IRA Withdrawals: How Much, When, and Other Saving Behavior, p. 9

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1 May 2013 Vol. 34, No. 5 Trends in Health Coverage for Part-Time Workers, p. 2 IRA Withdrawals: How Much, When, and Other Saving Behavior, p. 9 A T A G L A N C E Trends in Health Coverage for Part-Time Workers, by Paul Fronstin, Ph.D., EBRI The Patient Protection and Affordable Care Act of 2010 (PPACA) requires that employers with 50 or more fulltime workers pay a penalty if they fail to provide health coverage to full-time workers in 2014, which has raised concern that employers may respond by cutting back on health coverage for part-time workers or by increasing the proportion of part-time workers employed. The recent recession has already resulted in an increased use of part-time workers: The percentage of workers employed part-time has been rising since 2007, increasing from 16.7 percent to 22.2 percent in Part-time workers have experienced a much larger decline in coverage than full-time workers. Between 2007 and 2011, full-time workers experienced a 2.8 percent reduction in the likelihood of having coverage from their own jobs, while part-time workers experienced a 15.7 percent decline. IRA Withdrawals: How Much, When, and Other Saving Behavior, by Sudipto Banerjee, Ph.D., EBRI Households between ages 61 and 70 that made withdrawals even though they were not yet required to take IRA distributions (i.e., not subject to the required minimum distribution rules, or RMD) made larger withdrawals than older households, both in absolute dollar amounts as well as a percentage of IRA account balance. The bottom-income quartile of this age group had a very high percentage (48 percent) of households that made an IRA withdrawal, and that their average annual percentage of account balance withdrawn (17.4 percent) was higher than the rest of the income distribution. Among households between ages 71 and 80 that are subject to RMDs, those that have a withdrawal exceeding the RMD amount had average withdrawal amounts that were more than double the amounts taken by those that withdrew only the RMD amount. The percentage of account balance withdrawn was also much larger for households that withdrew more than the RMD amount. Younger households (61 to 70) that made IRA withdrawals spent most of it, while for those between 71 and 80 there was some increase in savings (in CDs and similar holdings) associated with an IRA withdrawal. A monthly newsletter from the EBRI Education and Research Fund 2013 Employee Benefit Research Institute

2 Trends in Health Coverage for Part-Time Workers By Paul Fronstin, Ph.D., Employee Benefit Research Institute Introduction The Patient Protection and Affordable Care Act of 2010 (PPACA) requires that employers with 50 or more full-time workers pay a penalty if they fail to provide health coverage to full-time workers in While many employers already offer health coverage, there are other provisions of PPACA that are expected to increase the cost of coverage. As a result, there is concern that employers may respond by cutting back on health coverage for part-time workers or by increasing the proportion of part-time workers employed. 1 The percentage of workers employed part-time has been rising since 2007, increasing from 16.7 percent to 22.2 percent in 2011 (Figure 1). While employers with fewer than 50 workers are not subject to the penalty if they do not provide health coverage, they may also drop coverage for part-time workers as a way to compensate for any cost increases so that they can continue offering it to full-time workers. This report reviews recent trends in coverage for workers by hours worked and firm size. It examines data from the U.S. Census Bureau s most recent Current Population Survey. Availability of Health Coverage for Part-Time Workers Penalties for failing to provide coverage will apply only to employers with 50 or more full-time workers. Most of these employers already offer coverage: In 2012, 94 percent of employers with workers offered coverage, and 98 percent of employers with 200 or more workers offered it (Figure 2). However, not all employers offer coverage to part-time workers: In 2012, 28 percent of employers with three 199 workers offered coverage to part-time workers, and 45 percent of employers with 200 or more workers offered it to part-time workers (Figure 3). Since 1999, there has been no clear trend away from offering coverage to part-time workers either among small or large employers. While the percentage of small employers offering health coverage to part-time workers declined from 30 percent to 15 percent between 2009 and 2011, it increased to 28 percent in Worker Coverage by Hours Worked Full-time workers are much more likely than part-time workers to have coverage from their own employers. In 2011, 59.6 percent of full-time workers had coverage from their own jobs, while 15.7 percent of part-time workers had such coverage (Figure 4). Both have been trending downward since However, in relative terms, part-time workers have experienced a much larger decline in coverage than full-time workers. Between 2007 and 2011, full-time workers experienced a 2.8 percent reduction in the likelihood of having coverage from their own jobs, while part-time workers experienced a 15.7 percent decline. The likelihood that a part-time worker has employment-based coverage as a dependent fell substantially between 2000 and In 2009, 32 percent of part-time workers had dependent coverage, down from 43.1 percent in 2000 (Figure 5). During this time, the percentage of full-time workers with coverage as dependents was mostly constant except for a drop from 15.3 percent in 2003 to 13.8 percent in The decline among part-time workers may be due to the fact that the marriage rate among them steadily fell from 49 percent to 43 percent between 2000 and 2011, whereas it was nearly unchanged for full-time workers. The percentage of part-time workers covered as dependents increased from 32 percent to 33.4 percent between 2009 and ebri.org Notes May 2013 Vol. 34, No. 5 2

