Wednesday, August 20, 2014

Can Retirees Successfully Survive in a World of 401(k) Plans? - Part 2

I ran across three articles concerning living in a 401(k) world that might be of interest to the readers of this blog.

To get a different viewpoint from the one expressed by Professor Frolik in the last post, here is an article in Fiduciary News in which Phil Chiricotti claims, "lobbying to replace 401(k) is "lunacy" and "Not only are they not broken, but 401k plans are the most successful savings vehicle in history".

The second article comes from Brookings and argues that we don't just have a savings problem; we also have a spending problem.  "Upon retirement, households are faced with another daunting challenge--turning their accumulated wealth into security...Ultimately, a sound retirement means adept choices about both savings and spending."   Since this website is devoted to helping retirees with the "spending problem", I will have to agree with Brookings on this one.

Perhaps the most interesting of the three articles is actually a press release and a survey of retirees and near-retirees completed by T. Rowe Price.  It shows that the survey retiree group is living on significantly less income than they had prior to retirement, but 89% of respondents report being "somewhat or very happy with retirement so far."

The actual survey results contain a wealth of information, including the following:

Average sources of income in retirement:

Social Security: 43%,
401(k)/IRA: 18%,
Pension: 19%,
Earnings from employment: 8%,
Annuity income: 2%

48% of retirees have a withdrawal plan with an average withdrawal of 4.9% of accumulated assets (median of 4%). 

60% of retirees prefer to adjust spending up and down depending on the market to maintain the value of their portfolio

80% of retirees track expenses carefully and 63% stick to a spending budget

89% of retirees believe that they can adjust their lifestyle according to income

59% of retirees expect to spend their assets rather than leave significant amounts to heirs 

Of special interest to me is the fact that 63% of surveyed retirees stick to a spending budget.  Since the purpose of this website is to help retirees develop a reasonable spending budget (and one that smoothes variations due to investment performance but also adjusts the budget up and down when necessary), these survey results are encouraging to me.