How RMDs can Impact a Retirement Strategy

Why your clients may want to consider having a plan for their Required Minimum Distributions (RMDs)

Your clients may be well prepared for retirement. Ideally, you’ve helped them plan and they have followed that plan. They may have weathered the bears and taken advantage of the bulls. Now as retirement draws near, is there anything else left to plan for?

Well, yes. How about RMDs?

What are RMDs?

The IRS generally requires retirees to take RMDs, which are withdrawn from tax-deferred qualified assets, such as IRAs, beginning at age 73.¹ RMDs are taxable and may affect your client’s overall retirement income strategy. RMDs were created as the trade-off for the tax deferral benefit for retirees who will not need to use all their qualified assets for income.

What risks could RMDs create?

While RMDs may be part of some clients’ plans to fund their essential or lifestyle expenses – others may view RMDs as impacting their retirement strategy or legacy plan.

Taking the required distributions from an IRA may reduce your clients’ growth potential, especially if they still have accumulation goals – even while in retirement. Or on the flip side, those distributions may impact their portfolio balance and make them more susceptible to market volatility – a risk they may not want to take.

Could a fixed index annuity help?

Certain fixed index annuities (FIAs) may offer your clients an alternative way to potentially grow and protect a portion of their retirement portfolio, while lessening the impact RMDs might have on the legacy aspect of their retirement strategy.

An RMD plan in action

Take this example of a client named Reid. Reid is 60 years old and has saved $500,000 in his IRA. With help from his financial professional, Reid has an equities and fixed income allocation strategy to help manage volatility while still providing growth potential. At age 73 Reid starts taking RMDs from his IRA every year. If he takes his RMDs from the equity portion, he risks his growth potential. If he takes from his fixed income portion, he risks overexposure to volatility. And a proportional combination of both still reduces his growth potential more than he may like.

One strategy that can help Reid with the impact of RMDs is to use his current fixed income investment to purchase an FIA with an income benefit. For example, if Reid purchases ForeIncome II FIA with the Guaranteed Income Builder Benefit,^{2, 3, 4, 5} he’d receive 15% annual growth on his Withdrawal Base up to 20 years. This guaranteed income covers a greater portion of his overall RMD obligation and provides him with a stream of protected lifetime income that he can’t outlive – especially important if he lives longer than expected.

Consider talking to your clients now about how they might like to manage RMDs. See if ForeIncome II FIA with Guaranteed Income Builder Benefit, used in this way, could offer them a way to help protect their legacy by providing a source of lifetime income that could help fund a portion of their future RMDs.