Retirement Income Market Is Shrinking

The annual snapshot of U.S. household finances from Hearts & Wallets reveals a prolonged negative impact on retirees as a result of low interest rates. 

“Retirees are working longer and reducing income drawn from assets because of very low interest rates resulting from ongoing government policy and uncertain equity markets,” said Chris Brown, principal at the retirement and savings research firm. “These factors impact the retirement income market. We’ve revised our 2020 projections downward as a result.” 

Hearts & Wallets projects a retirement income market in 2020 of between 14% and 24% of all U.S. household investable assets, lower than the 20% to 30% projections made last year. 

“With interest rates at unprecedented lows and political pressure to keep them low or lower further, some firms may want to change the definition of the retirement income market as assets being used to draw 4% or more of income to 3% or more,” said Laura Varas, Hearts & Wallets partner. 

The projection is based on the behavior of retirees without pensions. In 2012, 45% of nonpensioner assets are being drawn for income at 4% or more, down from the 50% to 60% rate in 2006 and 2008. 

Less affluent households, which seem to be generating virtually no income or taking unsustained income, may be more affected. Wealthier households are more successful at taking moderate income. For households with $100,000 to $250,000, 35% of assets generate virtually nothing, and 20% are withdrawing an unsustainable 9% or more in income. Only 21% of wealthier households generate almost no income, and very few take more than 7%. 

The Hearts & Wallets Portrait analysis is based primarily on publically available government sources, compared to the most recent Federal Reserve Survey of Consumer Finance (2007, completed in March 2008, released 2009; first reinterview ever in progress as of August 2011) and quarterly Flow of Funds. 

Total U.S. household investable assets grew from $30.2 trillion at year-end 2010 to $31.9 trillion with retirement assets up slightly from $10.7 trillion to $10.9 trillion and taxable assets up to $21.0 trillion from $19.5 trillion. Taxable asset growth, by seven-year compound annual growth rate (CAGR), outpaced retirement at 6.1% versus 4.8%. Overall U.S. households declined to 118 million, down about 2% from 120 million in 2010. A drop in younger households accounted for most of the overall decline, as younger individuals presumably moved back with parents or in with roommates. 

IRAs remained the largest of all categories of retirement assets at $4.9 trillion. Private defined contribution (DC) was steady at $3.9 trillion. In 2011, the seven-year CAGR of IRAs was 5.6%, outpacing all other retirement asset types, but the growth rate slowed from 2010 to 2011. 

For complete data from the Portrait study of U.S. household wealth, including investor target market by age and assets, contact Hearts & Wallets at