Affluent Retirees Rely On Financial Accounts for Income: Study

Affluent retiree households — despite having similar median incomes as “traditional” retiree households — rely more on financial accounts for retirement income than sources like Social Security and pension benefits, according to a recent Vanguard study.

In an article on Benefits Pro, the specifics of the study were discussed:

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.