Tapping Assets in Retirement: Which Assets, How, and When?

Just two or three decades ago retirement saving in the United States was
based heavily on employer-provided defined benefit plans. Benefits after
retirement were typically received in the form of lifetime annuities. Now personal
retirement accounts—401(k), IRA, Keogh, and others plans—have become the
primary form of saving for retirement. In 2007, private sector defined contribution
assets totaled $9.2 trillion and assets in traditional defined benefit programs were
$2.4 trillion (ICI 2008). At the time of retirement, the participant has sole control
of the accumulated assets in these plans and must determine when to withdraw
assets from the plans. To date, assets held in personal retirement accounts
have rarely been annuitized. This has raised concern that some participants will
draw down assets precipitously and run the danger of outliving their assets. In
this paper, we consider the drawdown of assets after retirement, in particular the
drawdown of 401(k)-like assets.