Report: Almost half of public sector retirees don’t touch their retirement plans for a decade
Once retired, nearly half of public sector employees aren’t taking any action with their defined contribution retirement plan funds for at least a decade, according to research from Mission Square Research Institute, which included the analysis of more than 100,000 public service data records. In their first ten years of retirement, researchers found that 48 percent of plan participants didn’t take any partial disbursements and 72 percent didn’t take any full disbursements.
Of the other half, 27 percent drew their first partial disbursement within the same year of retirement; 11 percent took a full disbursement the first year.
“We know there is a wide range of options available to retirement plan participants after retirement, particularly as related to taxation, risk, asset allocation, account management, life expectancy and financial planning,“ said Gerald Young, a senior research analyst at MissionSquare Research Institute and lead author of the report, Retirement Savings Participant Decumulation Behavior. “Our analysis indicates that many plan participants are either disbursing or transferring their assets immediately or leaving them where they are for many years post-retirement.”
Specifically, researchers noted “a flurry of activity in the period immediately after retirement and in the two years that follow, with almost no activity initiated in years three through 10. This would appear to indicate that participants are acting on transfer or exchange plans or decisions they have made in the period leading up to retirement, or that they have need of disbursements in the immediate term.”
Among other findings noted in the report, the most distinguishing factor among public service retirees dictating when they began decumulating their accounts—either by disbursements or transfers—was their age at retirement, and that data point “correlates to whether they serve in a general role or in a public safety.”
Compared to general workers, public safety employees “tend to retire at a younger age, either because of the physical demands of their professions or due to related provisions in their contracts that allow for access to pension benefits at an earlier age.”
The average age of retirement for those in general public service was 62, and the average age of retirement for those in public service was 56.
Another notable finding highlighted in the report is that those who accumulated more in their funds were less likely to withdraw from it upon retirement, whereas those with less savings were more likely to pull from it. Around 30 percent of employees who completely withdrew from their accounts had accumulated between $10,000 and $50,000. A similar trend can be identified in relation to partial disbursement: More than 25 percent of all employees that received partial disbursement had between $100,000 and $250,000, and 15 percent had between $250,000 and $500,000.
Most notable among variables that could skew data, researchers noted the pandemic, which is disrupting established retirement norms. This makes it important for administrators to understand the goals of employees and intentionally connect with them.
Amid the ongoing pandemic, “not only are in-person group meetings with participants more difficult to schedule due to remote or hybrid work environments, but the participants themselves may be deciding to leave the public workforce early or accelerate their plans for retirement. Such trends make it all the more important that financial planning communications with participants be ramped up in the several years when they might be approaching retirement so that they can be equipped with all the information they will need to make wise asset decumulation decisions,” the report says.