Whether you begin your retirement at or before 65 or wait until you’re 68, you only have a few years before you are obligated to take money out of your accumulated retirement accounts. Failing to do so results in a hefty of 50% of the amount not withdrawn. The RMA applies to all tax-deferred retirement accounts (IRA, 401k, 403b, 457b, SEP, etc..)
There are numerous online calculators that can help you figure out how much you need to take out depending on you age. The IRS figures the minimum amount based on total IRA assets and average (remaining) life expectancy. For instance, if you have $1M in retirement accounts, your RMD at 72 is around $40K, rising to $67K by the time you reach 85.
This does present an opportunity for those who have significant non-retirement investments. If you retire at 65, you have 5 ½ years after retirement where you don’t need to pull out any of that money. Instead, live off of your investment funds until you are 70 ½ so that you can get the additional years of gains out of your retirement accounts. Even a low-risk return of 3% on your IRAs means $15% more money over five years.
Now once you get into your 80s, the required distribution continues to rise as a percentage of your income, surpassing 5% when you turn 80, and then increasing to almost 9% as you reach 90. It will become more and more difficult to maintain a static portfolio value, especially as most people want their investments to be very conservative in order to minimize downside risk.