A news release said that the report by consultants Chris Brown and Laura Varas found that $4.3 trillion, or 48% of the $9 trillion held by households age 65+, is being used to draw 4% or more of income. The announcement said the 4% represented “a commonly recognized hurdle above which cautious and deliberate income-taking strategies are warranted to ensure long-term sustainability.”
The news announcement said the current picture represents a major shift in recent years, as the portion of retiree assets in retirement income “drawdown” was only 20% in 2006.
A main driver of the increase comes from an affluent segment of retirees, those with $1 million to $2 million in assets, who are taking income at an annual rate of 4% to 6% of their investment assets, including returns.
“The market downturn means that more affluent retirees find themselves interested in retirement income strategies, bringing their assets into what we define as the retirement income market,” said Varas, in the news release. For example, a retiree who had a pre-downturn $1.2 million dollar portfolio and was comfortably generating $42,000 of annual income, or 3.5%, now needs to take 4.2% of income from their reduced portfolio of about $1,000,000 to maintain their living standard.
According to the announcement, the study found that certain investor groups still have the ability to generate assets and that they will need wealth management help. Brown and Varas have argued that mid-career investors can represent the most lucrative target market.
“Mid-career investors were hard hit by the market downturn, but the earning power of this group means they have tremendous potential for significant wealth accumulation,” said Brown, in the news release. “Furthermore, mid-career investors are seeking financial advice and often leveraging technology to acquire information, creating opportunities for financial services firms to cost-effectively meet their needs.”
The news release said the report quantifies investable assets and financial product ownership for the entire U.S. market, and segments investor assets into six age and eight wealth categories, and 48 mutually exclusive groups.
More information is available here.