Most assets leave within three years of retirement
Withdrawals have the greatest impact on cash flow volatility, since they permanently remove assets from participants’ accounts. This year’s research was consistent with past trends that found that the majority of participants made substantial withdrawals soon after retiring. Most also took all of their account assets within three years. Our latest research found that:
- the average participant withdrew more than 55% in any given year at or soon after retirement
- only 28% of participants remained in the plan three years after retirement
- most participants who remained in the plan after age 70 started to follow required minimum distribution (RMD) withdrawal rates, though there is some variability
Looking at withdrawals from an age perspective, we again found that once participants reached 59½, distributions were substantially higher than general industry expectations. At age 60, 9% of participants withdrew an average of 51% of their account balances, with 23% of that 9% taking out 100% of their assets; at age 65, 13% of participants withdrew an average of 57% of their balances, with 35% of that 13% taking out 100% of their assets; and by age 70, 52% of remaining participants withdrew an average 33% of their balances, with 20% of that 52% taking all of their assets.
Key finding: Participants still withdraw most of their assets around retirement, and we continue to see great variability of how people withdraw
EXHIBIT 8: MIX OF WITHDRAWAL TYPES
Part 4: Evaluating target date fund design
Part 4 of our Ready! Fire! Aim? research series focuses on evaluating target date fund design.
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TARGET DATE FUNDS. Target date funds are funds with the target date being the approximate date when investors plan to start withdrawing their money. Generally, the asset allocation of each fund will change on an annual basis with the asset allocation becoming more conservative as the fund nears the target retirement date. The principal value of the fund(s) is not guaranteed at any time, including at the target date.