• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

Jon Luskin, CFP® ● Hourly Advice for Do-It-Yourself Investors

Hourly Advice for Do-It-Yourself Investors

  • Home
  • About
  • Work with Jon
  • Blog
  • Bogleheads® Live
  • Publications
  • Speaking
  • Reading List

When Should You Take Your RMD?

March 15, 2018 By Jon Luskin Leave a Comment

Recently, a client asked if they should be taking their RMDs at the beginning of the year. Given the market’s recent upward performance, a market correction is due, thought the client. By that logic, it should make sense to take the RMD sooner rather than later, right? Perhaps, let’s see what the numbers say.

I looked at annual stock returns from 1926 to 2016. For this, I used the CRSP 1-10 data. Here’s what I found:

  • % of times that the stock market return was greater than 0%: ~75% (this is different than the 2/3 metric for lump-sum investing outperformance)
  • % of times that the market return was less than 0%: ~25%

Said another way, there’s a roughly three out of four (~3/4) chance that stocks will be higher at the end of the year compared to the beginning of the year. By that logic, you’re usually better off keeping your money in the market.

It’s pretty clear that the odds are favorable to keeping your money in the market for as long as possible.

However, looking at any individual year may be misleading. So, let’s stretch out the timeline.

RMDs on 30-Year Rolling

Here are the results on 30 years of rolling data for the same time period:

  • 30-year rolling, % of times that doing RMDs at the beginning of year meant earning more money over doing RMDs at end of year: 0%
  • 30-year rolling, % of times that doing RMDs in either strategy ran out of money: 0%
  • 30-year rolling, median & average superior wealth terminal when doing RMDs at year end over doing RMDs at beginning of the year: 24%

Twenty-four percent. That’s 24% more money by doing RMDs at year end.

Said another way, the difference isn’t even close. On a 30-year timeline, there’s not a single data point that makes a case for doing RMDs at the beginning of the year.

RMD Timing in a Diversified Portfolio of Stocks & Bonds

I shared the above findings with a fellow investment nerd, Steven Rocha. He reached the same conclusions as the above. Moreover, he offered a successive analysis. Here are his cliff notes:

  • It’s better to take the RMD at the end of the year over a 30-year time frame, no matter what percentage of stocks (or bonds) is in a portfolio.
  • Over 20 years (is everyone going to live to be 100?), it turns out that it has ALWAYS been better to take your RMD at the end of the year over a 20-year time frame.
  • Over 10 years, it is sometimes better to take the RMD in the beginning, if the portfolio has more than 60% of stocks.  BUT, doing so only lead to an outperformance of 1.9% in the best year, while taking the RMD at the end of the year could have lead to a 25% outperformance for the best 10-year period.

In short, it may make sense to make RMDs at the end of the year – rather than at the beginning of the year. The reason why is the same reason we invest in the stock markets in the first place: the stock market goes up in value over time!

 

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Is a One-Day Financial Review Right for You?

Get Your Free Assessment ➔

Get in Touch with Jon Luskin, CFP®

  • Email
  • LinkedIn
  • Twitter

Sign Up for New Blog Posts & Podcasts Delivered to Your Inbox

What I’m Reading Right Now

Recent Posts

  • Bogleheads® Live 40: Sean Mullaney on Recent Tax Law Changes for FIRE
  • Bogleheads® Live 39: Protecting Your Income
  • Bogleheads® Live 38: Medicare Questions Answered
  • Bogleheads® Live 37: Christine Benz on ‘How much can I spend in retirement?’
  • Bogleheads® Live 36: Mike Piper on ‘After the Death of Your Spouse’

Categories

  • Bogleheads® Live
  • Bonds
  • College Planning
  • Financial Planning
  • FIRE, FI, Early Retirement
  • Investing
  • Practice Management
  • Real Estate Investing
  • Tax Planning

Jon Luskin, CFP® Follow

Hourly Advice for Do-It-Yourself Investors. '@Bogleheads® Live' host. Advice-Only #CFP®. #fiduciary. @SDFLC volunteer. Tweets ≠ Advice. https://t.co/GJqMxem3Cr

JonLuskin
jonluskin Jon Luskin, CFP® @jonluskin ·
10 Feb

How to Buy Life #Insurance: Laddering Life Insurance Policies

Instead of buying a single life insurance policy with a term similar to the balance of your working career and the total coverage needed were you to die tomorrow, you could consider laddering policies.

1/n

Reply on Twitter 1624151247186976776 Retweet on Twitter 1624151247186976776 Like on Twitter 1624151247186976776 4 Twitter 1624151247186976776
Retweet on Twitter Jon Luskin, CFP® Retweeted
bogleheads John C Bogle Center for Financial Literacy @bogleheads ·
10 Feb

Mark your calendars for Thursday, 12:00 p.m. Pacific / 3:00 p.m. Eastern.

Will be answering your questions about the critical insurance coverage that is disability #insurance.

Set a reminder for my upcoming Space! https://twitter.com/i/spaces/1OyKAVAlnXqGb

Reply on Twitter 1624088094415933440 Retweet on Twitter 1624088094415933440 1 Like on Twitter 1624088094415933440 1 Twitter 1624088094415933440
jonluskin Jon Luskin, CFP® @jonluskin ·
10 Feb

It’s hard to make a case for any life #insurance that isn’t term life insurance.

Said differently:

Generally, run screaming from whole life, universal life, indexed universal life (IUL), variable life, variable universal life, or anything not term life insurance.

Reply on Twitter 1624060620948529154 Retweet on Twitter 1624060620948529154 1 Like on Twitter 1624060620948529154 37 Twitter 1624060620948529154
Load More

Is the One-Day Financial Review right for you?


Get Your Free Assessment ➔

Disclosures & Legal

Jon Luskin is a registered investment adviser in the states of Arizona, California, Florida, Louisiana, Massachusetts, New York, North Carolina, Pennsylvania, Texas, Virginia and Washington. The Adviser may not transact business in states where it is not appropriately registered, excluded or exempted from registration. Currently, there are no states where the adviser is not appropriately registered, excluded or exempted from registration – allowing the adviser to work with anyone in any state. Individualized responses to persons that involve either the effecting of transaction in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption.

Copyright © 2023