Forced withdrawal (related to RMD?)

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eric
Posts: 35
Joined: Wed Apr 20, 2016 6:06 pm

Forced withdrawal (related to RMD?)

Post by eric »

I'm a newcomer to FRP, and still trying to figure out how all the pieces fit together.

I'm running an example with these values:

Tax Deferred Portfolio Value = 100,000
Starting age = 60
Retirement age = 75
Annual retirement spending = 0
Investment tax rate = 0
Income tax rate = 0

When I run the simulation, FRP gives me a result that I don't understand: Starting at age 75 (retirement age), on the detailed view page, I start to see withdrawals. But why? My retirement expenses are zero.

It seems to have something to do with RMD, because the withdrawals disappear when I set Take RMD = No on the Settings page. But my understanding is that the IRS RMD requirement starts at age 70, not 75. (At age 70 I do see a growing taxable portfolio, as expected, which I assume represents the RMD.)

So why the withdrawals starting at retirement age?
jimr
Posts: 699
Joined: Thu Feb 28, 2008 6:48 pm

Re: Forced withdrawal (related to RMD?)

Post by jimr »

Please ignore the rest of this post below, it's not correct. I'm leaving the post here for continuity.
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It's a bug, or perhaps I could say it's functioning as I designed it. Some of the simulation logic isn't activated until after retirement starts. Portfolio withdrawals aren't considered or processed in the years before you retire and as a side effect, the RMD logic isn't engaged either.
eric
Posts: 35
Joined: Wed Apr 20, 2016 6:06 pm

Re: Forced withdrawal (related to RMD?)

Post by eric »

jimr wrote:Portfolio withdrawals aren't considered or processed in the years before you retire and as a side effect, the RMD logic isn't engaged either.
But it appears that at least some of the RMD logic is triggered at age 70. In the example I gave, I start seeing a small but growing taxable portfolio starting at age 70. But when I turn off Take RMD, that portfolio does not appear.
jimr
Posts: 699
Joined: Thu Feb 28, 2008 6:48 pm

Re: Forced withdrawal (related to RMD?)

Post by jimr »

OK. It appears that the planner does process RMDs correctly even in the years before retirement. Please disregard my comment above. (in my defense - I wrote that code 10 years ago).

If you click the 'Show More Detail' radio button on the top right side of the Detailed View screen you can see the breakdown of what happens with RMDs and taxes.

The withdrawals you're seeing starting at retirement age are the RMDs. My incorrect comment above about logic not getting engaged until retirement starts was partly right. The logic that populates the 'Withdrawal Amount' column in the Detailed view table is an example.

The simulation code is doing what it's supposed to do, but the reporting is a little wobbly in that some of those cells in the detailed view table don't get filled in during the years before retirement. You can see this more clearly if you click that 'Show More Detail' radio button. With the extra columns in view, you'll notice that the 'New Taxable Investment' and 'New Tax Deferred Investment' columns are also not populated correctly in the years before retirement. OTOH, you can see the Taxable portfolio value increasing by the amount of the RMD (plus investment gains). Again, I believe all the calculations are happening as they should, it's just that some table cells show 0's in the years before retirement when they should be populated based on what happened with the RMD.
eric
Posts: 35
Joined: Wed Apr 20, 2016 6:06 pm

Re: Forced withdrawal (related to RMD?)

Post by eric »

Understood. Thanks.

Fortunately, those non-reported numbers won't be significant for me for my actual personal situation. I just stumbled upon this when I was doing some test examples to make sure I understood how the basic calculations work.
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