Skewed IRA, 401(k) data present window for advisers

Government estimates about how much investors withdraw from their 401(k)s and IRAs are probably way off — maybe by hundreds of millions of dollars, according to a report published late last month by the Investment Company Institute.

This is significant because policymakers, lobbyists and think tanks often rely on such data, according to the ICI.

These entities often use the Current Population Survey, which is jointly conducted by the Bureau of Labor Statistics and the Census Bureau.

The 2006 results, the most recent available, estimated that the amount of distributions from individual retirement accounts to be $6.4 billion.

The 2007 Survey of Consumer Finance, which was conducted by the Federal Reserve Board, estimated that number to be $95.2 billion.

While the CPS data are updated annually, the ICI used the 2006 numbers because the 2007 Survey of Consumer Finance data was the most recent available and it wanted to do an apples-to-apples comparison. The ICI believes that this discrepancy continues to exist today.

The discrepancy was largely due to the way that the CPS worded its question, said Sarah Holden, senior director of retirement and investor research at the ICI.

Specifically, people were asked about their “regular” withdrawals from IRAs or 401(k)s.

“But if a household takes assets out once a year or just a few times a year, they might not think about it when talking about income,” Ms. Holden said.

The fact that the amount of assets being withdrawn from IRAs and defined-contribution plans each year is likely underestimated presents an opportunity for financial advisers to work more closely with investors, both young and old, Ms. Holden said.

“I think advisers need to be aware of the two sides of this,” Ms. Holden said. “On one hand, they can work with people as they change jobs to preserve those assets. And they can help older investors with the process of taking money out.

E-mail Jessica Toonkel Marquez at [email protected].