PLANSPONSOR - December 2017/January 2018 - 18

Upfront
Retirees Spending Only About 1% of Assets
RESEARCH conducted by the BlackRock
Retirement Institute and the Employee
Benefit Research Institute (EBRI) found
that, after nearly two decades of being
retired, the average retiree still has 80%
of his nest egg intact.
In " Spending in Retirement ... Or
Not? " the researchers say this finding
challenges long-held fears about retirees
spending down their savings too fast.
They also discovered, from sampling
9,670 retiree households, that more
than one-third of retirees continue to
grow their assets late into life, " leaving
considerable potential consumption on
the table. " And for all of the talk about
long-term care insurance, the researchers
found that burdensome late-in-life out-ofpocket
medical expenses are faced by only
a small portion of retirees.
Despite all of this good news,
BlackRock and EBRI say, retirement for
future generations will be more challenging.
The reason retirees may be in
such a strong position for the time being,
they say, is because of changes to Social
Security and Medicare, the fact that many
of today's retirees have pensions, strong
TALKING POINT
How Workers Choose Where to Save: 401(k) or HSA*
33%
n 2016 n 2017
22%
" I figure out how
much I need for
each and put
some into each,
accordingly "
22% 23%
15%
" I save the
maximum
amount allowed
in my HSA and
401(k) plan "
" I figure out
what I can
afford and put
some in each,
accordingly "
*Among U.S. employees enrolled in a health savings account.
21%
4% 6%
" I save in my
HSA till I reach
my annual
goal, then in
my 401(k) plan "
7%
5%
" I save only
in my HSA
or only in my
401(k) plan "
4%
7%
11%
" I save in my
retirement plan
until I reach my
annual goal,
then in my HSA "
" I don't really
have a specific
or regular plan
and decide as
I go along "
Source: Alight, 2017 Financial Mindset Study
20%
performance by the stock market in recent
years, and a healthy real estate market.
The researchers found that, after 18 years
of retirement, the wealthiest group-
those with $500,000 or more saved-had
retained 83% of their assets. But even those
with $200,000 to $500,000 saved still had
77% of their assets, and those with less
than $200,000 had retained 80%.
" This supports prior research that
suggests households tend to preserve
retirement assets, with rates of returns on
those assets often exceeding withdrawals, "
the researchers explain. As a result, " asset
balances for many retirees grow through
at least 85 years old. "
The research also found that, among
the highest-, middle- and lowest-wealth
groups, the income replacement ratios
range from 60% to 70%. Further, it
found that all three groups of retirees,
on average, lowered their spending the
more years they were retired, with the
highest-wealth group showing the largest
spending drop over time. The researchers
say the decrease in spending is probably
due to less money put toward transportation
and entertainment as people age.
" It would appear that, for most retirees,
keeping up with the day-to-day expenses of
retirement isn't requiring them to dip into
their retirement capital, " the report says.
The researchers attribute the frugality
to retirees' worries over long-term care and
longevity, and perhaps the desire to leave
an inheritance to a family member.
While 42% of the retirees in the study
have a pension, fewer future retirees will
be so lucky, the researchers says. Social
Security benefits may also be reduced,
and future retirees, who will rely more
heavily on tax-qualified savings vehicles
such as 401(k) plans, will see their income
cut by taxes, they add. Also, many experts
do not expect the markets' rates of return
to be as strong in coming years, and
people continue to live longer.
In conclusion, BlackRock and EBRI
say, " shifting demographics and a more
challenging market environment will only
elevate the complexity and importance of
helping retirees maximize the value of
retirement savings. " If future retirees save
more and work with an adviser, however,
they can overcome these obstacles, the
researchers say. -Lee Barney
18 PLANSPONSOR.com December 2017-January 2018
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PLANSPONSOR - December 2017/January 2018

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