Locator: 46644IRA.
Key dates to remember with regard to IRAs:
- 1970
- 1981
- 1997
When did IRAs truly start to impact the economy? I would argue, 1995, to some extent, but then took off in 2007:
- 1970: traditional IRA introduced
- 1980: folks became comfortable with IRAs
- 1997: IRAs improved by a huge amount with the introduction of Roth IRAs
- 2007: another ten years of traditional IRA / Roth IRA growth in popularity
Now, look at this graph:
Same chart with markers and comments:
Demographics, US:
Look at this, and no one seems to be mentioning this.
Age when one can start taking distributions from one's IRAs: 59.5 years of age.
IRA RMDs by demographic (note, data is somewhat old):
- silent generation: minimal impact on economy with regard to RMDs
- those who have IRAs are probably using RMDs for nursing home expenses
- baby boomers: biggest impact on economy with regard to RMDs
- those born in 1964: turn 78 years of age this year
- those born in 1946: turn 60 years of age
- in other words, every -- repeat, every baby boomer can now take RMDs
- my wife has been taking distributions before they were required and now RMDs for maybe ten years and despite the withdrawals year-after year, her IRA continues to grow
- I start taking my first RMDs this year
- almost all baby boomers can now tap into their social security benefits
- almost all baby boomers are covered by Medicare. Medicare benefits got even better in 2024 (thank you, Mr Biden), seniors will spend less money on healthcare (all things being equal)
- 529s: a lot of baby boomers (GRANDPARENTS) are going to look for tax-advantage accounts to place RMDs they don't need for current expenses
- 529s have vastly improved starting this year (or last year?) making these investment vehicles look even better -- I'm having trouble finding a better place to re-invest my RMDs
- interestingly, one can argue that 529s are even better than IRAs
- generation X: will start to make impact this year but not much, but it will continue to grow every year for the next decade or so
- those born in 1980: turn 44 years old this year; no impact on economy with regard to RMDs but starting to hit max income / max productive years of their lives
- the younger Xers, now in the best years of their lives, financially, are now more likely to fund IRAs and that will help set a floor for the equity market;
- those born in 1965: turn 59 years old this year!
- this is the biggie
- starting this year, generation X folks can start tapping their IRAs; it doesn't mean that they will but it means that if they don't, they have enough other income to offset any need for IRA distribution (meaning strong financial status for those folks)
- again, this is huge
- Roth IRAs have been around 27 years and the last 27 years have been great for investors, but
- even better: the way the market behaved last year and how the market is now behaving in the second half of January, 2024, a lot of folks are getting excited
- my hunch: a lot of folks are taking some / all of their RMDs this month; if not their entire RMD, taking a fourth to half of their annual RMD
- only a few more years and Xers will also be able to access social security benefits, also
On top of all this, this "RMD story" is not going to go away. Year-after-year RMDs will increase in dollar amounts, but whether they increase or not, they will never quit.
And we haven't even begun to talk about "inherited RMDs":
- "inherited RMDs"? Reminder, oldest baby boomers turn 78 years of age this year -- IRS life expectancy for IRAs tend to trend toward 100 years of age -- taking only minimal RMDs, the vast majority of IRAs will still be funded and growing when their own dies.
- unlike owners of IRAs who can spread their RMDs over a life expectancy (26 years or longer), beneficiaries (those who inherit IRAs) must deplete those IRAs in ten years.
- one word: wow.
