Retirement Planning: Accumulation, Distributions, and Income Sustainability
What this domain tests
Retirement Planning covers accumulation vehicles, contribution rules, distributions, Social Security, and retirement income sustainability. Questions test RMD calculations, Roth versus traditional decisions, claim-age trade-offs, and sequence-of-return risk.
Core rules and concepts
- Tax-advantaged accounts: 401(k), 403(b), traditional IRA, Roth IRA. Contributions may be pre-tax or after-tax; qualified distributions follow plan rules.
- RMDs begin at age 73 for those who reach age 72 after 2022; age 75 applies to those born in 1960 or later. Roth IRA owners have no lifetime RMDs.
- Social Security: full retirement age is 67 for those born in 1960 or later. Claiming at 62 reduces the benefit by 30%; waiting to 70 adds 24% over FRA.
- Retirement income analysis considers inflation, health care, taxes, and sequence risk: poor returns early in retirement hurt more than the same returns later.
Worked example
An IRA owner turns 73 this year. The prior December 31 balance was $600,000. The Uniform Lifetime Table factor for age 73 is 26.5. RMD = $600,000 / 26.5 = $22,641.51, about $22,642. Reasoning: use the prior year-end balance, not the current balance; divide by the table factor for the age attained this year; the deadline is April 1 of the following year for the first RMD, but later RMDs are due by December 31.
Traps that cost marks
- Using the current-year balance for the RMD.
- Applying lifetime RMDs to a Roth IRA owner.
- Ignoring the 10% early-distribution penalty and exceptions before 59½.
- Assuming the 4% rule guarantees income; it is a planning heuristic, not a guarantee.
- Claiming Social Security without considering break-even age, spousal benefits, and Medicare IRMAA.