020 survey: 17%

When you worked and the government let you defer taxes on 401(k) and traditional IRA investments, the notion was that you would need most of that money in retirement. Uncle Sam was simply letting you temporarily avoid taxes in the hope that you could accumulate enough money to live on.

So when people spend all of their RMD each year, they are using RMDs in the precise manner for which they were intended.

Spending some and saving some

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Retirees who said they are doing this with their RMDs:

  • In the 2022 survey: 28%
  • In the 2020 survey: 20%

Some retirees are lucky: Either their expenses are exceptionally low or their savings are unusually high.

In either case, they do not need to spend their entire RMD each year, so they save a portion of it in another account.

Saving it all

Senior businessman with piggy bank
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Retirees who said they are doing this with their RMDs:

  • In the 2022 survey: 20%
  • In the 2020 survey: 14%

It probably surprises no one that 6% fewer retirees saved their entire RMD in 2020 compared with how many are doing so now. For one thing, 2020 was the height of the COVID-19 pandemic lockdowns. Retirees who may have been supplementing their income with a part-time job could have found themselves stuck at home and needing that RMD money to fill the gaps in their budget.

However, inflation is on the rise now so time will tell if seniors will be able to continue to save in the coming year.

Looking for ways to stave off rising costs? Check out “10 Sure-Fire Ways to Beat Inflation.”

Aren’t taking their RMD or are not sure

Senior woman worried about money
Maria Symchych /

Retirees who said they are doing this with their RMDs:

  • In the 2022 survey: 31%
  • In the 2020 survey: 49%

Sadly, a fairly substantial proportion of retirees either do not take their RMD or are not sure whether they do.

Not only is that wrong, but it’s costly. Fail to take your RMD as scheduled, and the penalties can be stiff. For the ugly details, check out “3 Tax Penalties That Can Ding Your Retirement Accounts.”

Oh, and by the way, don’t imagine that Americans were worse about this in 2020 than they are today. The likely reason for the percentage being so much higher in 2020 is that the IRS cut seniors a pandemic-related break that year and told them they did not have to take RMDs.

In other words, it was fine to skip your RMD for 2020, but that’s not true for 2022.

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