Why Are Retirees Spending Down So Slowly?

The Employee Benefit Research Institute’s (EBRI)’s Issue Brief, “Asset Decumulation or Asset Preservation? What Guides Retirement Spending?” finds that retirees are not spending down their accumulated assets to fund their retirement needs—even when assets are plentiful or when there is guaranteed income available to ensure that retirees will not run out of money. The study reviews data reflecting how retirees actually use their non-housing assets during their first two decades of retirement by examining income and asset data from the Health and Retirement Study (HRS).

EBRI’s analysis found that regardless of pre-retirement asset size, rates of decumulation are low. Over an 18-year period following retirement, median assets declined only 24% for the low asset group of retirees—from $31,740 immediately after retirement to $24,000 eighteen years later. EBRI says this is somewhat intuitive. “It is not ‘irrational’ for [low-asset households] to hold on to their assets as long as possible,” the Institute says.

However, EBRI found similar patterns when assets are greater. For the moderate asset group, median non-housing assets declined 27% (from $333,940 immediately after retirement to $243,070 18 years later). For those with the most substantial assets—starting with a median of $857,450 immediately after retirement, the decumulation rate was less than 11% (to $763,900 18 years later).

EBRI notes that having guaranteed income for life, such as a pension, didn’t make retirees more likely to spend down their assets. The study found that of all the subgroups studied, pensioners had the lowest asset spend-down rates. “This suggests that if the goal is to avoid spending down assets, pensioners are best suited to achieve it. In other words, if retirees seek to limit their spending to their regular flow of income (such as pension, Social Security income, or other annuity income), then pensioners are indeed best suited to avoid asset decumulation, as they have more regular income than others,” EBRI says.

EBRI questions the reasons for such low decumulation rates. It says if retirees are determined to preserve their assets and not to spend them down, this creates important implications—ranging from the type of retirement products offered to how retirement preparedness is assessed. However, if such drawdown patterns are the consequence of behavioral biases (e.g., inability to switch from accumulation to decumulation mode) or lack of education on how to spend down retirement savings, this has different implications when it comes to necessary tools and support for retirees as they seek to manage their assets in retirement.