Time for RMDs?

Learn about an alternative income strategy.
If you’re no longer working after you reach age 70? the Internal Revenue Code requires you to take income from your qualified plans and some types of IRAs in the form of what’s called Required Minimum Distributions (RMDs).1
RMDs are designed to ensure that you don’t simply accumulate retirement assets and defer taxation by passing them on to your heirs. But RMDs are not your only choice. There are other ways to take income from your IRAs and qualified plans that meet the IRS RMD requirements and overcome some of the drawbacks of RMDs.
Before you start taking RMDs, consider a few potential drawbacks to that choice:
  • If you’re looking for steady, reliable lifetime income, RMDs may not be suitable. The amount of income you get can change each year based on your age and the performance of the underlying investments.
  • You have to take an RMD every year, even in down markets.
  • The penalty for not taking your full RMD on time is steep: 50% of the amount you should have withdrawn but didn’t.
However, you can meet the IRS requirements and overcome some of the drawbacks in other ways.

One Alternative – Lifetime Income Annuity Payments

An annuity can provide you with income for life. And it may reduce the administrative burden of tracking how much you need to withdraw each year. Any amount you convert to an annuity payment satisfies your RMD and then the amount no longer figures into that calculation after you convert it. An annuity can provide a stream of lifetime income so you don’t need to worry about outliving your money.
You may already have annuity assets available in your TIAA retirement plan or IRA – check with your employer or log-in to your TIAA account to see if you do.
RMD Table for PFR
The TIAA group of companies and its employees do not offer tax or legal advice. Please consult your legal or tax advisor.

How do RMD and lifetime annuity payments compare?

The amount of your RMD payment will change from year to year based on your age and account balance. The RMD income amount may not align to your need because it's lower during your early active years and then decreases later on.
Depending on your situation, creating guaranteed income from a fixed annuity may provide higher income amounts that you can rely on for as long as you live. In the example below, the RMD payout never reaches the level of the fixed annuity payment.
Annuity vs. RMD per $100K
The chart above shows annual income for a 70-year old with $100,000. The assumed investment return is 3.5% for both the lifetime income and the RMD payment.
Bob and Mary both have $100,000 in an account subject to RMDs. Bob purchases a fixed annuity and receives a steady payment of $7,150 for as long as he lives. Mary takes automated RMD withdrawals, which:
  • Change each year and never reach the level of Bob’s fixed annuity payment.
  • May not align to her needs as the amount is lower in her early active years and then decreases later on.
next steps

There are choices for managing income in retirement

Calculate your income

Use the TIAA RMD calculator to estimate the amount(s) you may need to take from your IRA or retirement plan.

Give us a call

We can provide an illustration of your annuity income potential. Call us at 888-583-2535 weekdays 8 a.m. to 10 p.m. (ET)

Not yet retired?

Create your own personal retirement income profile to get a snapshot of what your retirement income and expenses might look like.
1 April 1 following the year in which you turn age 70½ or, for retirement plans, the April 1 following the year in which you retire if later than age 70½.
Annuities are designed for retirement and other long-term goals. They offer several payment options, including lifetime income. Guarantees are based on the claims-paying ability of the issuer. Withdrawals of earnings from an annuity are subject to ordinary income tax plus a possible federal 10% penalty if you make a withdrawal before age 59½.

Annuity contracts may contain surrender charges and terms for keeping them in force. For full details, including costs, contact your financial professional.

Teachers Insurance and Annuity Association of America (TIAA) and College Retirement Equities Fund (CREF), New York, NY, issue annuity contracts and certificates. Each is solely responsible for its own financial condition and contractual obligations.

©2017 Teachers Insurance and Annuity Association of America-College Retirement Equities Fund, 730 Third Avenue, New York, NY  10017