Will RMDs Force Me to Run Out of Money?

A reader writes in, asking:

“I have a basic question about required minimum distributions. If RMDs are calculated so that you have to withdraw the account over your life expectancy, wouldn’t that force half of everybody (the people who live past their life expectancy) to run out of money before they die?”

No. All you have to do to satisfy the RMD rules is take the necessary amount out of the account (and, therefore, pay taxes on it in most cases). You are not required to spend the money.

Interestingly, the RMD rules won’t even force most people to deplete their IRAs during their lifetimes, because, in most cases, the RMD rules do not actually require you to distribute the account over your life expectancy, but rather over a longer period.

You see, there are three tables used to calculate RMDs:

• The “Uniform Lifetime” table ,which is used (in most cases) by the original owner of the IRA to calculate his/her RMDs;
• The “Joint and Last Survivor” table, which is used by IRA owners who have named their spouse as the IRA beneficiary and whose spouse is more than 10 years younger than they are; and
• The “Single Life” table, which is used by IRA beneficiaries (i.e., people who have inherited the account).

If you take a look at the Uniform Lifetime table and compare it to any actuarial life expectancy table, you’ll see that it is not actually showing the life expectancy of a single person. For example, the Uniform Lifetime table shows a distribution period of 18.7 years for an 80-year old. In contrast, the Social Security actuarial table shows that an 80-year-old has a life expectancy of just 8.10 years (if male) or 9.65 years (if female). As it turns out, the Uniform Lifetime table is actually meant to indicate the second-to-die life expectancy for a person of the age in question and a hypothetical beneficiary who is 10 years younger than the IRA owner.

The Joint and Last Survivor table calculates RMDs over the second-to-die life expectancy of the IRA owner and the more-than-10-years-younger spousal beneficiary (i.e., an even longer period than is shown in the Uniform Lifetime table).

In other words, RMDs for original IRA owners are calculated over a period longer than the life expectancy of the IRA owner.

The Single Life table — the one used by beneficiaries of an IRA — is the only one that represents the life expectancy for a single person, hence the name “Single Life” table.