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The Drawdown of Personal Retirement Assets

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  • Wise, David Alsgaard
  • Poterba, James M.
  • Venti, Steven F.

Abstract

How households draw down the balances that they accumulate in retirement saving accounts such as 401(k) plans and Individual Retirement Accounts can have an important effect on the contribution of these accounts to retirement income security. This paper presents evidence on the pattern of withdrawals at different ages. We find a relatively modest rate of withdrawals prior to the age at which households are required to take minimum required distributions. Only seven percent of PRA-owning households between the ages of 60 and 69 take annual distributions of more than ten percent of their PRA balance, and only 18 percent of PRA households in this age group make any withdrawals in a typical year. The rate of distributions rises sharply after age 70 ½, when minimum distributions are required. The proportion of PRA-owning households making a withdrawal jumps to over 60 percent by age 71, and crosses 70 percent a few years later. On average, households age 60 to 69 with PRA accounts withdraw only about two percent of their account balances each year, considerably less than the rate of return on account balances during our sample period. Even at older ages—after the required minimum distribution age--the percentage of balances withdrawn remains at about five percent.

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Paper provided by Harvard Kennedy School of Government in its series Scholarly Articles with number 4677548.

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Date of creation: 2011
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Publication status: Published in HKS Faculty Research Working Paper Series
Handle: RePEc:hrv:hksfac:4677548

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  1. Samuel Marshall & Kathleen M. McGarry & Jonathan S. Skinner, 2010. "The Risk of Out-of-Pocket Health Care Expenditure at End of Life," NBER Working Papers 16170, National Bureau of Economic Research, Inc.
  2. David A. Wise, 2004. "Perspectives on the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise04-1, July.
  3. James M. Poterba & Steven F. Venti & David A. Wise, 2011. "Family Status Transitions, Latent Health, and the Post-Retirement Evolution of Assets," NBER Chapters, in: Explorations in the Economics of Aging, pages 23-69 National Bureau of Economic Research, Inc.
  4. David A. Love & Michael G. Palumbo & Paul A. Smith, 2008. "The Trajectory of Wealth in Retirement," Working Papers, Center for Retirement Research at Boston College wp2008-7, Center for Retirement Research, revised Feb 2008.
  5. David A. Wise, 2004. "Introduction to "Perspectives on the Economics of Aging"," NBER Chapters, in: Perspectives on the Economics of Aging, pages 1-16 National Bureau of Economic Research, Inc.
  6. James Banks & Richard Blundell & Zoë Oldfield & James P. Smith, 2010. "Housing Price Volatility and Downsizing in Later Life," NBER Chapters, in: Research Findings in the Economics of Aging, pages 337-379 National Bureau of Economic Research, Inc.
  7. Poterba, James & Venti, Steven F. & Wise, David Alsgaard, 2011. "The Asset Cost of Poor Health," Scholarly Articles 4669670, Harvard Kennedy School of Government.
  8. Steven F. Venti & David A. Wise, 2000. "Aging and Housing Equity," NBER Working Papers 7882, National Bureau of Economic Research, Inc.
  9. Steven F. Venti & David A. Wise, 2001. "Aging and Housing Equity: Another Look," NBER Working Papers 8608, National Bureau of Economic Research, Inc.
  10. David A. Wise, 1990. "Issues in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise90-1, July.
  11. Wise, David A. (ed.), 1990. "Issues in the Economics of Aging," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226902975, 01-2013.
  12. Michael D. Hurd & Susann Rohwedder, 2013. "Wealth Dynamics and Active Saving at Older Ages," NBER Chapters, in: Improving the Measurement of Consumer Expenditures National Bureau of Economic Research, Inc.
  13. Wise, David A. (ed.), 2004. "Perspectives on the Economics of Aging," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226903057, 01-2013.
  14. Olesya Baker & Phil Doctor & Eric French, 2007. "Asset rundown after retirement: the importance of rate of return shocks," Economic Perspectives, Federal Reserve Bank of Chicago, Federal Reserve Bank of Chicago, issue Q II, pages 48-65.
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Cited by:
  1. James M. Poterba & Steven F. Venti & David A. Wise, 2011. "The Composition and Draw-down of Wealth in Retirement," NBER Working Papers 17536, National Bureau of Economic Research, Inc.
  2. Alan L. Gustman & Thomas L. Steinmeier & Nahid Tabatabai, 2012. "Mismeasurement of Pensions Before and After Retirement: The Mystery of the Disappearing Pensions with Implications for the Importance of Social Security as a Source of Retirement Support," NBER Working Papers 18542, National Bureau of Economic Research, Inc.
  3. Marekwica, Marcel & Schaefer, Alexander & Sebastian, Steffen, 2013. "Life cycle asset allocation in the presence of housing and tax-deferred investing," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(6), pages 1110-1125.
  4. James M. Poterba, 2014. "Retirement Security in an Aging Society," NBER Working Papers 19930, National Bureau of Economic Research, Inc.

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