What Consumers Want to Know About Making Retirement Decisions: Researching the Path Through Retirement WISER Annual Women s Retirement Symposium A Lifetime Financial Journey: Helping Women Reach Retirement Security Washington, DC Sarah Holden Senior Director of Retirement and Investor Research
Overview Backdrop Key Junctures Managing Assets and Income in Retirement WISER Retirement Symposium 1
Backdrop Americans have $18.2 trillion, or 37%of household financial assets, earmarked for retirement Retirement saving occurs in multiple buckets WISER Retirement Symposium 2
69% of U.S. Households Have Employer- Sponsored Plans, IRAs, or Both Percentage of U.S. households, May 2011 Own IRA only Do not have IRA or employersponsored retirement plan 31% 8% 31% Have IRA and employersponsored retirement plan Have employersponsored retirement plan only 30% Total number of U.S. households: 118.7 million Sources: ICI Annual Mutual Shareholder Tracking Survey and U.S. Census Bureau; See Holden and Schrass, The Role of IRAs in U.S. Households Saving for Retirement, 2011 ICI Research Perspective (November 2011) WISER Retirement Symposium 3
Millions of U.S. Households Own IRAs Year created Traditional IRA 1974 (Employee Retirement Income Security Act) SEP IRA 1978 (Revenue Act) SAR-SEP IRA 1986 (Tax Reform Act) SIMPLE IRA 1996 (Small Business Job Protection Act) Roth IRA 1997 (Taxpayer Relief Act) Number of U.S. households with type of IRA, 2011 (percentage of households) 37.0 million (31.2%) 8.9 million (7.5%) 18.6 million (15.7%) Assets at year-end 2010 (billions) e $4,121 $324 $265 Any IRA 46.1 million (38.8%) $4,710 e = estimated Note: Households may own more than one type of IRA. Sources: Investment Company Institute and U.S. Census Bureau; See Holden and Schrass, The Role of IRAs in U.S. Households Saving for Retirement, 2011, ICI Research Perspective (November 2011) and Investment Company Institute, The U.S. Retirement Market, Second Quarter 2011, (September 2011) WISER Retirement Symposium 4
U.S. Retirement Market Data, Second Quarter 2011 Retirement assets were $18.2 trillion at the end of June 2011 and accounted for 37% of all household financial assets in the United States. IRA assets totaled $4.9 trillion at the end of June 2011, up 0.7% from the end of March 2011. Defined contribution (DC) plan assets increased 0.8% in the second quarter to $4.7 trillion at quarter-end. 401(k) plan assets were $3.2 trillion at the end of 2011:Q2. Both IRA and DC assets are above their 2007 peak values. WISER Retirement Symposium 5
U.S. Retirement Assets Edged Up in 2011:Q2 Trillions of dollars, end-of-period 401(k) plans Other DC plans IRAs Other plans $17.9 $16.6 $16.1 $17.6 $18.2 $18.2 $13.7 $14.0 $11.6 $10.5 $7.0 $4.7 $4.9 $4.9 $3.9 39% 48% $1.5 $1.5 $1.5 $3.0 $3.1 $3.2 52% 1990 1995 2000 2002 2004 2006 2007 2008 2009 2010 2011:Q12011:Q2 Note: For definitions of plan categories, see Table 1 in The U.S. Retirement Market, Second Quarter 2011. Components may not add to the total because of rounding. Some data are estimated. Source: See Investment Company Institute, The U.S. Retirement Market, Second Quarter 2011 (September 2011) WISER Retirement Symposium 6
401(k) Plan Assets Are Held by a Range of Age Groups Percentage of total, year-end 2009 9% 17% Participant Age 25% 29% 24% 41% 29% 60s 50s 40s 30s 20s 13% 12% 2% Active 401(k) Plan Participants 401(k) Plan Assets Note: Components may not add to 100% because of rounding. Source: EBRI/ICI Participant-Directed Retirement Plan Data Collection Project; See Holden, VanDerhei, and Alonso, 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2009, ICI Perspective and EBRI Issue Brief (November 2010) WISER Retirement Symposium 7
Bulk of IRA Assets Is Held by Older Individuals Percentage of total, year-end 2008 70 or older 60 to 69 50 to 59 35 to 49 Younger than 35 15% Penalty Free Distributions Possible 26% RMD? 20% 35% 61% 25% 35% 28% 24% 12% 13% 1% Taxpayers with IRAs: 54.5 million Note: Components may not add to 100% because of rounding. Source: ICI tabulations of IRS SOI Form 5498 Data WISER Retirement Symposium IRA Assets in 2008: $3.7 trillion 8
Key Junctures Job change (during working career and at retirement) Social Security claiming age Medicare eligibility Personal changes (e.g., disability, family changes birth, death, marriage, divorce) WISER Retirement Symposium 9
