A recent study discovered that most retirees have hardly touched their retirement savings, only spending 20% of their money within the first two decades of retirement. Of course, there were some that spend down to critically low levels, while one third of the group ended up growing their assets.
To better understand what drives retiree’s spending behavior, BlackRock engaged Greenwald and Associates to conduct an in-depth survey of retirees to better understand why seniors are spending their nest eggs, or not. Here is what they found:
Retirees prefer to keep their assets untouched
For most, it is more important to feel financially secure during their retirement years, rather than wanting to live it up. Only 25% believe they will have to dip into their capital to fund their desired lifestyle.
More often retirees plan to spend consistently, increasing only with age
At retirement, 43% surveyed planned to spend consistently throughout their retirement; 17% planned to spend more in the first years of retirement while they are healthy and still active, and another 17% planned to reduce their early spending in fear of higher health care costs in later years. Overall, after several years into retirement the goal to spend consistently increased to 61%.
Maintaining their accumulation mindset
Saving and accumulating habits die hard, for many there is a deep-rooted fear that they may experience a critical financial or medical shock or simply run out of money. Very few retirees systematically plan to spend down their assets. If assets do drop in value, there is a clear desire to maintain values above a certain minimum level.
Receiving pension income makes a difference
There was a significant difference in spending and overall financial optimism for those retirees that have a defined benefit pension income. Only 25% of those with pension income needed to access their savings to pay expenses, compared to 55% of non-pension retirees.
The gender effect
Women often live longer and typically enter retirement with smaller investment portfolios. Therefore, they are more risk adverse and have higher levels of financial anxiety than men.
New retirees are less optimistic
Future health concerns weigh heavily on new retirees, in addition more retirees are carrying debt into their retirement years. Both factors cause higher anxiety and pessimism amongst new retirees in comparison to those that have been retired for more than ten years.
In conclusion, with declining pension incomes and longer life expectancy, the strong asset retention we have seen with retirees over the last twenty years will likely come to an end.
Future retirees will need to generate more retirement income from their nest eggs. This is not necessarily a bad thing, but it will require more retirement income planning, sound guidance and innovative investment solutions to manage risk, taxes, and income needs.
If you are a client of mine, not to worry, Retirement Income Planning is my speciality. Anytime you want to review your plan, please don’t hesitate to reach out.
Have a great weekend,
Tracey
Source: Article posted on AdvisorAnalyst.com, To Spend or Not to Spend by Blackrock Investment Institute 01-12-2023
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