Seeking a Solution for Clients’ RMD Challenges?

By Horizon Investments

Advisors: A great RMD (required minimum distribution) wave is headed your way. Are you prepared to ride it?

Last year, the first crop of Baby Boomers, about 2.5 million of them, turned 70–which means there are more than 62 million Americans in line behind them. As they hit age 70 1/2, they’ll need to start taking required minimum distributions from their IRAs and qualified plan accounts. As those withdrawals ramp up, billions of dollars will flow out of retirement accounts annually over the next few decades.

Many of these investors will look to their advisors for answers to a variety of RMD questions—from the basic (“what’s this RMD stuff about?”) to the advanced (“Does it make sense to defer my first-year distribution?”). They’ll also need help ensuring that their portfolios have the liquidity needed to take their required distributions on time to avoid a tax penalty. And it’s not out of the question that regulators will increasingly have an expectation that advisors have good answers to these questions.

The upshot: More and more of your time will be spent dealing with RMD-related issues as you work to serve your clients’ best interests.

To manage that influx of investors and their requests, you need tools for success. A scalable, systematic process for helping clients with RMDs can help you do the job effectively and efficiently for your clients.

How Real Spend helps

Horizon’s Real Spend retirement income strategies are one way to help with clients’ RMD needs.

The Real Spend strategies are designed to take some of the most time-consuming RMD tasks off your plate. That’s because each Real Spend strategy has its own targeted annual spending rate and is optimized for withdrawing funds regularly and systematically (including for goals such as RMDs).

Real Spend is designed to take a systematic approach with RMDs in two key ways:

1. Structure. The allocation of each Real Spend strategy is set up specifically to support a targeted withdrawal amount each year—thus eliminating the need for the advisor to spend significant time and effort dealing with portfolios and accounts to meet clients’ spending requirements., For example, the Real Spend 5 strategy’s asset allocation is structured so that clients can withdraw 5% each year. To achieve that goal, the portfolio emphasizes equities with the potential to provide adequate growth of capital over what could be a lengthy retirement, as well as fixed-income and cash holdings.

2. Liquidity. Unlike many portfolios, each Real Spend model features a dedicated spending reserve component that aims to hold about three years’ worth of spending needs in liquid, cash-like holdings. Clients can tap those funds whenever they need to—for example, when it’s time to take their RMDs. By always having “cash on hand” via the spending reserve, one may not be forced to sell some of the portfolio’s investment holdings to raise money. Instead, those investments can continue doing their job—such as growing assets so that retirement wealth can last longer.

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The spending reserve component can be especially valuable during significant market downturns and other volatile periods. Access to liquidity for RMDs and other financial needs at such times enables the advisor to avoid selling clients’ holdings at depressed prices (and thereby locking in those losses).

Planning tools for RMD success

In addition to the Real Spend strategies themselves, Horizon offers an online Real Spend tool for analyzing the potential outcomes of various spending scenarios for clients in retirement.

The tool allows the advisor to input a client’s age, estimated number of years in retirement, and assets, and then see how that client could have fared using a particular Real Spend strategy over a variety of historical periods.

The advisor can then use the tool to create reports that shows the client:

  • how account values might change over time in a variety of historical scenarios
  • A year-by-year cash flow analysis that includes investment returns and inflation rates for each of the years used in the analysis
  • The effects that inflation, fees, and other factors can have on spending goals in retirement

These reports will help clients see how the a Real Spend strategy can help them to meet their RMDs and other annual spending needs, while simultaneously having the goal of generating the asset growth.

To test-drive the tool and see how it can help you assist clients with RMDs and other retirement income goals, go to


You can’t stop the many RMD questions and requests that are sure to come your way in the months and years ahead. The fact is, you wouldn’t want to—as they represent a huge opportunity to bring tremendous value to your clients’ lives.

That said, you need to plan for and control your response to that RMD wave. By taking advantage of tools and solutions that can help you address RMDs in a systematic way, you’ll be able to make your RMD services scalable—giving you the efficiencies needed to help more clients with their retirement income needs, while freeing up more of your time to focus on building a highly successful practice.

This article was contributed by Horizon Investments, a participant in the ETF Strategist Channel.