3 Figure 1 Percentage of Workers Employed Part Time, % 22.2% 19.7% 19.9% 16.6% 16.5% 16.7% 17.2% 17.6% 17.4% 17.2% 16.7% 16.7% 18.3% 15% 1 5% Source: Employee Benefit Research Institute estimates from the Current Population Survey, March Figure 2 Percentage of Firms Offering Health Benefits, by Firm Size, % 98% 9 87% 8 73% Source: Exhibit 2.2 in ebri.org Notes May 2013 Vol. 34, No. 5 3

4 Figure 3 Among Firms Offering Health Benefits, Percentage That Offer Health Benefits to Part-Time Workers, by Firm Size, % 4 39% 37% 45% 46% 42% 43% 36% 43% 41% 43% 46% 39% 42% 45% 35% 3 25% 21% 22% 23% 25% 22% 27% 3 23% 24% 3 25% 28% 15% 1 All Small Firms (3 199 Workers) 15% 5% All Large Firms (200 or More Workers) Source: Exhibit 2.5 in 8 Figure 4 Percentage of Workers With Health Coverage Through Their Own Jobs, By Hours Worked, % % 61.4% 60.6% 61.6% 61.1% 60.8% 61.3% 61.2% 60.4% 60.1% 59.6% 6 5 Full Time 4 Part Time % 18.5% 18.4% 18.3% 18.1% % 18.3% 18.7% 17.8% 17.6% 16.8% 15.7% Source: Employee Benefit Research Institute estimates from the Current Population Survey, March ebri.org Notes May 2013 Vol. 34, No. 5 4

5 As a result of the drop in dependent coverage, the proportion of part-time workers without any health insurance increased from 18.3 percent in 2000 to 27.6 percent in 2009, and remained unchanged until 2011 (Figure 6). At the same time, the proportion of full-time workers without any health insurance between 2000 and 2009 increased from 14.4 percent to 17.6 percent, and also remained unchanged until Firm-Size Differences Given that the penalty under PPACA for failing to provide coverage applies only to firms with at least 50 workers, larger firms may be more likely than smaller firms to drop coverage for part-time workers. However, a number of provisions in PPACA are expected to increase premiums for small employers as well, and they may respond by dropping coverage for part-time workers in order to control costs. The remainder of this section examines trends in coverage for workers by hours worked and firm size. Whether employed by a small employer or large employer, full-time workers have seen very little change in the likelihood of having health coverage through their own jobs. Between 1999 and 2011, the percentage of full-time workers employed by large firms with health coverage from their own jobs bounced around between 72.4 percent and 74.9 percent, although the low of 72.4 percent was reached in 2011 (Figure 7). Similarly, the percentage of fulltime workers employed by small firms with health coverage from their own jobs ranged between 39.5 percent and 44.4 percent, with the low of 39.5 percent reached in The recent downward trend was much stronger among full-time workers in small firms, dropping from 42.6 percent in 2008 to 39.5 percent in There appears to be stronger erosion in coverage among part-time workers whether employed by small firms or large firms. Among those employed by large firms, the percentage with health coverage from their own jobs fell from 24.3 percent to 21.4 percent between 2007 and 2011 (Figure 8). Similarly, among workers employed by small firms, the percentage with health coverage from their own jobs fell from 13.3 percent to 10.6 percent between 2007 and Figures 9 and 10 examine the same trends within each firm-size category for part-time and full-time workers. Among workers employed by large firms, part-time workers experienced more erosion in coverage than full-time workers. Part-time workers experienced a 12.2 percent drop in coverage between 2007 and 2011, whereas full-time workers experienced a 2.4 percent drop. There was greater erosion in coverage among workers employed by small firms. Part-time workers experienced a 20.3 percent drop between 2007 and 2011, and full-time workers experienced a 6.3 percent drop in coverage. Conclusion There is a concern that, as a result of PPACA, part-time workers will be less likely to have access to employmentbased health coverage in the future and employers may increase employment of part-time workers at the expense of full-time workers. The recent recession has already resulted in an increased use of part-time workers. At the same time, while both full-time and part-time workers have experienced drops in coverage, part-time workers have been affected disproportionately. Recent trends provide an important base line against which to measure the impact of PPACA once its 2014 health-coverage mandate takes effect. Endnotes 1 As an example, see y.html ebri.org Notes May 2013 Vol. 34, No. 5 5

