Asset decumulation in retirement: patterns, predictors, and the role of financial literacy

Abstract We study how U.S. retirees draw down non-housing financial assets using longitudinal data from the Health and Retirement Study (1995–2020), tracing decumulation paths for those who survive a full 12 years after reaching age 65. While lifecycle models predict gradual decumulation to support consumption, we find that many retirees retain substantial wealth into later life. Individual retirement account (IRA) balances decline steadily, consistent with required minimum distribution rules. Stock assets are decumulated more quickly, especially among middle-wealth households. In contrast, checking and savings balances remain stable. We then ask: do individual capabilities across the wealth distribution drive this behavior? We show that financial literacy is strongly associated with slower decumulation, higher asset levels, and reduced debt. These patterns suggest that asset type, institutional rules (like distributions from IRAs), and individual capabilities (like financial literacy) jointly shape financial outcomes in retirement. We also test for a number of economic, demographic, and subjective drivers of decumulation.