At retirement, 401(k) savers withdraw most of their assets out of the plan—the average participant withdraws more than 55 percent from his or her plan in the years around retirement, and the research found that once participants reach 59½, distributions tended to be higher than industry expectations. Lower income earners tended to make larger post-retirement withdrawals than high or middle earners.
Only 28 percent of participants remained in their plans after three years of retirement.
The researchers also looked at spending behavior for plan participants after retirement. While many retired participants, 38 percent, reported permanently or temporarily decreasing their spending during retirement, almost as many, 35 percent, said they had increased spending. Another sizable bloc of participants, 22 percent, said that their spending had remained fairly consistent in retirement, while 7 percent reported “roller-coaster” spending that increased and decreased year by year.
The researchers took these results as evidence that for some people, spending actually increases in the years following a retirement date, and that not all assets exiting a plan around retirement are being rolled over into an IRA.
J.P. Morgan Asset Management suggests that plan sponsors should implement features beyond automatic enrollment, like automatic escalation, to help participants save more. Educational efforts associated with 401(k)s should be targeted at middle- and lower-income earners, according to the report.
“Ready! Fire! Aim?” is based on a quantitative study of 4,000 defined contribution plans encompassing the retirement savings of more than 2 million plan participants.