6 Figure 5 Percentage of Workers With Health Coverage as Dependents, By Hours Worked, % 42.6% 43.1% 42.1% 40.9% 40.4% 4 35% 38.1% 38.4% 37.9% 36.8% 34.6% % 33.4% 3 Full Time 25% Part Time 15% % 15.8% 15.4% 15.7% 15.3% 13.8% 13.8% 13.8% 13.7% 13.7% 13.1% 13.3% 13.5% 5% Source: Employee Benefit Research Institute estimates from the Current Population Survey, March Figure 6 Percentage of Workers Without Any Health Coverage, By Hours Worked, % 27.6% 27.6% 25% % 19.8% % 21.9% 21.3% 22.1% 22.6% 24.7% 15% 14.5% 14.4% 14.6% 15.3% 16.4% 16.2% 16.7% 17.3% 16.6% 16.8% 17.6% 17.6% 17.5% 1 Full Time Part Time 5% Source: Employee Benefit Research Institute estimates from the Current Population Survey, March ebri.org Notes May 2013 Vol. 34, No. 5 6

7 Figure 7 Percentage of Full-Time Workers With Health Coverage Through Their Own Jobs, By Firm Size, % 74.9% 74.6% 74.1% 73.6% 74.5% % 74.2% 73.8% 73.2% % % 44.4% 44.3% 42.9% 42.3% 43.4% 42.9% 42.1% 42.1% 42.6% 41.2% 40.5% 39.5% 3 Small Employer (<100 workers) Large Employer (100 or more workers) Source: Employee Benefit Research Institute estimates from the Current Population Survey, March Figure 8 Percentage of Part-Time Workers With Health Coverage Through Their Own Jobs, By Firm Size, % 23.3% 23.8% 24.5% 24.5% % 24.4% 24.1% 24.3% 23.5% 22.9% 22.1% 21.4% 15% % 13.2% 12.6% 12.4% 12.6% 13.9% 13.7% 12.9% 13.3% 12.4% 12.6% 11.8% 10.6% 5% Small Employer (<100 workers) Large Employer (100 or more workers) Source: Employee Benefit Research Institute estimates from the Current Population Survey, March ebri.org Notes May 2013 Vol. 34, No. 5 7

8 8 Figure 9 Percentage of Workers in Large Firms (100 or More Workers) With Health Coverage Through Their Own Jobs, By Hours Worked, % 74.9% 74.6% 74.1% 73.6% 74.5% % 74.2% 73.8% 73.2% % Full Time Part Time % 23.8% 24.5% 24.5% % 24.4% 24.1% 24.3% 23.5% 22.9% 22.1% 21.4% Source: Employee Benefit Research Institute estimates from the Current Population Survey, March Figure 10 Percentage of Workers in Small Firms (Less than 100 Workers) With Health Coverage Through Their Own Jobs, By Hours Worked, % % 44.4% 44.3% 42.9% 42.3% 43.4% 42.9% 42.1% 42.1% 42.6% 41.2% 40.5% 39.5% 35% 3 Full Time 25% Part Time 15% % 13.2% 12.6% 12.4% 12.6% 13.9% 13.7% 12.9% 13.3% 12.4% 12.6% 11.8% 10.6% 5% Source: Employee Benefit Research Institute estimates from the Current Population Survey, March ebri.org Notes May 2013 Vol. 34, No. 5 8

