Recent research from the Employee Benefit Research Institute (EBRI) examines how retirees’ assets change over time depending on whether or not they have access to guaranteed income streams. The report, “Asset Decumulation Over Retirement and the Role of Guaranteed Income Streams,” analyzes longitudinal data from the 1992-2022 Health and Retirement Study to assess how households’ net non-housing assets change throughout retirement.
The researchers found retirees generally do not draw down assets in a smooth or predictable way, but median assets declined much less over time for low- and middle-asset households with defined benefit (DB) plan income. Median assets fell less sharply 21-22 years postretirement if at least one person in the household received income from a DB plan. Among low-asset retirees without this type of income, median assets fell by 89% at 21-22 years postretirement, compared with 29% for those with DB income.
According to the data, asset decumulation occurred across all wealth levels but was found to be the greatest among lower asset retirees. By 21-22 years after retirement, 54% of the low-asset households had less than half of their starting assets left, compared with 40% of middle-asset households and 43% of high-asset households.
The report also notes future retirees are less likely to have access to DB plan income streams in retirement. It posits that retirement income solutions e.g., immediate annuities, deferred income annuities, qualified longevity annuity contracts, and guaranteed lifetime withdrawal benefit features could play a larger role in future retirement planning and drawdown patterns.
The EBRI findings are consistent with other recent research on guaranteed income. A March paper published by BlackRock examined how incorporating guaranteed income into a target date strategy could affect the amount participants may be able to spend annually in retirement. The analysis found that adding a guaranteed income stream could increase projected retirement spending by an average of 22%, with the estimated increase reaching 25% for lower income workers.
Taken together, both studies suggest a relationship between guaranteed income and retirement savings outcomes. Sponsors and advisors should conduct their own due diligence to determine if they believe these findings are correlative or causative. Regardless, the findings provide yet another data point in the broader discussion about retirement income options and participant outcomes as the range of retirement income solutions available within DC plans continues to expand.
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