Are retirees spending their savings effectively?

Dec 28, 2022
  • BlackRock

New research shows that most retirees retain 80% of their pre-retirement assets even after 20 years.1 Participants may need guidance when it comes to spending, so they can enjoy their retirement more fully.

401(k) plans are entering a new phase: the era of retirement income distributions. More assets are now flowing out of America's 401(k) plans than being contributed from participants' paychecks.2 And with that change, plan sponsors now find themselves shifting focus to helping retiring participants understand and meet their retirement spending needs.

Surprisingly, recent reports from BlackRock in conjunction with the Employee Benefit Research Institute (EBRI) found that across all wealth levels, most current retirees still have 80% of their pre-retirement savings after almost two decades in retirement. Digging deeper, across all wealth levels measured, more than one third of current retirees actually grew their assets—leaving considerable potential retirement income on the table.

Percent of assets remaining after 17-to-18 years of retirement*

Chart: Percent of assets remaining after 17-to-18 years of retirement

Source: Employee Benefit Research Institute estimates based on Health & Retirement Study (HRS, 1992-2014) Consumption and Activities Mail Survey (CAMS, 2005-2015). Retirees were segmented into three groups based on pre-retirement non-housing retirement assets — $0 to less than $200,000 (lowest wealth), $200,000 to less than $500,000 (medium wealth) and $500,000 and above (highest wealth).

Looking forward: retirees may need to spend down their assets

Many of the retirees captured in this research were fortunate to be able to maintain a reasonable standard of living without significantly tapping into their retirement savings principal.1 This may not be the case for future retirees as a result of:

  • Pension benefits—on average, 42% of the retirees tracked in the research received income from a defined benefit (DB) pension; few, if any, of those retiring over the next 10-20 years can expect income from a DB plan.3
  • Social Security—income from Social Security is the largest component in the retirement income mix for all retirees, but pressure on Social Security finances could lead to a future drop in benefits.4
  • Rates of return—over the past 35+ years, a broad array of asset classes delivered robust returns; we believe few asset classes are expected to perform at the same levels into the near future.5
  • Savings behavior—future retirees may be more dependent on their savings than previous generations, and they may need to develop strategies for drawing down their retirement assets.
  • Longer life span—people are living longer and will need to have their retirement assets last longer, in some cases much longer.6

Mounting obstacles to retirement success

Chart: Mounting obstacles to retirement success

Shifting demographics and a more challenging market environment will only elevate the complexity and importance of helping retirees maximize the value of retirement savings. But with improved savings behavior, steady and consistent investing, and education on how to generate retirement income, future retirees can take the steps toward a comfortable standard of living.

To learn more about preparing for the shift to retirement spending, download the full paper.

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