9 IRA Withdrawals: How Much, When, and Other Savings Behavior By Sudipto Banerjee, Ph.D., Employee Benefit Research Institute Introduction As more and more Baby Boomers 1 enter retirement with large portions of their retirement savings in individual retirement accounts (IRAs), their financial security in retirement may well depend on how they manage these accounts post-retirement. Some may be overly cautious in drawing down their IRA balances, sacrificing a more enjoyable retirement. Others may spend too much too soon, jeopardizing their retirement security. Additionally, there are important questions of concern for policy makers and the retirement-solutions industry. For example, people above age 70-½ are required to withdraw stipulated amounts to avoid tax penalties. But do they simply transfer the money to other forms of savings after paying the taxes, or do they spend the money? This study explores this and other questions. The data for this study come from the University of Michigan s Health and Retirement Study (HRS), which is sponsored by the National Institute on Aging. The HRS, the most comprehensive national survey of older Americans, is a biennial survey started in 1992 with primary respondents who are at least 50 years old along with their spouses, irrespective of the spouses ages. For this article, data from 2002 to 2010 are used to document IRA-withdrawal behavior. Households from all five survey years (2002, 2004, 2006, 2008 and 2010) are combined to form a crosssectional sample. For example, 65-year-old households would include all households that were 65 in any one of the survey years. The sample includes 12,347 households that made an IRA withdrawal between the ages of 61 and IRA-Withdrawal Rates across Different Ages Figure 1 shows the percentage of households that made an IRA withdrawal at different ages. The ages reported range from 61 to 79 (for couple households, the age of the financial respondent in the household is used). Clearly, the percentage of households making an IRA withdrawal not only increased with age, but also spiked around ages 70 and 71. This would appear to be a direct result of the required minimum distribution (RMD) rules in the Internal Revenue Code, which require that traditional IRA account holders begin to take at least the minimum withdrawal specified from their IRA no later than April 1 of the year following the year in which they reach age 70-½, in order to avoid a tax penalty. 3 At age 61, only 22.2 percent of households made an IRA withdrawal, which slowly increased to 40.5 percent by age 69 before jumping to 54.1 percent at age 70 and to 77 percent at age 71. By the age of 79, almost 85 percent of households with an IRA took a distribution. Although the RMD rule requires households to start taking distributions after age 70-½, not everyone with an IRA who reached that age made a withdrawal. Possible reasons for this could be that the IRA in question was a Roth IRA (Roth IRAs are not subject to the RMD rules), or the account belonged to a spouse who was still less than 70-½ years old. Other studies (Bryant and Sailer (2006), Holden and Schrass (2010), Poterba, Venti and Wise (2013)) have reported similar findings. Figure 2 shows the percentage of households (self-reported) who took only the RMD to avoid any tax penalty. The percentage of such households also increased with age. At age 71, 71.1 percent of households took the RMD. This increased to 77.4 percent at age 75, 83.2 percent at age 80, and 91.1 percent by age 86. The following sections will show the differences in other withdrawal characteristics and saving behavior of households that took only the RMD and those that took more than the RMD. IRA-Withdrawal Behavior across Different Age and Income Groups One of the important advantages of traditional defined benefit (DB) pensions is that, when an annuity option is chosen, the benefit amounts are generally adjusted for mortality risk and protect the beneficiaries from longevity risk. ebri.org Notes May 2013 Vol. 34, No. 5 9

10 Figure 1 Percentage of Households Making IRA Withdrawals at Different Ages % % 82.2% 83.4% 85.4% 81.5% 84.8% % % % 26.2% 31.5% 31.2% 33.8% 32.5% 22.2% 21.3% Age Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS), 2002 to Figure 2 Percentage of Households Taking Only the Required Minimum Distributions (RMD), by Age % % 73.1% 75.3% 77.5% 77.4% 78.8% 81.3% % 83.2% 84.1% 84.6% 85.5% 85.6% 80.1% Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS), 2002 to Age ebri.org Notes May 2013 Vol. 34, No. 5 10

