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Spending In Retirement: From Nest Egg To Income

As retirees begin to spend their savings, not knowing how much income they can count on will affect their consumption patterns. For example, some households tend to be conservative in drawing down their savings during retirement. One study found that such retirees withdrew just 2% of their assets per year until age 70.5, and 5% after that (in line with the IRS’srequired minimum distribution). Both percentages were below the investment returns during the same period. For other families, the withdrawal rate increases rapidly when personal retirement account assets fall below $50,000.

A perhaps even more difficult problem facing households is when to retire, and studies suggest that in trying to solve it many resort to simple rules of thumb. For example, one study found that 47% of those employed on their 65thbirthdays retired within 12 months, a higher rate than those for 64- or 66-year olds. This suggests that their decision was driven by the old mandatory retirement age acting as a mental anchor, rather than personal goals and circumstances. Read more