A survey of affluent retiree households shows that, despite having a median total household income similar to “traditional retirement” households, they rely more on withdrawals from financial accounts for retirement income than the latter.

A Vanguard paper titled “Withdrawals from financial accounts in retirement,” by Anna Madamba, Ph.D., and Stephen P. Utkus, explored where retirement income comes from in wealthier households, and how much of that income is spent. The study also looked at the types of accounts owned by households and whether the type of account affected how money is spent during retirement.

The study divided households into two segments: the “traditional retirement” group, made up of households whose wealth holdings consist largely of guaranteed income sources like Social Security and pension income, and the “new retirement” group, which has predominant wealth holdings from financial accounts, including tax-deferred retirement accounts, a variety of taxable investment and insurance accounts, as well as bank checking and savings, money market, and similar accounts.

Among the study’s findings was where the two groups’ incomes originated. For both groups, the median total household income was about $69,500. The two groups of retirees, traditional and new retirement, showed very similar median incomes, the study said, and overall, a quarter of retirement income for wealthier households comes from financial account withdrawals.

But when it came to those financial account withdrawals, the new retirement group’s withdrawals made up an average of 39 percent of their retirement income; that’s more than twice as much as such withdrawals contributed to traditional retirement households.

In addition, withdrawals from retirement accounts are often made more to comply with required minimum distribution rules and their attendant tax penalties, and less because those households use the money.

In fact, nearly a third of such withdrawals are saved and reinvested in other accounts—while those households spend less than they withdraw.

The researchers found that the median withdrawal rate from financial accounts is just 3 percent, while the median spending rate—only the portion of a withdrawal actually used for consumption—is even lower.

When RMDs are taken, it’s not always so retirees can spend the money. In fact, 31 percent of such withdrawals are saved and reinvested, rather than spent. And regardless of where the money came from—financial accounts or pensions and Social Security—the composition of retiree spending did not change. The proportion of income spent on various kinds of expenses is similar, no matter the source of the income.

The study also found that approximately a quarter of the households in the study have spending rates of 5 percent or more, and may be at risk of exhausting their financial assets.

Instant Insights /

Wealthier retiree households rely on financial accounts

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