The Coming Shift in Drawdown Patterns Among Retirees

The lack of access to defined-benefit plans can result in the baby boomer generation underestimating their drawdown speed.

Researchers at the Center for Retirement Research at Boston College found that retirees with guaranteed sources of income (aka annuity-like) tend to draw their wealth down slower than those without guaranteed plans. The lack of access to defined-benefit plans (aka pensions) can result in the baby boomer generation underestimating their drawdown speed.

Past generations drew down their wealth slowly and left much of their savings unutilized during retirement. This trend may not continue as newer retirees will rely on defined-contribution plans—such as 401(k) plans—rather than defined-benefit plans.

Retirees with starting wealth of $200,000 who are covered by a defined-benefit plan spend $28,000 less by age 70 than those without a defined-benefit plan, the researchers found. The difference is attributable to the flow of retirement income from the pension, whereas those with defined-contribution plans are much more reliant on their savings.

While participation in a defined-benefit plan increases financial security in retirement, access to pensions fell significantly over the career span of the baby boomer generation. Access to defined-benefit plans was common for those born between 1920 and 1940, but the share of people with access declined sharply thereafter. The youngest baby boomers, born in 1965, have largely worked in jobs offering no access to pensions.

While about three-quarters of recent retirees still have access to defined-benefit plans, the study predicts that recent retirees with no defined-benefit plans are at greater risk of depleting their assets by age 85. The actual pace of the drawdown will be affected by other factors. Homeownership is associated with slower drawdowns due to the lack of rental payments. Those who are college-educated also tend to draw down their assets slower.

“Can the Drawdown Patterns of Earlier Cohorts Help Predict Boomers’ Behavior?,” by Robert Siliciano and Gal Wettstein; Center for Retirement Research at Boston College, September 2021.