Required Minimum Distributions (RMDs) are one of the most misunderstood parts of retirement.
Most people think of them as a problem that shows up all of a sudden at a certain age. That’s not how it happens; RMDs are the result of decisions made years earlier. And actually, the issue usually isn’t even the distribution, but the lack of planning before it starts.
1. What RMDs Actually Are
An RMD is the IRS telling you:
“You’ve deferred taxes long enough. Now you have to start taking money out, whether you need it or not.”
If you’ve saved in traditional IRAs or 401(k)s, RMDs are unavoidable. The only question is how disruptive they’ll be.
2. A Common (and Costly) Misunderstanding
Here’s something we see all the time…
Someone has a $100,000 retirement account and is already taking out $1,000 per month ($12,000 per year). Their required minimum distribution is only $5,000.
They worry:
“Does this mean I’ll have to take another $5,000?”
No. They’re already satisfying the requirement.
This confusion shows what the bigger issue at hand is: most people don’t fully understand how RMDs work or how they affect taxes.
3. Why Waiting Is the Real Risk
RMDs don’t exist in a vacuum. When they start, they can trigger a chain reaction:
- Higher taxable income
- Increased taxation of Social Security
- Higher Medicare premiums
- Reduced flexibility in your portfolio management strategy
If you wait until RMDs begin to think about them, you’re already behind.
4. Planning Years Before RMDs Begin
Smart retirement planning looks at RMDs well before they’re required. To control their impact rather than eliminate them.
This might involve:
- Adjusting income sources earlier in retirement
- Managing tax rates intentionally over time
- Coordinating withdrawals across accounts
The goal is to avoid being forced into higher taxes later because of inaction today.
5. A More Realistic Way to Think About RMDs
RMDs are a reminder that tax-deferred money was never tax-free.
If you handle them well, they can be another piece of a well-coordinated financial planning strategy. But if handled poorly, they can quietly erode your wealth over time.
6. The Bottom Line
RMDs aren’t inherently a bad thing. But waiting too long to plan for them is detrimental. The earlier they’re factored into your wealth management and portfolio planning, the more options you have and the less stress they create.
In retirement, control matters just as much as returns.
