Retirees are not spending their defined contribution balances immediately at retirement, and are making thoughtful choices in how to spend those funds, according to new research from the Investment Company Institute.
The firm surveyed more than 600 recent retirees and found only about 3 percent of accumulated DC account assets were spent immediately at retirement. Those who spent their entire DC plan lump sums generally had received small distributions and, on average, derived a sizable portion of their household incomes from defined benefit (DB) plan and Social Security payments. Of those who spent most of their lump sum, most used the proceeds to buy a primary residence, make home repairs, repay debt or pay for health care.
"This research dispels the myth that DC participants spend their retirement assets immediately upon leaving the workforce," says Brian Reid, chief economist of the Investment Company Institute. "More generally, retirees' careful decisions about distributing their account balances reaffirm the main premise of the DC retirement system: Americans tend to act responsibly to build their own retirement security."