11 Consequently, the beneficiaries need not calculate the complex withdrawal rates. But with the growing prevalence and importance of individual account plans, such as IRAs and 401(k)s, withdrawal rates and strategies are becoming more complicated and more important. The following section describes some features of IRA-withdrawal behavior of older or retired households. Figure 3 shows the percentage of retired households between ages 61 and 70 that made an IRA withdrawal. The withdrawal rates are reported for different income quartiles separately. Clearly, IRA-withdrawal rates decrease as income increases. In the first- (bottom) income quartile, nearly half (48 percent) of the households made an IRA withdrawal, as did those in the second-income quartile (48.2 percent). But the next two quartiles show significant drops in IRA-withdrawal rates: 42.7 percent of retired households in the third quartile and only 28.8 percent of retired households in the top-income quartile made an IRA withdrawal. This highlights the first area of potential concern: More people in the lower-income groups withdraw money early, i.e., before the RMD kicks in. This should not be surprising, since lower-income households could be expected to be in greater need of money. But are these low-income households withdrawing too much too soon? Figure 4 shows the percentage of IRA account balance that is withdrawn annually by these retired households between ages 61 and 70. Again, the numbers are reported by income quartile, and clearly, not only does the percentage of IRA account balance withdrawn annually decrease with income, the bottom-income quartile stands out. The average percentage of IRA account balance withdrawn for the second-, third- and top-income quartiles were 13.4 percent, 11.8 percent and 11.5 percent, respectively. Although these withdrawal rates are high, they were still lower than the bottom-income quartile, which had an annual withdrawal rate of 17.4 percent. 4 Combining the results from Figures 3 and 4, another concern emerges: The percentage of households making an IRA withdrawal before the RMD kicks in is very high in the bottom-income quartile, and these households are withdrawing their money at a much faster rate than the higher-income households. While households in the bottom income quartile have the majority of their total assets outside of IRAs, 5 this trend still could be a cause of concern. Figure 5 shows the IRA-withdrawal behavior of households between ages 71 and 80 by income quartile. The top panel of Figure 5 shows the average percentage of IRA balance withdrawn by households that withdrew only the RMD amount (self-reported) and those who withdrew more than the RMD amount. A number of observations can be made here: First, for RMDs, the average withdrawal rate does not vary much across income quartiles. This is expected, as RMDs should be driven by differences in age or expected longevity. Second, for non-rmds, the average percentage of IRA balance withdrawn is highest for the lowest income quartile and generally drops as income increases. For households taking only the RMDs, the average withdrawal rate is 5.8 percent for those in bottom income quartile, but drops to 4.8 percent for those in the top income quartile. For households withdrawing more than the RMD, the bottom income quartile has a withdrawal rate of 16.5 percent which slips to 12.9 percent for the top income quartile. Secondly, for any income quartile, the average percentage of IRA balance withdrawn was higher for those taking more than the RMD amount. This was expected, but the magnitude of the differences in the withdrawal rates was not previously well-documented. In the bottom-income quartile, the average withdrawal rate for households that took more than the RMD was 16.5 percent, compared with 5.8 percent for RMD-only households, and for every income quartile, non-rmds had a withdrawal rate more than double the withdrawal rate of the RMDs. The bottom panel of Figure 5 shows the mean withdrawal amounts (in 2010 dollars) for the same groups. Here also, two clear patterns emerge. First, for both RMD and more-than-rmd withdrawers, the average amount of IRA balance withdrawn increased with income. For example, for those taking only the RMD, the average withdrawal amount in the first-income quartile was $3,871, which increased to $10,745 for those in the top-income quartile. In comparison, the same numbers for those taking more than the RMD were $10,395 and $22,208, respectively. Secondly, in every income quartile, the average amount withdrawn by those taking more than the RMD was more than double the average amount withdrawn by RMD-only households. ebri.org Notes May 2013 Vol. 34, No. 5 11

12 Figure 3 Percentage of Retired Households Between Ages 61 and 70 Making IRA Withdrawals, by Income Quartile % 42.7% % (Lowest) Income Quartile (Highest) Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS), 2002 to Figure 4 Percentage of IRA Balance Withdrawn Annually by Retired Households Between Ages 61 and 70, by Income Quartile 18% 17.4% 16% 14% 13.4% 12% 11.8% 11.5% 1 8% 6% 4% 2% (Lowest) Income Quartile (Highest) Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS), 2002 to ebri.org Notes May 2013 Vol. 34, No. 5 12

13 Figure 5 Average Percentage of IRA Balance Withdrawn and Average Annual Withdrawal Amounts for Those Between Ages 71 and 80, by Income Quartile Income Quartile 1 (Lowest) (Highest) Average Percentage of IRA Balance Withdrawn RMD* 5.8% 5.6% 5.3% 4.8% No RMD Average Annual Withdrawal Amount (in 2010 Dollars) RMD $3,871 $5,192 $6,905 $10,745 No RMD 10,395 14,365 17,200 22,208 Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS), 2002 to * Required minimum distribution. Spending and Saving IRA Withdrawals The HRS asked the households that made an IRA withdrawal how they spent the money withdrawn. Respondents were given four options: put in savings, used for regular expenses, used for special purchases, and given to friends or relatives. Respondents were free to choose any number of these options. The results are presented in Figure 6 separately for two age groups: and For both age groups, a majority of households reported that they spent the IRA withdrawal for regular expenses. However, more households in the younger age group (57.8 percent) reported doing so than the older age group (50.2 percent). More than 1 in 4 households making an IRA withdrawal between ages 61 and 70 reported that they spent all or part of that withdrawal for special purchases, although for the older age group, the number was much smaller (13.5 percent). Only 10.9 percent of households in the younger group reported that they put all or part of their withdrawal in savings, but in comparison, 31.5 percent of households between ages 71 and 80 reported doing so. Taking all these responses together, it can be summarized that younger households (ages 61 70) are more likely to spend their IRA withdrawal than older households (ages 71 80). 7 Figure 6 Percentage of Households Reporting Different Ways They Spent Money Withdrawn From Their IRAs, by Age Group % % Age Group % 25.8% % 13.5% 5.5% 4.9% Put in Savings Used for Regular Expenses Used for Special Purchases Given to Relatives/Friends Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS), 2002 to ebri.org Notes May 2013 Vol. 34, No. 5 13

