According to analysis from the BlackRock Retirement Institute, retirees that began leaving the workforce in the early 1990s were able to preserve the vast majority of their savings throughout retirement.
Using data from the Employee Benefit Research Institute, BlackRock’s analysis shows that the wealthiest households held 83% of their savings nearly two decades after retirement.
Savers in the median wealth bracket retained 77% of retirement savings, and those in the lowest wealth bracket retained 80%.
So Much For a Retirement Crisis?
While the level of prosperity those retirees enjoyed may be used by others to counter claims that the country is facing a retirement savings crisis, Bruce Wolfe, executive director of BlackRock’s Retirement Institute, cautions that future generations will not be as fortunate.
“For those close to retirement today, the environment is going to be dramatically different,” Wolfe told BenefitsPRO, a partner site to ThinkAdvisor. “The point we are trying to make is that looking back at the spending patterns of past retirees is probably not the best way to think about the retirement landscape going forward.”
Retirees that had the option of not spending down retirement savings were at peak earning potential in the 1970s and 1980s, and began to retire in the early 1990s, explained Wolfe.
Back then, defined benefit plans were relatively common. About 42% of the retirees examined in BlackRock’s research had income from a pension.
For those in the median wealth category, which had total assets of about $330,000 at retirement, pensions accounted for 33% of retirement income. At the lowest and highest wealth levels, pensions accounted for 20% and 15% of retirement income, respectively.
Pension income will of course wane precipitously going forward. EBRI’s data shows that only 2% of private-sector workers were saving solely through a defined benefit plan in 2014.
Future Investment Returns Expected to Lag
The last generation of retirees came of age professionally about the time 401(k)s were introduced in the late 1970s.
Adoption and enrollment of the plans lagged until the 1990s — after many of the retirees BlackRock studied had left the workforce.
Workers expecting to retire in the next decade will be far more dependent on defined contribution savings. According to Wolfe, the investment returns previous retirees benefited from can’t be expected going forward.
“The consensus is that returns will be dramatically lower,” Wolfe said. BlackRock’s study shows a 60/40 investment portfolio returned an annual average of 6.3% from 1978 to 2016. Going forward, the consensus forecast is 2.9%, according to data from Horizon Actuarial Services.
Further complicating the prospects of future retirees will be tax implications.
“Most of the retirees we looked at were not contributing to a 401(k) because they weren’t that prevalent. Savings were on a post-tax basis. But future retirees depending on 401(k)s will have tax exposure — that creates a very different dynamic from past retirees,” noted Wolfe.
Will Social Security Be There?
The retirees BlackRock studied were largely able to replace 60 to 70% of working income.