Over four-fifths of lump-sum distribution recipients who reinvested their proceeds rolled all or some of the assets into Individual Retirement Accounts (IRAs).
Fifty-nine percent rolled over the entire plan balance
into IRAs, 22 percent rolled over some of the balance into IRAs and spent the remainder, and 3 percent rolled over some of the balance into IRAs and reinvested the remainder outside IRAs (Figure 28). The remaining 16 percent bought investments outside IRAs, and more than half of these retirees reinvested their entire distri-butions. Retirees who rolled over all or some of the proceeds into IRAs typically received larger lump-sum distributions than those who reinvested proceeds outside IRAs (a median of $88,000 compared with
$32,600).
FIGURE 27
Financial Investments of Lump-sum Distribution Recipients, by Use of Proceeds
Use of Proceeds from Lump-sum Distribution Reinvested All Reinvested Some Proceeds, Spent All
Proceeds Spent Some Proceeds Proceeds2 Investments Owned at the Time of the Survey2, 3
(percent of respondents who received lump-sum distributions)
Bank deposits 83 72 62
Money market mutual funds 35 23 15
Individual bonds or bond mutual funds (including U.S. savings bonds) 48 33 18
Individual stocks or stock mutual funds (including employer stocks) 71 52 32
Balanced mutual funds 48 28a 10
Whole life insurance with an accumulated cash value 41 34 36
Fixed or variable annuities not from an employer-sponsored retirement plan 29 14 9
Real estate other than primary residence 26 30 45
Some other type of investment 13 17 15
Allocation of Investments Owned at the Time of the Survey2 (mean percent of household financial assets)
Bank deposits and money market funds 20 26 25
Individual bonds or bond mutual funds (including U.S. savings bonds)4 14 10 4
Individual stocks or stock mutual funds (including employer stocks)5 42 28 13
Whole life insurance with an accumulated cash value 7 9 19
Fixed or variable annuities not from an employer-sponsored retirement plan 7 5 1
Real estate other than primary residence 6 14a 30
Some other type of investment 4 8 8
1Small sample size
2Includes assets held in employer-sponsored retirement plans but excludes primary residence.
3Multiple responses included.
4Includes 40 percent of respondents’ balanced mutual fund holdings.
5Includes 60 percent of respondents’ balanced mutual fund holdings.
aResponses of recipients who reinvested and spent some of their lump-sum distributions are statistically different at the 95 percent confidence level from those who reinvested all proceeds.
fixed-income investments (bank deposits, money market funds, individual bonds, or bond mutual funds).
In contrast, those who reinvested lump sums outside IRAs, on average, allocated nearly 60 percent to fixed-income investments and about 20 percent to equities (Figure 29).
Reinvestment Patterns
The reinvestment patterns of retirees who rolled over all or some of their lump-sum distributions into IRAs were very different from those of retirees who reinvested lump-sums outside IRAs. Retirees who rolled over proceeds into IRAs, on average, allocated nearly half of the distribution to equities and about 40 percent to FIGURE 28
Reinvestment of Lump-sum Distributions in IRAs at Retirement
(percent of respondents who received lump-sum distributions and reinvested all or some of the proceeds)
Reinvested proceeds in IRAs 84
Reinvested all proceeds in IRAs 59
Reinvested some proceeds in IRAs, spent some 22
Reinvested some proceeds in IRAs and some outside IRAs 3
Reinvested proceeds, but not in IRAs 16
Reinvested entire amount outside IRAs 9
Reinvested some outside IRAs, spent some 7
Number of respondents 266
FIGURE 29
Allocation of Investments Purchased with Lump-sum Distributions (mean percent of reinvested proceeds)
All Lump-sum
Distribution Recipients Who Reinvested Proceeds
Reinvested Proceeds in IRAs1 Not in IRAs
Bank deposits and money market funds 22 19 42a
Individual bonds or bond mutual funds (including U.S. savings bonds)2 18 18 17
Individual stocks or stock mutual funds (including employer stocks)3 45 49 22a
Whole life insurance 1 1 1
Fixed or variable annuities 6 5 11
Real estate other than a primary residence 0 0 1
Other types of investments 8 8 6
Number of respondents 228 192 36
1Includes respondents who reinvested some proceeds in IRAs and some outside IRAs.
2Includes 40 percent of respondents’ balanced mutual fund holdings.
3Includes 60 percent of respondents’ balanced mutual fund holdings.
aResponses of recipients who reinvested lump-sum distribution proceeds in IRAs are statistically different from those who reinvested the proceeds but not in IRAs.
