Many Draw Down Accounts Without Plan

More than half of retirees say they have withdrawn funds from retirement accounts, usually to cover short-term expenses, without a strategy in place to mitigate longevity risk.

Fifty-two percent of retirees have withdrawn funds from their retirement savings without any strategy in place, according to the most recent release of the Perspectives of Retirement survey from PNC Financial Services Group. PNC conducts the survey semi-annually among a national sample of 1,200 adults, ages 35 to 75, to track the way workers and retirees are spending accumulated resources.

PNC says the latest survey results show nearly the same percentage of retirees (53%) are concerned about running out of money. Of those who have withdrawn funds, almost 60% did so to cover living expenses.

Survey results show retirees grow more likely to withdraw money as they age, but nearly 40% of young retirees (age 64 or younger) are already drawing down non-annuitized savings. Almost two-thirds (63%) are concerned that Social Security or pensions will not be enough to cover expenses and needs further into retirement, PNC says.

“Most retirees don’t have a plan for drawing down savings and that is a concern,” explains Joseph Jennings, senior vice president of wealth management with PNC. “Using savings to cover expenses indicates that retirees may not have a retirement income strategy in place and are putting themselves at greater risk of outliving their funds.”

PNC finds one-third (35%) of retirees say the amount of money they use in retirement is about what they anticipated, but nearly as many (31%) had no specific expectations when entering retirement. The remainder split evenly between those who are spending more and those who are spending less.

One positive sign in the survey data shows many of the retirees reporting concerns about running out of money have already taken action to control their expenses and budget more tightly. They are also taking various actions to reduce overall living costs or raise new sources income, PNC says, among other positive actions.

The 53% who fear running out of money report the following about their financial outlook:

  • Two-thirds have recently changed the way they manage their money. Fifty-nine percent have reduced expenses and 41% now budget more carefully;
  • Those who are concerned are more likely to say they get a higher percentage of their total retirement income from personal savings and investments, at an average of 35% versus 24% for those who get most of their retirement income from other sources, such as Social Security;
  • The equity in their home is more likely to be important to their retirement plans, but at the same time, they are more reluctant to rely on the equity for income; and
  • These retirees have significantly fewer assets, on average, with total investable assets at $225,000, compared with average assets of $411,000 among those who are not concerned.

The survey suggests retirees continue to rely heavily on Social Security. Almost eight in 10 (77%) receive Social Security, while 66% have a pension and 50% use money from savings and investments.

"The need for early retirement planning is crucial, and those nearing retirement can no longer take risk out of their portfolios,” Jennings adds. “We're living longer and need more funds to afford our longevity. Younger generations do not have pensions to rely on, so early planning is more important than ever.”

More information on the survey can be accessed here.