Younger Seniors Are Burning Up Their IRAs

Photograph by Troels Graugaard

The money in your IRA is supposed to last a lifetime, but a new study finds that a lot of seniors are burning through their retirement funds while they still have years of living to go.

The Employee Benefit Research Institute, a nonprofit research group, said May 15 that 48 percent of people who were aged 61 to 70 and in the bottom half of the income distribution withdrew money from their IRAs annually during the period studied (2002-10). Even in the top quarter of incomes, 29 percent of people aged 61 to 70 annually pulled money out of their IRAs, EBRI said.

The sizes of the withdrawals were substantial, too, ranging from 12 percent of funds for young seniors in the top quarter of incomes to 17 percent for those in the bottom quarter.

Older seniors (aged 71 and up) appeared to be more frugal, according to the EBRI study. The Internal Revenue Service requires people with ordinary IRAs to make minimum withdrawals each year starting at age 70½. Many of the older seniors withdrew just the minimum—and then stashed some of the proceeds into other forms of savings.

According to EBRI’s survey, 32 percent of people aged 71 to 80 said they saved at least some of their IRA withdrawals, while only 11 percent of those 61 to 70 did so.

For some of the oldest Americans, the problem might be saving too much, not too little. The EBRI study found that 80 percent to 90 percent of people in their 80s took only the required minimum distribution from their IRAs. “Some may be overly cautious in drawing down their IRA balances, sacrificing a more enjoyable retirement,” the report says.

The report was written by Sudipto Banerjee, an EBRI research associate. He said one drawback of the study is that it was impossible to tell whether the same people were withdrawing money from their IRAs year after year, which would be bad, or rather that different people each year were withdrawing, which would be less dangerous.

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