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Why So Many Retirees Don't Tap Their IRAs

By Dan Caplinger – Feb 17, 2014 at 2:45PM

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IRAs are for retirement, but a recent study found that many use them as a last resort. Find out why.

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 (NLY 0.76%), American Capital Agency (AGNC 0.73%), Windstream (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.

Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Annaly Capital Management Stock Quote
Annaly Capital Management
$21.21 (0.76%) $0.16
AGNC Investment Corp. Stock Quote
AGNC Investment Corp.
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Windstream Holdings, Inc. Stock Quote
Windstream Holdings, Inc.

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