AI-Driven Earnings Surge and Its Impact on Retirement Planning
Goldman Sachs strategists, led by Ben Snider, predict a 22% earnings surge for the S&P 500 in the second quarter of this year, driven by the AI investment boom and energy-sector gains. While this news is undoubtedly positive, it raises concerns about the impact on retirement planning, particularly for those nearing the age of 73, when required minimum distributions (RMDs) begin.
For individuals born between 1951 and 1959, RMDs start at age 73, while those born in 1960 or later wait until 75. A 68-year-old with most of their savings in a traditional 401(k) or IRA is watching their account statements with mixed feelings. The catch is that every dollar of growth inside a pretax account is a future tax bill that compounds with the gains.
As the S&P 500 is up about 9% year to date and 21% over the past year, the balance in a 68-year-old’s account is larger than it was months ago. This growth is good news, but it also means the eventual RMD will be larger, and the retiree may not be sure what to do about it before withdrawals are forced.
The IRS calculates RMDs by dividing the account balance on the prior December 31 by an IRS life-expectancy factor. A larger balance going into the year you turn 73 produces a bigger mandatory withdrawal, every year, for life. If the market keeps climbing, the growth compounds inside the account year after year, and the dollar amount the IRS eventually pulls out grows right along with it.
The Social Security tax torpedo comes into play when a retiree’s combined income (roughly adjusted gross income (AGI) plus half their Social Security benefit) crosses certain thresholds. Up to 85% of the Social Security benefit becomes taxable, and this can drive Medicare Part B premiums as high as $689.90 monthly. Higher-income retirees pay IRMAA surcharges on top of standard Part B and Part D premiums, and these surcharges scale up sharply from there.
The years from late 60s through 72 are the planning window. With inflation still running above the Fed’s comfort zone, the dollar thresholds that trigger Social Security taxation have not budged in decades. This means more retirees get pulled into the torpedo every year. Options exist for thinning the eventual RMD, such as pulling modest amounts from the IRA in lower-income years before 73, converting portions to a Roth while in a lower bracket, or planning qualified charitable distributions once eligible at 70½.
Two things matter: a bigger balance is genuinely good news, and the lever most retirees underestimate is the handful of pre-RMD years in front of them. A rally that fattens the 401(k) at 68 is also fattening every RMD from 73 onward. Running the numbers once, with current balances and a realistic growth assumption, usually changes how someone thinks about withdrawals between now and then.