FIGURE 30
Characteristics of Lump-sum Distribution Recipients Who Reinvested Proceeds Reinvested Proceeds
in IRAs1 Not in IRAs
Median
Age at retirement 62 years 62 years
Household income2 $46,100 $37,600
Household financial assets2, 3 $332,800 $90,100
Size of lump-sum distribution from defined contribution plan $88,000 $32,600
Annual amount of defined benefit payments4 $10,200 $8,600
Years planning ahead financially 17 years 10 years
Percent
Male 64 68
Married or living with a partner 84 86
Currently employed full- or part-time 27 13
Have college or postgraduate degree 39 28
Currently receiving defined benefit plan proceeds 49 42
Self-assessed state of health:
Excellent/good 86 83
Fair/poor 14 17
At retirement willing to take:
Substantial or above-average risk for substantial or
above-average gain 43 37
Average risk for average gain 41 41
Below-average or no risk for below-average or no gain 16 23
Have spouse or partner who currently:5
Works full- or part-time 34 27
Contributes to defined contribution plan 14 8
Receives defined benefit plan payment 26 16
Is in fair or poor health 18 23
Type of plan from which DC proceeds came:
401(k) plan 83 65a
403(b), 457, TSP, or other type of plan 17 35
Mean percent of household income from:2
Social Security payments 32 35
Defined benefit plan payments 16 18
IRA withdrawals 13 4a
Salary from full- or part-time job 21 25
Other sources 18 18
Sources of advice regarding reinvestment of lump-sum distribution6
Professional financial adviser 78 55
Spouse or partner 42 60
1Includes respondents who reinvested some proceeds in IRAs and some outside IRAs.
2At the time of the survey.
3Includes assets held in employer-sponsored retirement plans but excludes primary residence.
4Of those currently receiving defined benefit plan proceeds in annuity payments.
5Of those married or living with a partner.
6Multiple responses included.
aResponses of recipients who reinvested lump-sum distribution proceeds in IRAs are statistically different from those who reinvested the proceeds but not in IRAs.
Note: Number of respondents varies.
planning horizon of recipients who rolled over proceeds into IRAs was typically seven years longer than that of recipients who reinvested proceeds outside IRAs. With respect to total household finan-cial assets, those who rolled over proceeds into IRAs typically owned a broader range of investments than those who did not use IRAs (Figure 31). More retirees who rolled over proceeds into IRAs consulted professional financial advisers for invest-ment advice than those who reinvested proceeds outside IRAs.
Characteristics of Lump-sum Distribution Recipients by Reinvestments into IRAs
The characteristics of retirees reinvesting lump-sum distributions into IRAs differed significantly from those not using IRAs. Retirees who rolled over all or some of the proceeds into IRAs had a median house-hold income of $46,100 and total househouse-hold financial assets of $332,800 (Figure 30). In contrast, the median household income of those who reinvested proceeds outside IRAs was $37,600, and the median total household financial assets was $90,100. The financial
FIGURE 31
Financial Investments of Lump-sum Distribution Recipients Who Reinvested Proceeds Reinvested Proceeds
in IRAs1 Not in IRAs
Investments Owned at the Time of the Survey2, 3
(percent of respondents who received lump-sum distributions and reinvested all or some of the proceeds)
Bank deposits 78 88
Money market mutual funds 35 12a
Individual bonds or bond mutual funds (including U.S. savings bonds) 46 35
Individual stocks or stock mutual funds (including employer stocks) 69 53
Hybrid mutual funds 45 26a
Whole life insurance with an accumulated cash value 37 57a
Fixed or variable annuities not from an employer-sponsored retirement plan 24 28
Real estate other than primary residence 28 23
Some other type of investment 15 7
Allocation of Investments at the Time of the Survey (mean percent of household financial assets)
Bank deposits and money market mutual funds 17 38a
Individual bonds or bond mutual funds (including U.S. savings bonds)4 14 8
Individual stocks or stock mutual funds (including employer stocks)5 43 20a
Whole life insurance with an accumulated cash value 6 15a
Fixed or variable annuities not from an employer-sponsored retirement plan 6 9
Real estate other than primary residence 8 9
Some other type of investment 6 1
1Includes respondents who reinvested some proceeds in IRAs and some outside IRAs.
2Includes assets held in employer-sponsored retirement plans but excludes primary residence.
3Multiple responses included.
4Includes 40 percent of respondents’ balanced mutual fund holdings.
5Includes 60 percent of respondents’ balanced mutual fund holdings.
aResponses of recipients who reinvested lump-sum distribution proceeds in IRAs are statistically different from those who reinvested the proceeds but not in IRAs.
Note: Number of respondents varies.