14 Figure 7 shows the average annual IRA-withdrawal amount and the average annual change in different types of household savings during the same year. 6 The results are presented separately for the same two age groups as in Figure 6. Household savings are divided into five different categories: stocks and mutual funds; checking, savings and other money market accounts; certificates of deposit (CDs), government bonds, and Treasury bills; bonds and bond funds; and all other savings. There are a number of things to note from Figure 7. First, the average withdrawal for those between ages 61 and 70 ($16,655) was much higher than that of those between 71 and 80 ($10,557). Secondly, for the younger group, an IRA withdrawal was not associated with any significant increase in any kind of savings. In fact, for those between 61 and 70, an IRA withdrawal was associated with a significant decrease in the holdings of stocks and mutual funds (-$2,235), checking and savings (-$1,870), and other savings (-$6,555). This suggests that households that are making an early IRA withdrawal are also depleting their other savings. The patterns for the older age group (71 to 80) are different in some aspects. First, as noted before, their average IRA withdrawal amount was much lower. Secondly, this group showed an average holdings increase of $1,525 in CDs, government bonds, and Treasury bills. Further, the drops in most of the other savings categories were much smaller than those making withdrawals in the younger group. For example, the drop in other savings (-$659) for this age group was only about one-tenth of the drop (-$6,555) for the younger age group. Figure 8 shows the same savings categories as Figure 7, but only for the older age group (71 to 80) and breaks the amounts into two groups: households that took only the RMD and those that took more than the RMD. The average IRA-withdrawal amount for more-than-rmd households ($16,981) was more than double the average withdrawal amount for RMD-only households ($8,162). It can also be noted that the average more-than-rmd withdrawal amount was very close to the average withdrawal amount reported in Figure 7 for those between 61 and 70. However, the more-than-rmd withdrawals were associated with average increases in two savings categories: $1,656 in CDs, government bonds and Treasury bills, and $1,544 in other savings. Additionally, households taking only the RMD also reported an average increase ($1,335) in CDs, government bonds and Treasury bills, as well as an average increase of $1,238 in stocks and mutual funds, although it cannot be determined how much of the increase in stocks and mutual funds was from new investments and how much of it was a result of returns on earlier holdings. Finally, both groups experienced similar drops in checking and savings account balances. Conclusion This study explores IRA withdrawal behavior of older Americans using a nationally representative sample. The data show that households between ages 61 and 70 that made withdrawals even though they were not yet legally required to take IRA distributions (i.e., not subject to the RMD) made larger withdrawals than older households, withdrawals larger both in absolute dollar and as a percentage of IRA account balance. It is also important to note that the bottom-income quartile of this age group had a very high percentage (48 percent) of households that made an IRA withdrawal, and that their average annual percentage of account balance withdrawn (17.4 percent) was higher than the rest of the income distribution. Among households between ages 71 and 80 that are subject to RMDs, there are also some important patterns. Households that have a withdrawal exceeding the RMD amount had average withdrawal amounts that were more than double the amounts taken by those that withdrew only the RMD amount. The percentage of account balance withdrawn was also much larger for households that withdrew more than the RMD amount. Finally, younger households (ages 61 to 70) that made IRA withdrawals spent most of it. For these households, an IRA withdrawal was not associated with an increase in any other type of savings. On the other hand, for those between 71 and 80, there was some increase in savings (in CDs and similar holdings) associated with an IRA withdrawal. ebri.org Notes May 2013 Vol. 34, No. 5 14

