Working Paper: NBER ID: w16675
Authors: James M. Poterba; Steven F. Venti; David A. Wise
Abstract: How households draw down their balances in personal retirement accounts (PRAs) such as 401(k) plans and IRAs can have an important effect on retirement income security and on federal income tax revenues. This paper examines the withdrawal behavior of retirement-age households in the SIPP and finds a modest rate of withdrawals prior to the age of 70½, the age at which required minimum distributions (RMDs) must begin. In a typical year, only seven percent of PRA-owning households between the ages of 60 and 69 take an annual distribution of more than ten percent of their PRA balance, and only eighteen percent make any withdrawals at all. For these households, annual withdrawals represent about two percent of account balances. The rate of distributions rises sharply after age 70½, with annual withdrawals of about five percent per year. During the period we study, the average rate of return on account balances exceeded this withdrawal rate, so average PRA balances continued to grow through at least age 85. Our findings suggest that households tend to preserve PRA assets, perhaps to self-insure against large and uncertain late-life expenses, and that RMD rules have important effects on withdrawal patterns.
Keywords: Personal retirement accounts; withdrawal behavior; retirement income security; federal tax revenues
JEL Codes: D14; E21; H30; J14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| age (J14) | withdrawal likelihood (J26) |
| RMDs (Y40) | withdrawal behavior (D91) |
| age (J14) | average withdrawal rates (J26) |
| health status (I12) | withdrawal behavior (D91) |
| health status (I12) | PRA balances (H69) |
| PRA balances (H69) | withdrawal rates (J26) |