Retirement & Financial Planning Report TSP annuity inflation protection

A new study once again underscores the value of a defined benefit program such as the FERS or CSRS civil service annuity, by documenting how much faster persons without such benefits draw down their savings once in retirement.

The study by the Center for Retirement Research says that historic data on drawing down savings—which is used in calculations of how much money people should have saved in order to guarantee sufficient income in retirement—may paint too rosy a picture of retirement preparedness, given the erosion of defined benefit plans in the private sector.


It found that half of households of the oldest Boomers, those born in the late 1940s, have at least one spouse has a defined benefit. That declines to about a quarter for the middle of that generation, those born in the mid-1950s, and is below a tenth for the youngest, those born in the early 1960s.

Past research “by necessity focused on older generations that had substantial DB [defined benefit] coverage; the relevance of estimates of drawdown based on these cohorts for future cohorts with much less DB coverage is uncertain . . . Any predictions of the drawdown speed for Baby Boomers that are based on the slow drawdown by older generations will likely underestimate the pace at which retirees draw down their assets,” it said.

It found, for example, that retirees with $200,000 of starting wealth, roughly the midpoint in the data, who are covered by a defined benefit plan reduce their financial assets by $28,000 less by age 70 than those without such a benefit.

It concluded: “Past generations’ access to a DB pension was associated with slower drawdown of their financial assets. Further, the more of a retiree’s resources that were in the form of annuities (including DBs, Social Security, and commercial annuities), the slower they drew down their other assets.

“Forecasts for the Baby Boomer generation based on the drawdown of past generations likely underestimate their drawdown speed. The results suggest that Baby Boomers without DB plans may be drawing down their assets faster, leaving them with more risk that they will outlive their savings.”

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