15 $20,000 Figure 7 Average Annual IRA Withdrawal Amount and Annual Change in Different Types of Household Savings in 2010 Dollars, by Age Group $16,655 $15,000 $10,000 $10,557 Age Group $5,000 $1,525 $0 -$2,235 -$628 -$1,870 -$1,790 $130 -$31 -$640 -$659 -$5,000 -$6,555 -$10,000 IRA Withdrawal Change in Stocks, Mutual Funds Change in Checking, Savings, Money Market Change in CDs, Govt. Bonds, Treasury Bills Change in Bond and Bond Funds Change in Other Savings Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS), 2002 to $20,000 Figure 8 Average Annual IRA Withdrawal Amount and Annual Change in Different Types of Household Savings in 2010 Dollars, by RMD a for Households Between Ages $16,981 $15,000 No RMD RMD $10,000 $8,162 $5,000 $1,238 $1,656 $1,335 $1,544 $0 -$1,551 -$1,482 -$2,045 -$107 -$1,639 -$5,000 -$4,579 -$10,000 IRA Withdrawal Change in Stocks, Mutual Funds Change in Checking, Savings, Money Market Change in CDs, Govt. Bonds, Treasury Bills Change in Bond and Bond Funds Change in Other Savings Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS), 2002 to a Required minimum distribution. ebri.org Notes May 2013 Vol. 34, No. 5 15

16 References Bryant, Victoria L. and Peter J. Sailer, Accumulation and Distribution of Individual Retirement Arrangements, , Statistics of Income Bulletin (Spring 2006): Copeland, Craig, Individual Retirement Account Balances, Contributions, and Rollovers, 2011: The EBRI IRA Database, EBRI Issue Brief, no. 386, (Employee Benefit Research Institute, May 2013). Holden, Sarah and Daniel Schrass, The Role of IRAs in U.S. Households Saving for Retirement, 2010, Research Fundamentals 19 (8). Washington: Investment Company Institute. Poterba, James, Steven Venti and David Wise, The Drawdown of Personal Retirement Assets: Husbanding or Squandering? NBER Working Paper no , January Endnotes 1 The post-world War II generation born between 1946 and The HRS sample is nationally representative but it is much smaller in size compared with the EBRI IRA Database, an ongoing project that collects data from IRA plan administrators. For year-end 2011, the EBRI IRA Database contains information on 20.5 million accounts for 16.6 million unique individuals with total assets of $1.456 trillion. It also has much more detailed account information than the HRS. For example, for each account within the database, the IRA type, the account balance, any contributions and rollovers during the year, the asset allocation, and certain demographic characteristics of the account owner are also included. 3 The exact date of birth of the respondents is not known, which leads to some error in the age variable. Some 70-1/2-yearolds could be classified as 70 and some as 71. This could be the reason why a spike is observed at both ages 70 and 71 and not only at age 71. But it should be noted that the age 71 spike is much larger than the age 70 spike. 4 The reported percentage of IRA balance withdrawn is equivalent to the percentage of end-of-year IRA balance. For example, the total amount withdrawn between 2008 and 2010 is first annualized, and then this annualized amount is reported as a percentage of 2010 IRA account balance. 5 The percentage of total non-housing assets accumulated in IRA accounts is 8.3 percent, 17 percent, 21.8 percent, and 25 percent, respectively, for income quartiles 1, 2, 3, and 4 for retired households between 61 and70. ebri.org Notes May 2013 Vol. 34, No. 5 16

17 Where the world turns for the facts on U.S. employee benefits. Retirement and health benefits are at the heart of workers, employers, and our nation s economic security. Founded in 1978, EBRI is the most authoritative and objective source of information on these critical, complex issues. EBRI focuses solely on employee benefits research no lobbying or advocacy. EBRI stands alone in employee benefits research as an independent, nonprofit, and nonpartisan organization. It analyzes and reports research data without spin or underlying agenda. All findings, whether on financial data, options, or trends, are revealing and reliable the reason EBRI information is the gold standard for private analysts and decision makers, government policymakers, the media, and the public. EBRI explores the breadth of employee benefits and related issues. EBRI studies the world of health and retirement benefits issues such as 401(k)s, IRAs, retirement income adequacy, consumer-driven benefits, Social Security, tax treatment of both retirement and health benefits, cost management, worker and employer attitudes, policy reform proposals, and pension assets and funding. There is widespread recognition that if employee benefits data exist, EBRI knows it. EBRI delivers a steady stream of invaluable research and analysis. EBRI publications include in-depth coverage of key issues and trends; summaries of research findings and policy developments; timely factsheets on hot topics; regular updates on legislative and regulatory developments; comprehensive reference resources on benefit programs and workforce issues; and major surveys of public attitudes. EBRI meetings present and explore issues with thought leaders from all sectors. EBRI regularly provides congressional testimony, and briefs policymakers, member organizations, and the media on employer benefits. EBRI issues press releases on newsworthy developments, and is among the most widely quoted sources on employee benefits by all media. EBRI directs members and other constituencies to the information they need and undertakes new research on an ongoing basis. EBRI maintains and analyzes the most comprehensive database of 401(k)-type programs in the world. Its computer simulation analyses on Social Security reform and retirement income adequacy are unique. EBRI makes information freely available to all. EBRI assumes a public service responsibility to make its findings completely accessible at so that all decisions that relate to employee benefits, whether made in Congress or board rooms or families homes, are based on the highest quality, most dependable information. EBRI s Web site posts all research findings, publications, and news alerts. EBRI also extends its education and public service role to improving Americans financial knowledge through its award-winning public service campaign ChoosetoSave and the companion site EBRI is supported by organizations from all industries and sectors that appreciate the value of unbiased, reliable information on employee benefits. Visit for more th Street NW Suite 878 Washington, DC (202)

