RMDs, IRA Performance, and the “Ideal” Rate of Return

Required Minimum Distributions (RMDs) are the IRS‑mandated withdrawals you must take from traditional IRAs and certain retirement accounts starting in your early 70s.

 

✅ Once RMDs begin, money is flowing out every year—so the rate of return on your investments becomes critical to how long your account lasts.

When you’re taking RMDs, your IRA balance is constantly fighting two forces:

• Withdrawals: The percentage the IRS requires you to take out each year.
• Growth: The rate of return on your investments that year.

If your long‑term return is too low, withdrawals eventually overpower growth and the IRA account shrinks.

 

If your return is high enough, your IRA balance can remain stable—or even grow—deep into retirement.


Is there an “ideal” rate of return?

There’s no single perfect rate for everyone, but there is a useful planning benchmark:

If your IRA earns more than about 6.25% per year on average, your account can generally keep growing—even while you take RMDs—through age 85.

That 6.25% figure isn’t a guarantee or a promise; it’s a planning threshold based on current RMD percentages and a long retirement horizon.

 

In practice:

• Below ~6.25%: RMDs will slowly draw the account down over time.
• Around 6.25%: Growth and withdrawals are roughly in balance.
• Above 6.25%: Your IRA has a good chance to grow, even as you take required distributions.

Actual results depend on your specific investments, fees, taxes, and when you retire—but this benchmark helps frame what “strong enough” performance looks like once RMDs start.


Balancing growth and risk

Chasing the highest possible return isn’t the goal. The real objective is:

• Enough growth to support RMDs and income needs
• Acceptable risk so you’re not forced to sell at bad times
• A strategy that you can stick with through market ups and downs

For many retirees, that means a diversified mix of annuities and stocks and bonds designed to target a mid‑single to high‑single‑digit average return over time, while managing volatility.


What this means for your retirement plan

Key takeaway: Once RMDs begin, your IRA’s long‑term rate of return becomes the engine that either:

• Keeps your account growing into your 80s and beyond, or
• Gradually depletes it as withdrawals outpace growth.

Using a planning target like 6.25%+ helps you stress‑test your portfolio and see whether your current strategy is likely to support both RMDs and long‑term account health.

If you’d like, tell me your age, IRA balance, and current allocation, and we can sketch how different return assumptions change your projected balance through age 85 or later. Enter your information below and I will send your report out.