Federal Retirement Age-Related Rules Pension and Medicare Rules Mandatory withdrawals from pension plans must begin to avoid tax penalties (age 70½) Not allowed to make traditional IRA Contributions (age 70½) Medicare eligibility for nearly all Eligibility for drawing pensions & IRAs without tax penalties (age 59½) Eligibility for drawing certain pensions without penalties if leaving employment 59 60 62 65 66 67 70 71 Age Maximum Social Security benefits Normal (Full) Retirement Age depending on birth date Early eligibility for Social Security retired worker benefits 55 Social Security Retirement Age Rules Source: U.S. Government Accountability Office Analysis of Social Security, Medicare and Pension Tax Laws; See U.S. GAO (2007) WISER Retirement Symposium 10
Resources Consulted for DC Plan Distribution Decisions at Retirement Percentage of respondents with a choice of distribution option 1 Spouse or partner Coworker, friend, or other family member 23% 46% Family/ Peers 56% Professional financial adviser 42% Professional financial adviser (provided by employer) 13% Seminar or workshop Printed materials 30% 29% Employer resources 46% Online retirement software (provided by employer) 3% Online retirement software Other resources 2 5% 21% Other sources 22% 1 Multiple responses are included; 67 percent of respondents mentioned consulting multiple sources of advice or information. A total of 426 respondents is included in this figure. 2 Other resources include advice/information from a publication not provided by the employer, included in mutual fund company materials, and the retirees themselves. Source: ICI Defined Contribution Plan Distribution Choices at Retirement Survey; See Sabelhaus, Bogdan, and Holden (Fall 2008) WISER Retirement Symposium 11
Where Households Hold Traditional IRAs Percentage of traditional IRA owning households, May 2011 32% Direct sources 25% 78% Professional financial advisers 29% 28% 34% 3% 6% 10% Discount brokerage firm that is only online Discount brokerage firm with walk-in offices Mutual fund company Insurance company Bank or savings institution Independent financial planning firm Full-service brokerage Note: Multiple responses are included. Source: ICI IRA Owners Survey; See Holden and Schrass, The Role of IRAs in U.S. Households Saving for Retirement, 2011 ICI Fundamentals (November 2011) WISER Retirement Symposium 12
Managing Assets and Income in Retirement 401(k) and IRA asset allocations vary with investor age Retiree income depends heavily on Social Security Traditional IRA distribution activity tends to be retirement-related IRA distribution amount often based on RMD IRA distributions often used to pay for living expenses Majority of traditional IRA owning households engage in retirement asset and income strategy planning WISER Retirement Symposium 13
401(k) Account Allocation to Stocks Tends to Fall with Participant Age Percentage of 401(k) plan participants by age, 2000 and 2009 Percentage of 401(k) account allocated to equities* >80% 100% >60% 80% >40% 60% >20% 40% 1% 20% Zero 22% 55% 54% 39% 40% 51% 59% 55% 15% 13% 27% 14% 19% 14% 20% 15% 15% 14% 11% 11% 11% 11% 20% 19% 2000 2009 2000 2009 2000 2009 2000 2009 20s 30s 40s 60s Participant age *Includes stocks held in funds. Source: EBRI/ICI Participant-Directed Retirement Plan Data Collection Project; See Holden, VanDerhei, and Alonso, 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2009, ICI Perspective (November 2010) WISER Retirement Symposium 14
Traditional IRA Allocation to Stocks Tends to Fall with Investor Age Percentage of traditional IRA investors by age, 2007 Percentage of traditional IRA balance allocated to equities* 80% 100% 60% <80% 40% <60% 20% <40% 1% <20% Zero 44% 59% 57% 53% 21% 13% 21% 24% 22% 15% 14% 15% 30 to 34 40 to 44 50 to 54 60 to 64 Investor age *Includes stocks held in funds. Source: The IRA Investor Database ; See Holden and Bass, The IRA Investor Profile: Traditional IRA Investors Asset Allocation, 2007 and 2008 (November 2011) WISER Retirement Symposium 15
Pensions (DB and DC) Make Up a Growing Share of Retiree Income Percentage of total retiree income, on a per capita basis, selected years Social Security Public assistance Private pension Gov't pension Asset income Other 4% 3% 19% 11% 8% 19% 3% 1% 12% 13% 13% 26% 54% 58% 1975 1985 1995 2005 2009 Source: ICI tabulations of the March Current Population Survey; See Brady and Bogdan, A Look at Private-Sector Retirement Plan Income After ERISA, ICI Perspective (November 2010) WISER Retirement Symposium 16
