Improving retirement security for Americans will require not only sound income-producing strategies but also better education to help them determine appropriate withdrawal rates, a new report states.
Companies may wish to work on strategies that help employees determine a "safe" withdrawal rate as part of their employee benefit plan administration efforts for 401(k) plans and other employer-sponsored retirement options, according to "The Problem with Spending Too Fast: Retirement Savings Withdrawal Rates," a report by the Institutional Retirement Income Council (IRIC). As matters stand, many employees may be making withdrawals too quickly, increasing the risk that they will exhaust their savings.
"Given the statistical chance that at least one spouse in a married couple age 65 will live another 30 years, 'safe' withdrawal rates are much less than most retirement plan participants think," said IRIC member Fred Reish. "In fact, anything greater than 6 percent results in a significant risk of exhausting retirement funds while the individual is still alive."
He noted that this would surprise many residents, adding that many believe they can withdraw 10 percent of their retirement savings per year without exhausting them. Researchers considered strategies such as setting a lower, 4 percent withdrawal rate and adjusting it upward for inflation in successive years and using annuities.
