WASHINGTON — Contrary to what you may have heard, new retirees are doing better financially than those of previous generations, according to research being published recently by a mutual fund industry trade group.
“On average, more-recent generations of households have higher levels of resources to draw on in retirement than previous generations,” said a study by the Investment Company Institute. “Other measures also indicate improvements in retiree well-being. For example, the poverty rate among people aged 65 or older has declined from nearly 30 percent in 1966 to 9 percent in 2011.”
The findings — culled from a survey of academic, government, and industry research — run counter to the oft-quoted conventional wisdom that older people will be left impoverished by the decline of traditional defined-benefit pension plans. It also seems a change in tone for the industry, which has funded countless surveys showing how worrisome to workers the retirement landscape is.
“The extent to which previous generations of retired households relied on income generated by private sector (defined benefit) plans is often exaggerated,” the study said. The shift to defined-contribution plans like 401(k)s “will increase retirement resources for most households.”
Perhaps the new tone is aimed at fending off rumored threats to the favorable tax treatment that 401(k) plans and similar accounts receive as Washington tries to cut deficits and avoid large tax increases.
“We feel it is very important to preserve the tax incentives for those plans,” said Sarah Holden, senior director at the ICI. “This is an area that we’ve seen works well for American workers.”
The ICI findings are in the aggregate, so not every retiree will be on more solid financial footing than his or her forebears. But the study shows the money Americans have earmarked for retirement — topping $18.5 trillion in the second quarter — is substantially more than in past eras, even when defined-benefit plans are included. That figure peaked at $18.9 trillion in the first quarter of 2012 but fell when stock prices fell in the middle of this year.
Households led by people of all ages had more retirement assets than ever, the study found. The average amount per household was $153,100 on June 30. Adjusted for inflation that is 2.7 times higher than in 1985 and 5.6 times higher than in 1975, the study said.
The findings should encourage survey-weary workers, but not so much that they should stop saving. Here is some more perspective:
■ Older people save more for retirement than younger people, but that’s OK. “A younger worker might be saving for a home. That’s not formally earmarked for retirement, but you can live in it while you are retired. It’s going to be a resource that is important,” Holden said.
■ Not everyone will be OK. But teasing out who won’t have enough in retirement is complicated and a bit counterintuitive. Folks at the bottom of the earnings spectrum might be better off than expected, because Social Security will make up a higher percentage of their income, Holden said. She predicts those who will face the biggest challenges are the same people most challenged at funding their earlier years.
■ Other assets count. In 2010, roughly 82 percent of near-retirees owned homes; for the typical homeowner, their home equity made up almost one-third of their net worth. People approaching retirement will tap their IRAs, 401(k)s, home equity (either by downsizing or using reverse mortgages), Social Security, private pensions, and any other savings they might have.
■ There’s good news on spending, too. There are shreds of evidence that people are withdrawing less from retirement accounts than might be expected, T. Rowe Price says. Its advisory clients often withdraw 4 percent of their assets during the first year of retirement, but they tend not to raise withdrawals in every subsequent year.
Linda Stern is a Reuters columnist. The opinions expressed are her own.