Guaranteed income can be a key element to reducing asset depletion in retirement, according to a report by the nonprofit Employee Benefit Research Institute. Using data from the RAND Corp.’s Health and Retirement Study, stretching from 1992 through 2022, including 12,540 retired household heads in 2022, EBRI Senior Research Associate Leslie Muller found that retirees with defined benefit payments presented a “retirement savings puzzle,” in which assets could be maintained, or could even continue to accumulate, up to 22 years after retirement.
EBRI measured retirees’ net assets, minus the value of their primary residence, and divided participants into low-asset savers (holding less than $200,000 at the time of retirement); middle-asset savers (between $200,000 and $500,000); and high-asset savers (more than $500,000). By 21 to 22 years after retirement, before accounting for pension status, low-asset participants’ savings had fallen by an average of 43%, middle-asset savers had lost 30% and high-asset savers had lost 42%.
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The low- and middle-asset retirees with DB pension income—48% of the low-asset group and 66% of the middle-asset group—preserved their assets at higher rates, given that the pension was typically seen as “spendable income,” while other retirement assets were considered precautionary saving.
Among low-asset participants, nonpensioners spent an average of 47% of their assets in the first six years of retirement, compared with 12% losses for pension recipients. By 21 to 22 years after retirement, nonpensioners had depleted 89% of their assets, compared with 29% losses for pension recipients.
Middle-asset participants at first shared similar savings losses—at 11 to 12 years after retirement, pensioners’ savings had declined 18%, compared with 14% for nonpensioners. The second decade of retirement brought a sharp disadvantage for nonpensioners, who by 21 to 22 years after retirement, had lost an average of 57% of their savings, compared with 18% losses for pensioners.
High-asset savers showed similar rates of decumulation, regardless of pension income, for the first 17 to 18 years after retirement—at which point nonpensioners had spent 25%, compared with 32% for pensioners. By 21 to 22 years after retirement, pensioners showed greater drawdown, with an average 47% decline in assets, compared with 10% for nonpensioners. The report stated that high-asset pensioners had lower accumulation of liquid assets at retirement and more systematic drawdown, while high-asset nonpensioners were more reliant on financial wealth.
“We don’t know when we’re going to die, right? So you could see this either retention or even the increase in [assets] as being sort of a buffer,” Muller says. “If you have a defined benefit plan or you just have enough assets to do that, then that may explain some of the retention or even increases in the median assets that people are having further into retirement.”
The report acknowledged that, given the decrease in pension plans, future retirees may not have the same access to guaranteed income streams from DB plans as the retirees in RAND’s data, Future retirees will likely try to achieve similar effects through predictable income strategies, such as immediate annuities, deferred income annuities, qualified longevity annuity contracts and guaranteed lifetime withdrawal benefit features, the report said.
