Deep in my accumulation stage, I drastically underestimated how much retirees hate spending down their nest eggs. I have since struggled to convince my parents to spend their money, while also working longer than I planned (albeit not crazy hours) for likely similar underlying reasons. Watching your hard-earned nest egg shrink is hard.
Check out these findings from the Blackrock whitepaper titled To spend or not to spend? [pdf]:
This was not what we expected to find: on average across all wealth levels, most current retirees still had 80% of their pre-retirement savings after almost two decades of retirement according to research conducted jointly with the Employee Benefit Research Institute (EBRI). One-third even grew their assets over the course of retirement.
Why is this? Here are my takeaways:
- The majority of retirees favor financial security over maximizing spending.
- Spending is hampered by a deep-seated fear that they may experience a critical financial or medical shock or otherwise outlive their money.
- Recent retirees report higher anxiety and pessimism than those retired for 10+ years. Fear of major investment loss is more concerning to recent retirees. They feel more comfortable with spending as they reach further into retirement.
- Only 1 in 4 retirees feels they will have to spend down principal at all to fund their desired lifestyle.
- Retirees with pension income are the least likely to spend down their assets. (Not really surprising.)
- Retired women report higher levels of financial worry and are more risk-averse than retired men. (Also quite justifiable due longer lifespan and less assets on average.)
- Blackrock believes that due to the decline in pensions and longer lifespans, the “strong retirement asset retention seen in this last generation of retirees will not likely be repeated for much longer”.
I was still surprised to see that 1 out of 3 managed to end up with more money after 17 years. If I’m honest with myself, this is probably going to be me. I don’t necessarily think that’s a good thing, but I guess I have some company.
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A couple of observations from a guy who has been retired for 9 years. I retired early at age 58, I have no pension and took SS at age 62. My net worth outside of my home has increased by 35% over those 9 years, My first point, I spent my entire working life living below my means, minimizing debt and investing. One doesn’t suddenly flip a switch after decades of living that way and begin spending money, especially if one is comfortable and happy. My second point, one of my goals has been to leave a legacy/estate for my children so I continue to remain invested and live below my means to grow my estate further. I do not believe my habit/lifestyle and goals make me unique.
I’ll be retiring in July at 53. My biggest concern is overspending, especially for the first 6-1/2 years. However, when running the numbers, we would have to increase our spending by 25% to run out by the time we turned 100.
This may simply be due to inflation. If you enter retirement with $100K and you have $120K after 30 years of retirement, then nominally, your wealth has grown. But the buying power of that money has dropped a lot.
My experience is similar to Pete’s above. We laugh at ourselves when we will buy a $150 bottle of wine but are appalled at the thought of $300 charge for detailing our car. (we went to the car wash and vacuumed it ourselves, then went home and drank wine.)
It should also be considered the medical advances of the next 30 years, cures for cancer, heart disease and Alzheimer’s may become available as well as the actual rejuvenation therapies that are in the works, we could find ourselves unexpectedly with extra decades of life.
This is not news. I’ve been waiting for a ‘real’ solution to this problem (that I’m having). That’d be news to me.