What You Need to Know
- The Secure Act raised the RMD age to 72; some lawmakers want to raise it to 75.
- Retirees with a strong desire to leave money to heirs are the most likely to change behavior when the RMD age rises, a study finds.
- Advisors should avoid giving blanket advice on RMDs.
A new report from the National Bureau of Economic Research has shed some additional light on the implications of changing the age to commence required minimum distributions from retirement plans.
The Setting Every Community Up for Retirement Enhancement (Secure) Act raised the age to 72 for those starting RMDs on or after Jan. 1, 2020. The Securing a Strong Retirement Act, which House Ways and Means Chairman Richard Neal intends to reintroduce in this Congress, would raise the RMD age to 75.
The NBER study offers some insights for financial advisors in providing guidance to clients who are retired or entering retirement.
Increased Retirement Account Balances
One of the reasons those who support raising the age to commence RMDs cite is that this change will result in higher account balances through retirement and the ability for retirees to make their savings last longer.
The data from the NBER study suggests that increasing the RMD age will have little discernible impact on retirement account balances throughout a person’s retirement. The study found that “… delaying the RMD age further would have little impact during the work life, including on workers’ savings and asset allocation inside and outside tax-qualified retirement accounts. Additionally, Social Security claiming behavior is almost unaffected.”