Faring just fine in retirement

BY NICK THORNTON, July 30, 2014 •

Here’s what could be considered a bit of contrarian news: a lot of recent retirees are faring just fine as they sail through their golden years, thanks to their ability to draw on Social Security.

That’s according to a survey by T. Rowe Price that looked at how retirees are doing one to five years after they’ve left the workforce and who rely, in part, on the 401(k) plans they continue to be enrolled in or savings from 401(k)s rolled into IRA accounts.

The retirees surveyed have considerable assets, with nearly half claiming $500,000 or more in household assets (investable assets plus home equity minus debt).

Stocks and stock mutual funds account for 38 percent of their reported wealth and 13 percent of their overall wealth is in mutual funds diversified among other asset classes.

Real estate accounts for a good portion of illiquid net worth: eight in 10 recent retirees said they own homes with an average of $191,000 in equity.

While withdrawals from 401(k)s and IRAs are certainly vital to their survival, these retirees also say they are dependent on Social Security, which accounts for 43 percent of their income. Defined benefit plans provide 19 percent of income, and withdrawals from defined contribution plans and IRAs account for 18 percent.

Almost half of the retirees surveyed said they have an established withdrawal plan from savings accounts. The median drawdown was 4 percent of investable assets over the past 12 months. One quarter of retirees withdrew 8 percent or more; one quarter withdrew only one percent.

Retirees also are definitely living on less. Three years into retirement, the average reported income is 66 percent of pre-retirement income.

But that hasn’t affected quality of life, as 89 percent say they are somewhat or very satisfied with their retirement lifestyle.

Meanwhile, workers over 50 report being much more anxious than retirees, despite having considerable assets themselves.

Almost a quarter (22 percent) fear they will run out of money in retirement, and nearly half don’t think they will have enough savings to cover health care costs.

Median household assets for workers approaching retirement was $465,000, nearly as much as retirees’. They’re understandably more aggressively invested, with 60 percent of their assets parked in stocks, stock mutual funds, or asset allocation funds, according to the study.

Aimee DeCamillo, head of T.Rowe Price Retirement Plan Services, says the study shows those approaching retirement that there is hope for a satisfactory lifestyle in retirement, and the cash to support it.

“For workers approaching retirement, we know there is anxiety and uncertainty as they look ahead and think they can’t possibly be prepared for retirement. But the study demonstrates that you can do it,” says DeCamillo.

She says the study also underscores the vital role Social Security plays in providing a retirement foundation.

Most surveyed workers (80 percent) said they plan on waiting until full retirement age before drawing Social Security, with 34 percent saying they’re willing to wait until age 70 to receive the maximum benefit.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>