What’s the best strategy for seniors to take required minimum distributions?

Tax-deferred retirement accounts are a necessary source of income for seniors looking to age in place. But it can be confusing to navigate the options for taking the required minimum distributions (RMDs) from the account as mandated by the IRS — especially given the tax implications.

What’s the best approach for seniors as they plan for retirement? Derek Horstmeyer, a finance professor at George Mason University, gamed out three different but common strategies on RMDs in a column published by The Wall Street Journal.

The first is to take out a lump sum at the end of each year. The second is to space out equal distributions every month. The third is a mix of these two strategies, where half of the money is pulled out at the end of the year and the other half is dispersed throughout the year in equal installments.

Horstmeyer and his researchers ran three simulations for each strategy using different levels of volatility in the financial markets.

They found that the best strategy for investors is to take out equal installments every month, although a lump sum might make sense if an individual’s risk tolerance is high in a low-volatility market environment.

But this conclusion comes with caveats. The higher the average tax rate is, the more a hybrid strategy worked best, because holding the money in a retirement account for longer means that taxes can be avoided for as long as possible.

Horstmeyer found the results surprising because so many individuals prefer the lump-sum method, as they believe that delayed distributions allows them to benefit from all market gains in any given year.

But volatility in the market is key. The more volatility, the more it makes sense to spread out the distributions in installments. A downturn in the market can lead to huge disruptions in retirement planning.

The New York Times reported in June that RMDs posed this problem. The outlet highlighted the story a 75-year-old retiree who saw her investment balance drop by $60,000 in the aftermath of President Donald Trump’s April announcement of new global tariffs.

Selling in a down market can be hard to swallow for retirees. And because RMDs are calculated at the end of the prior calendar year, a market downturn requires proportionately larger withdrawals to meet the minimum requirement.