When you choose to save for retirement in a traditional IRA or 401(k), you get the benefit of tax-free contributions. On the other hand, you don't get the most flexibility with your money.
Not only do you have to wait until age 59 and 1/2 to start tapping your savings or else face early withdrawal penalties, but you also have to start taking required minimum distributions (RMDs) once you turn 73 or 75, depending on the year you were born.
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If you're on the hook for an RMD this year, you might tell yourself you might as well make the most of that mandatory withdrawal. But if you don't need the money, spending it could be a huge mistake.
You may not have a need for your RMD today. But what if you run into a string of home repairs in three or four years? Or what if you eventually end up needing to pay for long-term care without insurance? Suddenly, the money you were forced to withdraw now could come in very handy later.
For this reason, don't force yourself to spend your RMD. There's nothing wrong with using the money to treat yourself to something nice. But if there's nothing in particular that speaks to you, don't just blow through the RMD because the money had to come out of your retirement plan.
Instead, save or invest it. Use to start a CD ladder, purchase bonds, or even buy some broad market exchange-traded funds, which might help that money grow.
It's annoying enough to have to remove funds from your retirement savings when you don't want to. But don't squander an opportunity to put that money to work if you can't identify a meaningful way to use it.
