Skip to main content

RMD (IRS Factors)

Divide your portfolio by an IRS-published life expectancy divisor each year, producing withdrawals that start small and grow as you age.

How It Works​

The RMD method borrows from the IRS Required Minimum Distribution rules that govern tax-deferred retirement accounts. Each year, you divide your portfolio balance by a divisor that corresponds to your current age. The IRS publishes these divisors in the Uniform Lifetime Table — at age 72 the divisor is 27.4, at age 80 it's 20.2, at age 90 it's 12.2, and so on.

Because the divisor shrinks each year, the percentage you withdraw rises automatically. At 72 you're taking roughly 3.6% of your portfolio; by 85 that climbs to about 6.3%. This creates a spending pattern that starts conservatively and accelerates, which can be a reasonable match for retirees who expect higher medical or care expenses later in life.

The appeal of this approach is its simplicity and institutional backing. There is no guesswork about what percentage to use — the IRS has already done the actuarial math. You look up your age, divide, and withdraw. However, the method was designed as a minimum distribution for tax purposes, not as an optimal spending strategy. Early withdrawals may be lower than what you actually need, and the method has no mechanism for adjusting to your personal spending requirements.

The Formula​

Year 1:

divisor = IRS_Uniform_Lifetime_Table[age]
withdrawal = portfolio_balance / divisor

Year 2+:

new_portfolio = previous_portfolio - withdrawal + investment_returns
divisor = IRS_Uniform_Lifetime_Table[current_age]
withdrawal = new_portfolio / divisor

Key parameters:

  • Age: Determines the divisor from the IRS table
  • IRS Uniform Lifetime Table: Published divisors from age 72 through 120+
  • Portfolio balance: Recalculated each year after returns and withdrawals

Sample divisors: Age 72 = 27.4 | Age 75 = 24.6 | Age 80 = 20.2 | Age 85 = 16.0 | Age 90 = 12.2

Pros & Cons​

Advantages:

  • IRS-backed methodology with published, updated tables
  • Simple annual table lookup — no complex calculations required
  • Withdrawal rate automatically increases with age
  • Mathematically cannot deplete the portfolio (always dividing what remains)

Limitations:

  • May produce withdrawals well below your actual spending needs in early years
  • US-specific rules that don't apply to retirees in other countries
  • Designed as a tax-compliance minimum, not an optimal spending strategy
  • No mechanism to account for personal expenses, health costs, or inflation targets

Example​

Starting portfolio: $1,000,000 | Starting age: 72 | Assumed return: 6% nominal

AgePortfolioIRS DivisorWithdrawal
72$1,000,00027.4$36,496
75$1,028,00024.6$41,789
80$1,010,00020.2$50,000
85$910,00016.0$56,875
90$720,00012.2$59,016

The withdrawal amount rises steadily as the divisor shrinks, even if the portfolio itself declines. In favorable markets, both the portfolio and the withdrawals can grow simultaneously.

When to Use This Method​

The RMD method is best for retirees who:

  • Want a dead-simple approach with no subjective decisions
  • Are already subject to IRS RMD rules on their tax-deferred accounts
  • Prefer conservative early spending with naturally rising income later
  • Have other income sources (Social Security, pension) covering baseline expenses in early retirement

It is less suitable for early retirees (before age 72) or anyone who needs higher withdrawals from day one.

Try It Yourself

Compare RMD against other strategies using your own numbers in the Scenario Builder.

References​