(In paragraph 7, corrects to show that assets peaked in first
quarter of 2012)
By Linda Stern
WASHINGTON Dec 5 Contrary to what you may have
heard, new retirees are doing better financially than previous
generations, according to research being published on Wednesday
by a mutual fund industry trade group.
"On average, more-recent generations of households have
higher levels of resources to draw on in retirement than
previous generations," said the study by the Investment Company
Institute, a trade group. "Other measures also indicate
improvements in retiree well-being. For example, the poverty
rate among people aged 65 or older has declined from nearly 30
percent in 1966 to 9 percent in 2011."
These findings -- culled from a survey of academic,
government and industry research -- run counter to the
oft-quoted conventional wisdom that older people will be left
impoverished by the decline of traditional defined benefit
pension plans. It also seems a change in tone for the industry,
which has funded countless surveys showing how worrisome to
workers the retirement landscape is.
"The extent to which previous generations of retired
households relied on income generated by private sector (defined
benefit) plans is often exaggerated," the study said. The shift
to defined contribution plans like 401(k)s "will increase
retirement resources for most households."
Perhaps the new tone is aimed at fending off rumored threats
to the favorable tax treatment that 401(k) plans and similar
accounts receive as Washington tries to cut deficits and avoid
large tax increases scheduled to take effect in 2013.
"We feel it is very important to preserve the tax incentives
for those plans," Sarah Holden, senior director of retirement
and investment research at ICI, said in an interview. "This is
an area that we've seen works well for American workers. These
plans can provide significant income in retirement."
To be sure, the ICI findings are in the aggregate, so not
every retiree will be on more solid financial footing than his
or her forebears. But the study shows that the money Americans
have earmarked for retirement -- topping $18.5 trillion in the
second quarter -- is substantially higher than at eras in the
past, even when defined benefit plans are included. That figure
peaked at $18.9 trillion in th e first quarter of 2012, and fell
when stock prices fell in the middle of this year.
"Recent cohorts of retirees tend to enter retirement
wealthier than previous cohorts," the study says.
Households led by people of all ages had more retirement
assets than ever, the study found. The average amount of
retirement assets per U.S. household was $153,100 on June 30 of
this year. Adjusted for inflation that is 2.7 times higher than
in 1985 and 5.6 times higher than in 1975, the study said.
The findings should encourage survey-weary workers heading
into retirement, but not so much that they stop saving. Here's
some more perspective.
-- Older people save more for retirement than younger
people, but that's OK. "A younger worker might be saving for a
home. That's not formally earmarked for retirement, but you can
live in it while you are retired. It's going to be a resource
that is important," said Holden.
-- Not everyone will be OK. But teasing out who will and
won't have enough in retirement is complicated and a little bit
The folks at the bottom of the earnings spectrum might be
better off than expected, because Social Security will make up a
higher percentage of their income, says Holden. She predicts
that those who will face the biggest challenges funding their
retirements are the same people most challenged at funding their
earlier years. "Folks who were vulnerable while working (either
by being underemployed, unemployed, working part-time or
retiring early for health reasons) will tend to remain
vulnerable in retirement," said Holden.
-- Other assets count. In 2010, roughly 82 percent of near-
retirees owned homes, and for the typical homeowner, their
home-equity made up almost one-third of their net worth. People
approaching retirement will be able to tap their IRAs, 401(k)s,
home equity (either by downsizing or using reverse mortgages),
Social Security, private pensions and any other savings they
For retirement savers, mixing that up is usually a good
idea. Saving some money outside of retirement accounts allows
for greater tax flexibility when it comes time to make
withdrawals. A home that is paid off or almost paid off can be a
significant resource for the later years of retirement.
-- There's good news on spending too. It's not just in their
pre-retirement savings that workers are displaying some
encouraging behavior. There are starting to be shreds of
evidence that people are withdrawing less from their retirement
accounts than might be expected.
That observation comes from T. Rowe Price, an investment
company that holds a substantial number of retirement accounts.
Its advisory clients often tend to withdraw roughly 4 percent of
their assets during their first year of retirement, said
Christine Fahlund, a senior retirement adviser with the company.
But they tend not to raise their withdrawals in every subsequent
year, even though T. Rowe Price retirement plans typically allow
for annual inflation adjustments of those withdrawals.
Moreover, Fahlund says some of her retired clients are
unhappily surprised when they hit age 70-1/2 and must take
required minimum distributions from their accounts. "In many
cases, they don't need the RMDs and they don't want to take
them," she said.
That is another surprising and nontraditional retirement
story line: There's too much money.
(Linda Stern is a Reuters columnist. The opinions expressed are
her own. The Stern Advice column appears weekly, and at
additional times as warranted. Linda Stern can be reached at
email@example.com; She tweets at www.twitter.com/lindastern
.; Read more of her work at blogs.reuters.com/linda-stern;
Editing by Dan Grebler)