So here’s a fun fact that’ll make you want to check your retirement account right now: Vanguard just dropped some numbers that are equal parts hilarious and terrifying. Turns out, over half a million of their clients basically forgot to take money out of their own retirement accounts in 2024. And the IRS? They’re not amused.
Let me break this down for you. Once you hit a certain age (we’re talking 70s here), Uncle Sam says “Hey, remember all that money you’ve been hiding from me in your 401k and IRA? Time to pay the piper.” These are called Required Minimum Distributions, or RMDs for those who love acronyms.
Miss these withdrawals? The IRS hits you with a penalty that’s basically financial kryptonite: 25% of whatever you were supposed to take out. If you’re really lucky and fix it quickly, they might only take 10%. How generous.
Here’s where it gets wild: 6.7% of Vanguard’s retirement-age clients just… didn’t take anything. Zero. Zilch. The average amount they should have withdrawn? $11,600. That means they’re looking at penalties between $1,160 and $2,900. For literally doing nothing.
But wait, there’s more! Another 24% took some money out but not enough. It’s like ordering a small coffee when you needed a large – technically you got coffee, but you’re still going to have a bad time.
The really brutal part? People with smaller accounts mess this up more often. If you’ve got less than $5,000 saved, there’s a 57% chance you’re not hitting your withdrawal targets. Meanwhile, even folks with quarter-million-dollar accounts are screwing this up 5% of the time. And if you’re in the millionaire club? Your average penalty is nearly $9,000. Ouch.
Vanguard’s behavioral economics team (yes, that’s a real job) found something depressing: if you miss your RMD once, there’s a 55% chance you’ll do it again next year. They called it “forget and forget” instead of “set and forget,” which is honestly pretty clever for finance people.
The good news? The fixes are stupidly simple. First, automate everything. Most retirement account providers will let you set up automatic withdrawals. It’s like autopay for bills, except instead of paying money, you’re getting it.
Second, consolidate your accounts. The average person changes jobs nine times during their career, which means retirement accounts scattered everywhere like digital breadcrumbs. Combine them into one or two accounts, and suddenly you only have to remember one withdrawal instead of five.
Look, retirement planning isn’t exactly thrilling. But neither is accidentally giving the government thousands of dollars because you forgot to move money from one account to another. Set up the automation, consolidate the accounts, and then go back to worrying about literally anything else.
Your future self will thank you. Your bank account definitely will.