DC Plan Participants Mishandle Retirement Savings, Withdrawals: J.P. Morgan

Other problems include loans — with middle-income earners the most likely to take them — and big withdrawals on retirement, with lower-income workers most likely to take larger post-retirement withdrawals compared with their better-paid colleagues.

And one more issue: Most participants take big withdrawals soon after retiring, with the average participant withdrawing more than 55% in any given year at or soon after retirement. In fact, research shows that withdrawals once participants reach 59½ were substantially higher than general industry expectations. Also, only 28% of participants are still in their retirement plan three years after retirement.

Sponsors, the report suggests, need to do more than just keep employees in the plan. They also need to better educate workers, particularly at the lower and middle salary ranges, as well as put in place auto-escalation features and auto-enrollment, too, if they don't already have it.

In addition, target-date fund design "needs to take into account the personal nature of retirement spending in the years leading up to retirement and immediately after," particularly since investors don't all behave the same way and the suitability of existing TDFs may vary for participants depending on whether they cash out their accounts right away, roll them over into other accounts or use them to fund higher post-retirement spending.