IRAs were designed to be used during retirement to supplement your other sources of income. But a recent study from the Employee Benefit Research Institute found that many retirees only take IRA withdrawals when the IRS forces them to.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the EBRI study and its implications, noting that only 20% of traditional IRAs had withdrawals in the most recent year for which data is available. Dan points out that it makes sense for retirees to use IRAs as a last resort for a couple reasons. First, those who invest in Annaly Capital (NYSE:NLY), American Capital Agency (NASDAQ:AGNC), Windstream (OTC:WINMQ), and other high-yielding stocks want to keep their income tax-deferred as long as possible. Second, retirees don't want to pay the tax on traditional IRA withdrawals any sooner than they have to. Dan concludes that smart tax planning sometimes requires different strategies, but in general, most people shouldn't expect retirees to start taking IRA money out before the tax law requires withdrawals.