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The Drawdown of Personal Retirement Assets

  • James M. Poterba
  • Steven F. Venti
  • David A. Wise

How households draw down their balances in personal retirement accounts (PRAs) such as 401(k) plans and IRAs can have an important effect on retirement income security and on federal income tax revenues. This paper examines the withdrawal behavior of retirement-age households in the SIPP and finds a modest rate of withdrawals prior to the age of 70½, the age at which required minimum distributions (RMDs) must begin. In a typical year, only seven percent of PRA-owning households between the ages of 60 and 69 take an annual distribution of more than ten percent of their PRA balance, and only eighteen percent make any withdrawals at all. For these households, annual withdrawals represent about two percent of account balances. The rate of distributions rises sharply after age 70½, with annual withdrawals of about five percent per year. During the period we study, the average rate of return on account balances exceeded this withdrawal rate, so average PRA balances continued to grow through at least age 85. Our findings suggest that households tend to preserve PRA assets, perhaps to self-insure against large and uncertain late-life expenses, and that RMD rules have important effects on withdrawal patterns.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16675.

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Date of creation: Jan 2011
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Handle: RePEc:nbr:nberwo:16675
Note: AG
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  1. 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.
  2. 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, May.
  3. 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.
  4. James Banks & Richard Blundell & Zoë Oldfield & James P. Smith, 2007. "Housing Price Volatility and Downsizing in Later Life," NBER Working Papers 13496, National Bureau of Economic Research, Inc.
  5. Love, David A. & Palumbo, Michael G. & Smith, Paul A., 2009. "The trajectory of wealth in retirement," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 191-208, February.
  6. 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, issue Q II, pages 48-65.
  7. 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, May.
  8. James M. Poterba & Steven F. Venti & David A. Wise, 2010. "Family Status Transitions, Latent Health, and the Post-Retirement Evolution of Assets," NBER Working Papers 15789, National Bureau of Economic Research, Inc.
  9. James M. Poterba & Steven F. Venti & David A. Wise, 2010. "The Asset Cost of Poor health," NBER Working Papers 16389, National Bureau of Economic Research, Inc.
  10. Steven F. Venti & David A. Wise, 2001. "Aging and Housing Equity: Another Look," NBER Working Papers 8608, National Bureau of Economic Research, Inc.
  11. Steven F. Venti & David A. Wise, 2000. "Aging and Housing Equity," NBER Working Papers 7882, National Bureau of Economic Research, Inc.
  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. David A. Wise, 2004. "Perspectives on the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise04-1, October.
  14. David A. Wise, 1990. "Issues in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise90-1, October.
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