Retirement Saving and Decumulation in a Persistent Low-Return Environment
Recent economic conditions have vastly changed the retirement landscape as a lengthy period of low interest rates have made building wealth for retirement harder and the risk of depleting wealth during the decumulation phase of retirement greater than at any time in recent history. The retirement environment presents challenges, over (i) the period for which interest rate remain low, and (ii) once interest rates appreciably increase--as fixed income assets then decrease in value. This paper addresses two related topics: first, how have households responded to the current low interest rate environment and second, are there alternative responses or investments which households might do well to consider? Beginning with the first topic: we employ the HRS to first investigate impacts of the 2008 – 2014 low interest rate impacts on savings, wealth and asset allocation both ahead of and while in retirement. As well as employing a full sample we report on the responses of the subset of households who have been relatively successful at building and preserving wealth over this period. Following this analytic work we consider alternative portfolio and wealth management strategies targeting increases in equities and delayed participation in Social Security in terms of their potential to add value in persistent low return environments.