What to Do With Your RMDs: How Retirees Can Reinvest for Growth and Stability

Introduction

If you are a retiree who has started receiving Required Minimum Distributions (RMDs), you may be asking yourself a very common question:

What should I do with this money?

For many retirees, RMDs create a mix of relief and concern. Relief, because it’s an extra stream of income; concern, because taking withdrawals often increases taxable income, and many people simply don’t need to spend all of it.

The good news is that you are not required to use your RMDs immediately. With the right approach, you can reinvest your RMDs and create more growth and stability for your retirement years. By following a clear, low-cost, and diversified strategy, retirees can transform mandatory withdrawals into opportunities.

In this guide, we’ll cover:

• Why RMDs matter for retirees.
• Different strategies to reinvest RMDs for growth.
• Practical examples of how RMDs can be used.
• Why having a “clear recipe” for reinvestment makes the difference between stress and peace of mind.

Why RMDs Matter for Retirees?

Required Minimum Distributions are withdrawals that retirees must take from their tax-deferred accounts, such as traditional IRAs and 401(k)s, once they reach age 73 (according to current IRS rules). The IRS requires these withdrawals because retirement accounts were never meant to be tax-free forever.

Here’s what’s important for retirees to understand about RMDs:

1. They are mandatory. Failing to take your RMD can result in a significant penalty (up to 25% of the amount not withdrawn).
2. They increase taxable income. Since RMDs are taxed as ordinary income, they can push retirees into higher tax brackets or increase Medicare premiums.
3. You don’t have to spend them. Just because you take the distribution doesn’t mean you have to use it for daily expenses. The money can be reinvested in other accounts or vehicles.

👉 In other words, RMDs are not just withdrawals—they are opportunities. The key is deciding how to reinvest them wisely.

Reinvesting Your RMDs: Building a Low-Cost and Diversified Plan

A successful reinvestment strategy for RMDs should be like following a financial recipe: clear, simple, and designed for long-term results. Here are the three main principles:

• Diversify across asset classes – This means not putting all your eggs in one basket. A mix of stocks, bonds, and cash can help reduce risk and create a balanced portfolio.
• Focus on low-cost investments – High fees eat away at returns. Using index funds and ETFs helps keep costs low and maintain high growth potential.
• Match your risk tolerance – Every retiree is different. Some are comfortable with market fluctuations, while others prefer stability. Your RMD reinvestment strategy should align with your personal comfort level and the stage of retirement you are in.

📌 Example: A 75-year-old retiree in Boca Raton with $30,000 in annual RMDs may choose to reinvest $20,000 into a mix of stock and bond index funds for growth, while putting $10,000 into a short-term bond ETF for stability and liquidity.

Option 1: Reinvesting RMDs in a Taxable Brokerage Account

One of the simplest strategies is to move RMD funds into a taxable brokerage account.

Benefits:

• Stay invested in the market. Your money continues to grow beyond your retirement accounts.
• Liquidity. Funds remain accessible if you need them.
• Flexibility. You can select investments that align with your goals and risk tolerance.

Things to consider:

• You’ll need to be mindful of taxes on dividends and capital gains.

📌 Example: Imagine a retiree who receives $15,000 in RMDs. Instead of leaving it in a checking account, they invest in a balanced portfolio of 60% stocks and 40% bonds through ETFs. Over the course of 10 years, even modest growth could turn that money into a significantly larger nest egg.

Option 2: Using RMDs for Income and Stability

Not all retirees want more growth. Some want stability and income. That’s where RMDs can play another important role.

Strategies include:

• Bond ladders. By investing in bonds that mature at varying times, retirees can create a predictable stream of income.
• Dividend-paying stocks. These offer a mix of growth potential and regular income.
• Low-cost balanced funds. These automatically adjust between stocks and bonds, offering built-in diversification.

📌 Example: A retiree who wants a predictable income could use $25,000 from RMDs to build a ladder of high-quality municipal bonds, providing tax-advantaged interest payments each year.

Option 3: Using RMDs to Support Family and Legacy Goals

Some retirees may not need RMDs to cover their living expenses. In that case, they may want to use RMDs to support family or charitable goals.

Possible approaches:

• Investing in custodial accounts for children or grandchildren.
• Funding 529 college savings plans for future education expenses.
• Supporting charitable organizations (potentially through qualified charitable distributions).

These strategies enable retirees to utilize RMDs as a means to extend the financial impact beyond their own retirement.

