The Drawdown of Personal Retirement Assets

46 Pages Posted: 10 Jan 2011 Last revised: 14 Jan 2011

See all articles by James M. Poterba

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

Steven F. Venti

Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER)

David A. Wise

National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2011

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 701⁄2, 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 701⁄2, 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

Poterba, James M. and Venti, Steven F. and Wise, David A., The Drawdown of Personal Retirement Assets (January 2011). NBER Working Paper No. w16675. Available at SSRN: https://ssrn.com/abstract=1737223

James M. Poterba (Contact Author)

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Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Steven F. Venti

Dartmouth College - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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David A. Wise

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Harvard Kennedy School (HKS)

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Cambridge, MA 02138
United States

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