Do you know how much you can spend in retirement and stay retired successfully? Based on statistics, my bet is that most people don’t. Get this. Fifty percent of retirees are actually saving money. Another twenty-seven percent are only spending their income.1* If these numbers are accurate, this leaves less than a quarter of retirees that are actually touching principle from their lifetime’s savings in retirement.
And the number one worry in retirement…RUNNING OUT OF MONEY! A little ironic, don’t you think? So why is this? There are obvious aspects of behavioral economics at work here. Consider any of these factors:
- Loss Aversion. Retirees would prefer to avoid any loss over the possibility of a potential gain of the same value….and they see “withdrawals” from their portfolio as a loss.
- Familiarity Bias. Retirees don’t usually change just because they are retired. If they have never spent more than what comes in, why would they now?
- Endowment Effect. Retirees may overvalue the actual ownership of their nest egg and are not willing to use it for it was intended.
- Declinism. Retirees may view the past as the brightest and best days, and are pessimistic about what is to come in the future.
- Mental Accounting. Retirees place their assets into buckets, not looking at the entire picture resulting in missed opportunities and what they see has to be a lower income.
Our minds are powerful. We can become slaves to our money without even realizing it. A 2017 Retirement Confidence Survey found that retirees are so hesitant to dip into their retirement nest eggs that they would rather adjust their budget, go back to work, go into debt, spend less, or even do without - almost seventy-five percent of the time.3.
Why save it in the first place? That was a lot of years of hard work that who is going to enjoy? I didn’t know anyone liked their kids that much…maybe the grandkids, but they aren’t usually first in line. You are probably cringing as you realize that one or more of those behaviors may describe you… but you just can’t do it. You can’t bring yourself to spend more money.
What if there was a way to have you cake and eat it to? What if there was a way to maximize your lifestyle in retirement, protect you and your loved ones from a premature death or illness, and provide a legacy of the same or more value that it would be at today?
Abraham Maslow, author of Toward a Psychology of Being, stated, I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail. Most retirees have just one tool. Some have two or three, but then mental accounting gets in the way and the tools still don’t work to accomplish what they really want. If living retirement to the fullest is important to you, get help—professional help. Get help from someone with a large tool belt and loads of experience. It’s worth it! Don’t fall victim to your behavioral inclinations…Instead, begin to live a rich, fulfilling retirement.
- Based on Data Collected from a 2016 NYL and Ipsos Survey.
- Connerton, Brendan. Are Clients Spending Enough in Retirement? Crump Life Insurance Services.
- Employee Benefit Research Institute and Greenwald & associates, 2017 Retirement Confidence Survey
*Income in this context includes guaranteed income sources (social security, pensions, annuities) and dividends and interest.