Retirement & Financial Planning Report

Retirees in each of three levels of assets show the same type of reluctance to draw down those assets and a preference to live on the earnings along with other forms of income such as retirement benefits, a study by the Employee Benefit Research Institute found.

It divided retirees into three groups in terms of their non-housing assets at retirement: those with less than $200,000, those between $200,000 and $500,000 and those with more than $500,000.


Those in the first group had spent down about 25 percent of their assets after 18 years of retirement and those in the second had spent down 27 percent, while those in the top group had spent down 12 percent after 20 years.

Said the report, “Why are retirees not spending down their assets? There are probably a number of reasons. First, there are the uncertainties. People don’t know how long they are going to live or how long they have to fund their retirement from these assets. Then there are uncertain medical expenses that could be catastrophic if someone has to stay in a long-term care facility for a prolonged period. Of course, if people have to self-insure against these uncertainties, they need to hold onto their assets.

“Second, some of these assets are likely to be passed on to their heirs as bequests. But, what percentage of actual bequests are planned vs. accidental is an open question. Third, another possible reason for this slow asset decumulation rate could be lack of financial sophistication, or in other words, people don’t know what is a safe rate for spending down their assets. So, they are erring on the side of caution. Finally, some of it could be just a behavioral impediment. After building a saving habit throughout their working lives, people find it challenging to shift into spending mode. They continue to build up their assets or hold on to their assets as long as possible.”

It added that some retirees nevertheless do run out of money in retirement, at least in terms of spending down their assets. However, of those in the study, about a third–regardless of their assets at retirement–had experienced an increase.