When You’re Forced to Cash Out in a Bearlike Market

The amount an account owner has to withdraw varies from year to year, based on their account balance as well as their anticipated life span, and the distributions are taxed as ordinary income. People with multiple accounts have some flexibility in that the total amount of their distribution can be withdrawn from one or more accounts, but the penalty for noncompliance is steep: R.M.D.s that are not withdrawn by the required dates are taxed at a rate of 50 percent.

Cil Frazier, a retired TV marketing professional who lives in a suburb of Birmingham, Ala., said she will have to begin taking her R.M.D.s by next April, which she is reluctant to do.

Ms. Frazier, 71 and a widow, said Social Security plus a small amount of pension income were enough to pay her mortgage and most everyday expenses for the time being, but she worries about inflation driving up her cost of living.

“I’m paying more money for things I just normally buy. I’m shopping more carefully,” she said, adding that she is bracing for higher energy bills as temperatures climb in the Southeast. “I’m setting the thermostat on the air-conditioner higher.”

People who help retired Americans navigate their finances are alarmed by the vulnerability that this cohort — especially historically marginalized populations — faces as a result of market gyrations. It’s especially tricky for those without money managers, because investors have to calculate on their own how much they have to withdraw to meet R.M.D. requirements.

“It’s very complex, and it’s almost impossible for a layperson” to manage without assistance, said John Migliaccio, a consultant on senior financial literacy.

Article source: https://www.nytimes.com/2022/06/12/business/when-youre-forced-to-cash-out-in-a-bearlike-market.html