Boomers Making Bigger IRA Withdraws For Everyday Expenses

Retirement savings are an exercise in balance—take out too little money, and you forfeit the enjoyable retirement you worked a lifetime to earn; take out too much, and you may find yourself spending the last of your golden years in the red.

Yet for many boomers, that might be a welcome problem, as they appear to be drawing on their IRAs just to fund their everyday lives, in some cases long before they even exit the workforce.

That seems to be the conclusion of a new study by the Employee Benefit Research Institute: The institute analyzed data from the University of Michigan’s Health and Retirement Study, the nation’s most comprehensive national survey of older Americans, sponsored by the National Institute on Aging, and found some troubling trends.

While it may be obvious to some boomers living the problem, the research shows that younger participants between the ages of 61 and 70, who are not yet required to take distributions from their IRAs but who nonetheless made withdraws, made larger withdrawals than older households, both in absolute dollar amounts as well as a percentage of IRA account balance.

And that’s not because they’re using it to put in other saving or investment vehicles: A sizable majority (58%) used that money for everyday expenses, while just 10.9% put that money into savings. By contrast, 50% of older participants, aged 71 to 80, spent their withdraws and 31.5% put the funds into savings.

It may not be surprising that poorer boomers are more likely to raid their retirement funds to cover everyday costs: Forty-eight percent of the bottom-income quartile of this age group made an IRA withdrawal, and their average annual percentage of account balance withdrawn, 17.4%, was higher than the rest of the income distribution.

Reading between the lines, one could argue that these participants are simply opting to spend their money now, when they are young enough to enjoy it, rather than dying with too much unspent in the bank. However, another alternative, supported by the fact that lower-income households are more likely to make withdraws, is that these boomers are struggling to make ends meet, not splashing out on big vacations and presents. Just 25.8% of the younger group that made withdraws spent the money on special purchases.

Source: Teresa Rivas, Barrons

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

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