Can We Predict Boomers’ Drawdown Behavior from Earlier Cohorts?

Research has found that past generations drew down their wealth slowly in retirement, leaving much of their savings untouched throughout old age. This pattern, however, may not hold for new retirees, who are more likely to rely on a defined contribution (DC) plan than a defined benefit (DB) plan. Retirees with a DB plan had less need to draw down financial assets to cover their spending and could reserve these assets for late-life medical expenses or bequests. This project, based on a recent study, uses data from the restricted Health and Retirement Study (HRS) to examine the extent to which the slow drawdown of past generations was associated with substantial access to a DB pension. The discussion proceeds as follows. The first section describes how the pace of drawdown could be related to access to a DB plan. The second section describes the HRS data used in this project and the methodology for testing the relationship between DB coverage and drawdown speed. The third section presents the results, showing that households with a DB plan retain more of their wealth, meaning that they draw it down more slowly than those without. Specifically, retirees with $200,000 of starting wealth (roughly the sample median) and covered by a DB plan reduce their financial assets by $28,000 less by age 70 than their peers without a pension. The final section concludes that forecasts based on past patterns are likely to underestimate the drawdown speed for Baby Boomers.