Retirement Income: Perception vs. Reality

Work for decades. Save for decades. Then after those decades and the end of the retirement party, the spending begins. That’s the way it works, at least in common parlance. But some analysts at Vanguard beg to differ.

In “Retirement Income: Perceptions vs. Reality,” Anna Madamba, Ph.D. of the Vanguard Center for Retirement Research posits that this conception of the order of things is less than universally true. In fact, says Madamba, “Conventional wisdom is often too simplistic or even wrong.”

Madamba and her colleagues studied the retirement income of retiree households with at least $100,000 in savings. They estimate that their sample encompasses 24%-35% of U.S. households ages 60-75.

The researchers made three basic findings:

1. retirement income is varied and complex;
2. retirement income still includes pensions; and
3. retirees are spending, but are saving as well.

Among the findings that challenge conventional wisdom are that:

• There are more sources for retirement income than a pension, Social Security or a defined contribution account.

• There are segments of the retiree population that continue investing so their assets grow.

• Pensions are the source of retirement income for a larger segment of the retiree population than many may imagine.

• Many retirees continue to save money and do not simply draw down what they set aside while they were working.

Madamba and her colleagues add that these findings also signify that it is important to focus on more than simply generating income, but also how it is saved and spent long-term.