Withdrawal Activity Fell in Tax Year 2009, Reflecting Suspension of RMDs Percentage of households owning traditional IRAs in the year indicated taking withdrawals in the prior year 18% 20% 19% 15% 22% Took withdrawal in 2006 2007 2008 2009 2010 Among traditional IRA owning households in 2007 2008 2009 2010 2011 Note: Households were surveyed in May of the year indicated and asked about withdrawals in the prior year. Source: ICI IRA Owners Survey; See Holden and Schrass, The Role of IRAs in U.S. Households Saving for Retirement, 2011, ICI Research Perspective (November 2011) WISER Retirement Symposium 17
Traditional IRA Withdrawals Are Often Based on Required Minimum Distributions (RMDs) Percentage of traditional IRA-owning households with withdrawals in tax year indicated 19% 29% 28% Withdraw a lump sum based on needs Some other way Withdraw a regular dollar amount 64% 48% 61% Withdraw a fixed percentage of the account balance Withdraw an amount based on life expectancy Withdraw an amount based on RMD Tax year 2008 Tax year 2009 Tax year 2010 Source: ICI IRA Owners Survey; See Holden and Schrass, The Role of IRAs in U.S. Households Saving for Retirement, 2011, ICI Research Perspective (November 2011) WISER Retirement Symposium 18
Focus of Traditional IRA Withdrawals to Pay for Living Expenses Current or expected future use of traditional IRA withdrawal Percentage of withdrawing retiree traditional IRA owning households (multiple responses) Percentage of traditional IRA owning households not taking withdrawals (multiple responses) Percentage of traditional IRA owning households not taking withdrawals (primary expected plan for future withdrawals) Pay for living expenses 39% 63% 53% Spend on car, boat, or bigticket item other than a home 7% 10% 2% Spend on a healthcare expense 10% 32% 3% Use it for an emergency 6% 62% 15% Home purchase, repair, or remodeling 18% 23% 5% Reinvest or save in another account 33% 39% 12% Some other purpose 12% 16% 6% Source: ICI IRA Owners Survey; See Holden and Schrass, The Role of IRAs in U.S. Households Saving for Retirement, 2011, ICI Research Perspective (November 2011) WISER Retirement Symposium 19
Components of Strategy for Managing Income and Assets in Retirement Percentage of traditional IRA owning households that indicated they have a strategy for managing income and assets in retirement, 2011 Set aside emergency funds Develop a retirement income plan Review insurance policies Determine retirement expenses Determine when to take Social Security benefits 54% 71% 69% 65% 64% Note: Multiple responses are included. Source: ICI IRA Owners Survey; See Holden and Schrass, The Role of IRAs in U.S. Households Saving for Retirement, 2011, ICI Research Perspective (November 2011) WISER Retirement Symposium 20
References Brady, Peter, and Michael Bogdan. 2010. A Look at Private-Sector Retirement Plan Income After ERISA, ICI Perspective (November). www.ici.org/pdf/per16-02.pdf Holden, Sarah, and Steven Bass. 2011. The IRA Investor Profile: Traditional IRA Investors Asset Allocation, 2007 and 2008. Washington, DC: Investment Company Institute (November). www.ici.org/pdf/rpt_11_ira_asset.pdf Holden, Sarah, and Daniel Schrass. 2011. The Role of IRAs in U.S. Households Saving for Retirement, 2011, ICI Research Perspective (November). www.ici.org/pdf/per17-08.pdf. Holden, Sarah, Jack VanDerhei, and Luis Alonso. 2010. 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2009, ICI Perspective and EBRI Issue Brief (November). www.ici.org/pdf/per16-03.pdf Investment Company Institute. 2011. The U.S. Retirement Market: Second Quarter 2011. Washington, DC: Investment Company Institute (September). www.ici.org/info/ret_11_q2_data.xls WISER Retirement Symposium 21
References, cont. Sabelhaus, John, Michael Bogdan, and Sarah Holden. 2008. Defined Contribution Plan Distribution Choices at Retirement: A Survey of Employees Retiring Between 2002 and 2007. Washington, DC: Investment Company Institute (Fall). http://www.ici.org/stats/res/rpt_08_dcdd.pdf U.S. Government Accountability Office. 2007. "Retirement Decisions: Federal Policies Offer Mixed Signals About When to Retire," Report to Congressional Committees, No. GAO-07-753, Washington, DC: U.S. Government Accountability Office (July). http://www.gao.gov/new.items/d07753.pdf U.S. Internal Revenue Service, Statistics of Income Division. 2011. SOI Tax Stats - Special Studies on Individual Tax Return Data, Table 4: Taxpayers with Individual Retirement Arrangement (IRA) Plans, by Age of Taxpayer, Tax Year 2008. www.irs.gov/taxstats/indtaxstats/article/0,,id=129406,00.html#ira WISER Retirement Symposium 22