Study Highlights Value of Defined Benefit Program
A new study once again underscores the value of a defined benefit program such as the FERS or the CSRS Civil Service Annuity, by documenting how people without such benefits dip into their savings more quickly once in. retirement.
The Center for Retirement Research study indicates that historical data on reduced savings – which is used in calculations of how much money people should have saved in order to secure sufficient income in retirement – may paint a picture too rosy picture of preparation for retirement, given the erosion of defined benefit plans in the private sector.
He found that half of the oldest baby boomer households, those born in the late 1940s, have at least one spouse with a defined benefit. This drops to about a quarter for the middle of this generation, those born in the mid-1950s, and is less than a tenth for the youngest, those born in the early 1960s.
Previous research “out of necessity focused on the older generations who had a substantial database [defined benefit] blanket; the relevance of harvest estimates based on these cohorts for future cohorts with much lower PD coverage is uncertain. . . Any prediction of the rate of withdrawal of baby boomers based on the slow withdrawal of older generations is likely to underestimate the rate at which retirees are drawing down their assets, ”he said.
He found, for example, that retirees with $ 200,000 in starting wealth, roughly the midpoint of the data, who are covered by a defined benefit plan reduce their financial assets by $ 28,000 less at age 70. than those who don’t.
He concludes: “The access of past generations to a defined benefit pension was associated with a slower withdrawal from their financial assets. In addition, the more a retiree’s resources were in the form of annuities (including defined benefit pension benefits, social security, and commercial annuities), the slower he used his other assets.
“The predictions for the baby boomer generation based on the withdrawal of past generations probably underestimate their withdrawal speed. The results suggest that baby boomers without DB plans can withdraw their assets faster, leaving them more likely to outlive their savings. “