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.”