One common concern among retirees is that they may outlive their retirement funds. As a result, many people are scared to spend their retirement funds. It’s not surprising, given how ill-prepared many Americans are for retirement. Professionals in the financial services industry frequently say exactly that. It’s not surprising that many retirees are hesitant to spend their money.
Although many older Americans prefer to spend less, research reveals that individuals who spend more are often more satisfied with their retirement. However, with so many years of bills to cover, many people are scared to spend their hard-earned savings. Especially given inflation and the prospect of living to be 95 or perhaps 100 years old. Can your funds actually last that long?
How Many Retirees Are Scared to Spend?
Researchers refer to it as the “retirement consumption puzzle.” Married 65-year-olds with at least $100,000 in financial assets took an average annual withdrawal of 2.1% of their savings. This is the conclusion of a study* that examined data from a long-term survey of more than 20,000 people over the age of fifty. This is much less than the 4% spending rate that many advisors recommend.*
“The goal is to ensure nest eggs last 30 years in the worst of times, which means they last even longer in better markets.”*
Surprisingly, wealthier retirees tend to spend less than they could afford. Depending on their investing strategy, people in the top 20% of the wealth distribution may be able to spend an additional $773,000 to $1.165 million over a 30-year retirement. However, some are missing out because they are scared to spend. Planning for longevity and other issues is important, but so is enjoying retirement. For many people, retirement is the era of their life that will provide them with the time, money, and wisdom to finally live life to the fullest.
Overcoming the Fear
Making the shift to the withdrawal stage after years of retirement account contributions might be difficult. Many people are cautious to spend money because they are unsure how long they will live or how well the markets will perform. One common strategy* is to rely mostly on investment income, pensions, and Social Security to support oneself, waiting until the age of 73 to withdraw from retirement plans. At age 73, the government mandates those with traditional retirement funds to take required minimum distributions (RMDs) and pay the related taxes.
Spending is typically viewed as reckless, but saving money is regarded as a virtue. Many people may struggle to rationalize spending money on an expensive gift or a first-class flight to someplace nice, for example, because it contradicts their perception of themselves as being more frugal. Many people who are scared to spend exhibit greater self-control. As a result, they may discover that they have more saved for retirement than they imagined. It’s difficult to change your behavior after you’ve formally retired. However, in order to evaluate our finances objectively, we must be able to remove ourselves from our habits and emotions. Speaking with a financial professional could be beneficial in this circumstance.
Consider Phasing Into Retirement
There is convincing evidence that phasing retirement is beneficial to one’s financial, physical, and emotionalwell-beingg. There are numerous economical benefits to this. Additionally, you remain physically active for longer periods of time. Mentally, changing who you are becomes a journey rather than an abrupt transition. You may want to postpone receiving Social Security retirement payments for as long as you can, resulting in an automatic inflation-adjusted increase to one of your sole sources of fixed income.
Create a Portfolio Designed For Retirement
Your retirement savings can be applied to a variety of personal ends. Your present asset allocation may not be appropriate for your needs, objectives, or risk tolerance, and hence, may not be contributing to your retirement goals. Many retiree programs encourage them to stick to a set withdrawal amount: a statistically tested percentage of their portfolio to withdraw annually during retirement.
Four percent is often recommended. In other words, if you withdraw only 4% of your retirement portfolio each year, you will probably “leave this earth with just as much or more than you entered retirement with”*. Some individuals call this “The 96% Problem.”*
“The stark reality of the 96% problem isn’t just about unused wealth, it’s about unlived lives. It’s about the moments we didn’t seize, the hands we didn’t hold, the places we didn’t go, and the changes we didn’t make.”*
You may be able to achieve more of your goals at this point of life if you approach retirement savings with a more goal-oriented mindset. This can be done by working toward the following objectives:
Create an “emergency” fund to guarantee you’re ready for anything.
To insulate yourself from the stock market’s short-term volatility, create a “retirement paycheck” for yourself using more consistent options.
To finance your future and combat inflation, attempt to continue growing your wealth throughout retirement.
Make careful and mindful contributions to the causes and people that are most important to you.
Conclusion
Based on our experience with guiding individuals and families into and through retirement, we’ve observed that the first few years of retirement are often some of the most challenging times in a person’s life. They do not need to be, however. Retirement does not to be feared; rather, it can and should be a time of purpose and fulfillment in your life. Please contact us to learn more.
*Source: Forbes, the Wall Street Journal
