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The Drawdown of Personal Retirement Assets

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

Abstract

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.

Suggested Citation

  • James M. Poterba & Steven F. Venti & David A. Wise, 2011. "The Drawdown of Personal Retirement Assets," NBER Working Papers 16675, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16675
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    References listed on IDEAS

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    1. 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.
    2. David A. Wise, 1990. "Issues in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise90-1, April.
    3. 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.
    4. Steven F. Venti & David A. Wise, 2004. "Aging and Housing Equity: Another Look," NBER Chapters,in: Perspectives on the Economics of Aging, pages 127-180 National Bureau of Economic Research, Inc.
    5. 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.
    6. repec:eee:joecag:v:9:y:2017:i:c:p:172-184 is not listed on IDEAS
    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.
    8. 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.
    9. Poterba, James M. & Venti, Steven F. & Wise, David A., 2017. "The asset cost of poor health," The Journal of the Economics of Ageing, Elsevier, vol. 9(C), pages 172-184.
    10. 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.
    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, pages 388-413 National Bureau of Economic Research, Inc.
    13. 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.
    14. 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.
    15. David A. Wise, 2004. "Perspectives on the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise04-1, April.
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    Cited by:

    1. 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, vol. 37(6), pages 1110-1125.
    2. James Poterba & Steven Venti & David Wise, 2011. "The Composition and Drawdown of Wealth in Retirement," Journal of Economic Perspectives, American Economic Association, vol. 25(4), pages 95-118, Fall.
    3. Gustman, Alan L. & Steinmeier, Thomas L. & Tabatabai, Nahid, 2014. "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," Journal of Pension Economics and Finance, Cambridge University Press, vol. 13(01), pages 1-26, January.
    4. James M. Poterba, 2014. "Retirement Security in an Aging Society," NBER Working Papers 19930, National Bureau of Economic Research, Inc.
    5. Raphael Schoenle & Kristian Ove Myrseth & Rawley Heimer, 2016. "YOLO: Mortality Beliefs and Household Finance Puzzles," 2016 Meeting Papers 661, Society for Economic Dynamics.
    6. Rawley Z. Heimer & Kristian Ove R. Myrseth & Raphael S. Schoenle, 2015. "YOLO: Mortality Beliefs and Household Finance Puzzles," Working Papers 97, Brandeis University, Department of Economics and International Businesss School.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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