401ks, Minimum Withdrawals, and the 4% rule

[RusticBohemian]

So I've heard about the 4% rule, which states that there's a high probability that your retirement funds won't run out in your lifetime if you withdraw 4% or less of your portfolio's value per year.

However, the US federal government mandates a minimum withdrawal from tax deferred accounts starting at age 70.

Does this withdrawal amount cause withdrawals of more than 4%?

[johnny847]

It can cause withdrawals of more than 4% of your 401k or IRA, yes. But even if that does occur, you can just reinvest that money into a taxable investment account if the minimum required distribution exceeds your desired spending. Of course, you do lose some to taxes because of this forced withdrawal. So an RMD that exceeds 4% doesn't mean you have to withdraw more than 4% from your portfolio.

However, in practice for many Mustachians this probably will not happen as they are likely to execute the Roth conversion pipeline to retire early and drain a large portion of their 401k/IRA balances penalty (but not tax) free before 59.5: http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

[tralfamadorian]

Pretty in depth discussion of this on Go Curry Cracker:
http://www.gocurrycracker.com/gcc-vs-rmd/