The report finds that $4.3 trillion, or 48% of the $9.0 trillion held by households with persons age 65 and older, is being used to draw 4% or more of income. This represents a major shift in recent years, as the portion of retiree assets in retirement income draw-down was only 20% in 2006, the data showed.
A main driver of the increase comes from an affluent segment of retirees, defined as 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.
Overall, the retirement income market now represents 18% of U.S. household investable assets, according to the study, "Portrait of U.S. Household Financial Wealth 2009: Sizing, Segmentation, Product Ownership and Household Profiles." Hearts and Wallets defined the market for retirement income products and services as retirees who depend on their personal assets as a primary income source, rather than as a supplement to Social Security and pensions.
"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 Laura Varas, one of the authors of the report.
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 million in order to maintain their living standard, according to the study. Varas said retirement income planning for preretiree households that are not yet using their assets to generate income, but the assets of retirees actually engaged in income-generation is the most concrete number to watch.
The study analyzed trends for investors of all age and wealth groups. In addition to the findings on retirees, the report demonstrated that investable assets are highly correlated to income, reinforcing Hearts & Wallets' position that mid-career investors are an attractive market due to their earned income and asset accumulation potential, the authors noted.
"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 Chris Brown, co-author of the report. "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."