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20 EBRI Employee Benefit Research Institute Notes (ISSN ) is published monthly by the Employee Benefit Research Institute, th St. NW, Suite 878, Washington, DC , at $300 per year or is included as part of a membership subscription. Periodicals postage rate paid in Washington, DC, and additional mailing offices. POSTMASTER: Send address changes to: EBRI Notes, th St. NW, Suite 878, Washington, DC Copyright 2013 by Employee Benefit Research Institute. All rights reserved, Vol. 34, no. 5. Who we are What we do Our publications Orders/ Subscriptions The Employee Benefit Research Institute (EBRI) was founded in Its mission is to contribute to, to encourage, and to enhance the development of sound employee benefit programs and sound public policy through objective research and education. EBRI is the only private, nonprofit, nonpartisan, Washington, DC-based organization committed exclusively to public policy research and education on economic security and employee benefit issues. EBRI s membership includes a cross-section of pension funds; businesses; trade associations; labor unions; health care providers and insurers; government organizations; and service firms. EBRI s work advances knowledge and understanding of employee benefits and their importance to the nation s economy among policymakers, the news media, and the public. It does this by conducting and publishing policy research, analysis, and special reports on employee benefits issues; holding educational briefings for EBRI members, congressional and federal agency staff, and the news media; and sponsoring public opinion surveys on employee benefit issues. EBRI s Education and Research Fund (EBRI-ERF) performs the charitable, educational, and scientific functions of the Institute. EBRI-ERF is a tax-exempt organization supported by contributions and grants. EBRI Issue Briefs are periodicals providing expert evaluations of employee benefit issues and trends, as well as critical analyses of employee benefit policies and proposals. EBRI Notes is a monthly periodical providing current information on a variety of employee benefit topics. EBRIef is a weekly roundup of EBRI research and insights, as well as updates on surveys, studies, litigation, legislation and regulation affecting employee benefit plans, while EBRI s Blog supplements our regular publications, offering commentary on questions received from news reporters, policymakers, and others. EBRI s Fundamentals of Employee Benefit Programs offers a straightforward, basic explanation of employee benefit programs in the private and public sectors. The EBRI Databook on Employee Benefits is a statistical reference work on employee benefit programs and work force-related issues. Contact EBRI Publications, (202) ; fax publication orders to (202) Subscriptions to EBRI Issue Briefs are included as part of EBRI membership, or as part of a $199 annual subscription to EBRI Notes and EBRI Issue Briefs. Change of Address: EBRI, th St. NW, Suite 878, Washington, DC, , (202) ; fax number, (202) ; subscriptions@ebri.org Membership Information: Inquiries regarding EBRI membership and/or contributions to EBRI-ERF should be directed to EBRI President Dallas Salisbury at the above address, (202) ; salisbury@ebri.org Editorial Board: Dallas L. Salisbury, publisher; Stephen Blakely, editor. Any views expressed in this publication and those of the authors should not be ascribed to the officers, trustees, members, or other sponsors of the Employee Benefit Research Institute, the EBRI Education and Research Fund, or their staffs. Nothing herein is to be construed as an attempt to aid or hinder the adoption of any pending legislation, regulation, or interpretative rule, or as legal, accounting, actuarial, or other such professional advice. EBRI Notes is registered in the U.S. Patent and Trademark Office. ISSN: /90 $ , Employee Benefit Research Institute Education and Research Fund. All rights reserved.