RMD's

[MountainTown]

I am helping my mom with her finances so am learning a lot about retirement scenarios. I have a specific question about RMD's. Please assist me.

Here is my mom's situation. She and her husband make enough to live comfortable on stable government pensions. They really don't need anymore than that and they even manage to travel, save, and have some fun with just their pensions.

In a month they will payoff mortgage so this should get even better.

My mom's husband doesn't have much in assets(aka nothing).

My mom has a little. An HSA type account which i have advised her(despite a heavy .5%) fee to liquidate last and invest in VTSAX-type investments.

She also has about $60,000 in traditional IRA assets. She will reach RMD age in about 2-3 years. Currently she is 100% invested in VTSAX. At that value, my basic understanding is that she will have to withdraw about $2000 to $2500 a year in 2-3 years. So I am wondering if she should be shifting some to cash or bonds while market valuations are high?

I have not advised her to be in bonds because:

a.) Both her and her husbands have pensions
b.) They have no debt
c.) They have no mortgage(in 1-2 months)
d.) Given the above, they still save a little, travel a little, and live comfortably(money isn't tight but lifestyle is not lavish)


What should I advise her? Shift about $2000 to bonds? Or cash?

I am a little concerned about her having to liquidate VTSAX in a down market? Is it wise than to at least put the RMD amount now into cash or bonds? Or should we/she just solely rely on the concept of the 4% rule and let her roll the dice on that? Ultimately liquidating $2000 a year shouldn't destroy her portfolio ...but it's not a lot of money so if I can help her be more efficient I would like to. As I said above I haven't recommended bonds/cash because she has stable pensions and no mortgage.

Thanks for any advice. I should also mention she does already have another $20 to $30k in an HSA-type account and yet another $10 to $15k in cash/CD's.

[VoteCthulu]

If I was in that situation, I would keep some cash in a savings account for emergencies, and then take my RMD and use it to buy the same investment in a taxable brokerage account.

So if I had to take an RMD of $2000 in 2018, I would take a distribution from in December and use it to buy VTSAX (or VTI if I didn't have any other taxable investments yet).

With 100% of my expenses covered by pension/SS I personally would stay 100% stocks, but my own mother is very conservative, so I'd probably suggest 50/50 to her. This is really a personal risk tolerance decision.

[seattlecyclone]

Converting the IRAs to Roth would remove the requirement to take distributions, at the expense of paying tax on any converted amount in the current year. Doing this up to the top of whatever tax bracket their pensions already put them in may be a good idea. Even taking an RMD doesn't mean you have to get that money out of the market entirely at a bad time. If it's truly extra money that she doesn't plan to spend, she can always reinvest that money in the exact same investment within a taxable account immediately after removing it from the IRA.

But I think the real question is what is her plan for the money? Does she plan to spend it during the next decade or two? If so, a strong bond allocation may make a lot of sense. Otherwise stocks are probably the place for it, RMDs or no.

[MountainTown]

She doesn't really need it. I would imagine she will like to use it at her leisure for vacation, fun spending, and when she needs it a new car or house projects, etc. All these things are not urgent and pretty easy to forecast. She is pretty frugal and doesn't mind driving old cars--doesn't need to renovate the house every year.