How RMD Reinvestment Supports Growth and Stability

When managed properly, reinvesting RMDs can provide:

1. Growth. Although withdrawals are mandatory, reinvested funds can continue to compound over time.
2. Stability. By choosing income-generating or low-volatility investments, retirees can create peace of mind.
3. Flexibility. Reinvesting allows retirees to choose how much to keep liquid, how much to grow, and how much to pass along to heirs.

The Importance of Having a Clear Financial Recipe

Too often, retirees take their RMDs and leave the money in a savings account, earning little interest. Without a plan, this can result in lost opportunities for growth and unnecessary stress.

A clear financial recipe means:

• A strategy tailored to your needs.
• Investments that are diversified and low-cost.
• A disciplined approach that prevents emotional decisions.

Just like cooking, the right ingredients and process lead to better results. With RMDs, a clear reinvestment plan ensures that your money continues to work for you.

Key Principles for Reinvesting RMDs Wisely

Instead of looking at one-size-fits-all examples, it’s more helpful to understand the core principles that guide successful reinvestment strategies. Every retiree’s financial picture is unique, but the following guidelines can help shape better decisions:

1. Balance Growth and Protection
Reinvesting isn’t just about chasing returns. It’s about finding the right mix of growth-oriented investments and safer assets that can provide stability.

2. Be Tax-Smart
RMDs are taxable, and the way you reinvest those funds can affect your overall tax picture. Choosing strategies that minimize unnecessary taxes allows your money to work harder for you.

3. Align with Your Life Goals
Whether you want to generate reliable income, preserve wealth for future generations, or simply make sure your assets keep pace with inflation, reinvestment choices should directly reflect your long-term objectives.

4. Keep Flexibility in Mind
Life circumstances and market conditions change. A reinvestment strategy should allow for adjustments over time rather than locking you into a rigid plan.

5. Seek Unbiased Guidance
Working with a fee-only Certified Financial Planner™ (CFP®) can help you evaluate your options objectively and ensure that your reinvestments align with your bigger financial recipe.

Working with a Financial Planner

While it’s possible to reinvest RMDs on your own, the decisions can be complex. Taxes, risk tolerance, estate goals, and market conditions all play a role.

Working with a Certified Financial Planner (CFP®) can give retirees clarity and confidence. You don’t always need to commit to a long-term contract—many advisors also offer hourly planning services, which can be a flexible and cost-effective way to get professional guidance.

It’s also important to work with a fee-only advisor. Unlike commission-based advisors, fee-only planners are compensated directly by you, the client, which helps ensure that their recommendations are objective and in your best interest.

A CFP®-Fee-only-Fiduciary can help retirees:

• Build a personalized reinvestment strategy.
• Minimize taxes on RMDs and reinvested funds.
• Ensure that investments align with long-term goals.

Conclusion

For retirees, RMDs don’t have to feel like a burden. Instead, they can become an opportunity to reinvest for growth and stability. Whether you choose a taxable account, income-focused investments, or legacy planning strategies, the key is to approach your RMDs with a clear, diversified, and low-cost recipe.

By taking action today, you can transform mandatory withdrawals into powerful tools that provide financial security for you—and potentially for generations to come.

Next steps you can take right now:

1. 👉 Watch our quick VIDEO for a clear breakdown of Required Minimum Distributions – RMDs: 3 Smart Moves!
2. 👉 Register for our upcoming webinar: “Did You Inherit an IRA? Know the Key Rules.”
3. 👉 Schedule a call with our team of fee-only fiduciary advisors to create a personalized strategy for your RMD.

We transform your finances to transform your life.

Alonso Rodriguez Segarra – CERTIFIED  FINANCIAL PLANNER (CFP®)

Which provides hourly, fee-only, and fiduciary financial planning services. He has over 27 years of experience in the financial world and has been named among the Top 100 Financial Advisors in the US by Investopedia and by etf.com

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Note: The comments given in this guide are for educational purposes only. Before    making a financial decision, consult your financial advisor or conduct appropriate research. Remember that historical results are not a guarantee of future returns. In    the comments provided, this guide does not consider tax impacts. Always consult your particular case with a specialist. We are not your financial advisor, so remember that each case differs.

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All rights to this guide are reserved, and the occasional mention of third-party brand names is made solely for educational and reference purposes, without any interest in financial gain. This information is for educational purposes only and does not represent an offer of products or services.