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Retirement Planning > Spending in Retirement

More Workers Keeping Assets in DC Plans After Retirement: J.P. Morgan

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What You Need to Know

  • Retirees are spending at higher-than-expected levels in their early post-work years, the report found.
  • People should plan to replace over 90% of their working income at retirement, significantly more than the widely accepted 70% to 80%.
  • J.P. Morgan is adding tools to help target date fund investors decide how much they can withdraw each year.

Four in 10 defined contribution plan participants are leaving balances in their account in the three years following retirement, compared with 28% who did this in 2018 and 20% who did so in 2009, J.P. Morgan Asset Management reported Thursday.

According to the research, retirees are spending at higher-than-expected levels in their early post-work years. This means, the report asserted, they should plan to replace more than 90% of their working income at retirement, a significant increase from the widely accepted 70% to 80% standard. 

Once in retirement, this number gradually decreases to 70% at age 85.

The report combines J.P. Morgan Asset Management’s “Ready! Fire! Aim?” research with insights into household spending patterns to provide a comprehensive view of how people use their DC plans as a savings vehicle and how they spend as they move through retirement.

The findings indicate that most people still do not contribute enough to reach safe funding levels. Average starting contribution rates begin at 5% and never reach 10% before retirement.

“In light of these findings, it’s critical that plan sponsors consider incorporating features such as automatic contribution and escalation to increase lagging contribution rates,” Katherine Roy, chief retirement strategist at J.P. Morgan Asset Management, said in a statement. 

“As more participants keep assets in plans post-retirement, tools to help participants spend down in retirement will prove increasingly valuable to achieving strong retirement outcomes.”

More on this topic

The new research draws on actual saving and withdrawal patterns from some 4,500 DC plans with more than 1.4 million participants, sourced from MassMutual Financial Group. Retiree spending data comes from more than 5 million de-identified JPMorgan Chase Bank households.

Evolving Glide Path

Based on its understanding of the saving and spending patterns of plan participants, J.P. Morgan Asset Management said it plans to evolve the glide path across its SmartRetirement suite of target date funds, increasing equity allocations while maintaining broad diversification and de-risking in the critical years leading up to retirement. 

This will also enable more participants to reach a minimum level of adequate replacement income, Daniel Oldroyd, the firm’s head of target date strategies, said in the statement. 

“Additionally, with data telling us that more participants are staying in their plan after retiring, we have introduced a dynamic retirement income strategy into the glide path to help set an optimized annual spend down amount that changes each year, starting at the point of retirement,” Oldroyd said.

The firm said its recent research, which drew on data from the Employee Benefit Research Institute, showed that participants are heavily reliant on required minimum distributions for withdrawal guidance. 

J.P. Morgan Asset Management has developed an interactive experience to help participants decide how much to withdraw each year based on sample withdrawal amounts estimated as a percentage of participants’ account balances that may be safely withdrawn each year, while allowing redemption in future years.