Why Are Retirees Not Spending More?
"Greenwald & Associates (2017) shows that only 31 percent of retirees across all wealth levels withdraw from their portfolios on a regular, systematic basis; 17 percent do not withdraw any money from their accounts (see figure 1). Only 25 percent of the most affluent retirees—individuals with assets of $2.5 million and more— withdraw from their portfolios on a systematic basis." 1
When you say you're a financial advisor, most of the public assumes the day revolves around markets and investments. But this is only a small part of what I do. Most time with clients is spent on the 'decumulation' side of retirement income planning, which is a difficult and complex problem.
This study indicates that we collectively aren't as good at spending relative to saving. I have always said that for every 1 person I had concern around overspending in retirement, there were 20 others that I had to plead with to spend more money. It's a complete mentality shift from working and accumulating wealth for a future date. In retirement, that date is now. No more time to waste. And most people are unprepared for that reality.
The fear or running out of money is real, especially with likely long-term care events that must be accounted for. But someone truly running out of money is a rarity, and only possible if someone sticks their head in the sand, unwilling to acknowledge reality and make adjustments to avoid that from happening. Although running out of money feels risky, it is not what's actually risky for most people. What's actually risky is not realizing that the future you've been saving for is now actually here.
The objective for retirees should be having a plan around spending well. Running out of money is a constraint on that, but it's not the objective itself. A plan that's good enough for today and flexible enough to adapt to an unknowable future. A plan with guardrails that you are consistently checking in on, in order not to veer off track to the point of no return. A plan where you are 'controlling the controllable' (lifestyle, taxes, portfolio construction etc.) A plan where your time and money is aligned with what's most important to you. A plan that prioritizes health, so you have the time and quality of life to enjoy what's left.
I have no reason to belief the basis of this study aren't true based on what I see every day. So go and start getting after it. There's no more time to waste.
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Source: (1) The Decumulation Paradox: Why Are Retirees Not Spending More? (Taylor, Halen & Huang)
The content in this article was prepared by the article’s author and is not intended to provide specific advice or recommendations for any individual. Voya Financial Advisors does not endorse its content, and the views expressed may not necessarily reflect those held by Voya Financial Advisors.
