(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Mark Miller
CHICAGO, June 10 Where do affluent retirees get
their income? Portfolios invested in stocks and bonds, you might
think - but you'd be wrong. Turns out many are living mainly on
Social Security and good old pensions.
That's the surprising finding of new research from a
surprising source: Vanguard, a leading provider of retirement
saving products like individual retirement accounts and 401(k)s.
Vanguard studied the income sources and wealth holdings of more
than 2,600 older households (age 60-79) with at least $100,000
in retirement savings. The respondents' median income was
$69,500, with median financial assets of $395,000. (The value of
housing was excluded.)
The researchers were looking for answers to a mysterious
question about the behavior of wealthier retirement account
owners: Why do few of them draw down their savings? They found
that nearly half the aggregate wealth of these households comes
from the two mothers of all guaranteed income programs, Social
Security (28 percent) and traditional defined-benefit pensions
The median annual income for these households is $22,000
from Social Security, with an additional $20,000 from pensions.
Tax-deferred retirement accounts came in third among those who
have them, at $13,000 (11 percent).
"Only a small number of the people who have 401(k)s and IRAs
are really relying on them as a regular source of income," said
Steve Utkus, director of the Vanguard Center for Retirement
Research. "There's a lot more income from pensions than we
expected," he adds.
That last finding may seem surprising, given all the
publicity about shrinkage of defined-benefit pensions. Although
most state and local government workers still have pensions,
only a third of private-sector workers hold a traditional
pension, down from 88 percent in 1975, according to the National
Institute on Retirement Security. And NIRS data points to a
continued slide in the years ahead.
"Will this look different 10 years from now - will we have
less pension income and more from retirement savings accounts? I
think so," Utkus says.
Another interesting finding: Twenty-nine percent of affluent
retirees get some income from work, with a median income of
$24,600. And the rate of labor force participation was even
higher - 40 percent - among households more reliant on
"That's only going to jump dramatically over the next few
years," Utkus says. "All the surveys show there's a real demand
for work as a structure to life. People say they can use the
money, or they want to work to get social interaction."
The findings are all the more striking because the big buzz
in the retirement industry these days is about how to generate
income from nest eggs. That includes creation of income-oriented
portfolios, systematic drawdown plans and annuity products that
act as do-it-yourself pensions.
Yet few retirement account holders actually are tapping them
for income. The Investment Company Institute reports that just
3.5 percent of all participants in 401(k) plans took withdrawals
in 2013. That figure includes current workers as well as
retirees; the numbers are higher when IRAs are included, since
those accounts include many rollovers from workplace plans by
retired workers. With that wider lens, 20 percent of younger
retired households (age 60-69) take withdrawals, according to a
study for the National Bureau of Economic Research and the
Social Security Administration's Retirement Research Consortium.
The income annuity market has been especially slow to take
off. One option is an immediate annuity, where you make a single
payment at the point of retirement or later to an insurance
company and start getting a monthly check; the other is a
deferred annuity, which lets you pay premiums over time
entitling them to future regular income in retirement.
Deferred annuity sales doubled in 2013, to about $2 billion,
according to LIMRA, the insurance industry research and
consulting group. But that's still a drop in the bucket of the
broader retirement products market. And the Vanguard survey
found that just 5 percent of investors surveyed held annuity
"The theme of translating retirement balances into income
streams is emerging very slowly," Utkus says.
The Vanguard study also underscores the importance of smart
Social Security claiming decisions, especially delayed filing.
"There's been a sea change over the past year," Utkus says, with
more people recognizing that delayed filing is one of the best
ways to boost guaranteed income in retirement. Vanguard is
"actively discussing" adding Social Security advice to the
services it offers investors, he says.
For more from Mark Miller, see link.reuters.com/qyk97s
(Follow us @ReutersMoney or here.
Editing by Douglas Royalty)