Rich retirees can’t switch off their savings mode.
Some problems are good to have.
That’s the situation for two readers who wanted advice on how to spend the money they’ve saved for retirement.
“My wife and I lived frugally for years, prioritizing our tithe and savings,” one reader wrote during my weekly online discussion. “We retired last year at 66 with over $2 million in investments and a mortgage-free home. Now that we have time, I would like to do a little traveling, nothing crazy, but maybe a cruise or safari once a year. But my wife can’t switch from saving to spending mode. We have money but don’t enjoy it. Do you have any suggestions on how I can help her understand that it’s okay to loosen up?”
Another wrote: “Any advice on helping someone who has been carefully saving become comfortable with spending in retirement? I’m not talking about getting wild and crazy. Just enjoying some of the fruits of a lifetime.”
This is not an unusual problem.
The Employee Benefit Research Institute (EBRI) released a research paper last year that found that retirees are slowly spending down their money.
Of course, it’s not without reason that many retirees are reluctant to dip into their investments. They’ve got a lot of guessing to do when it comes to making their money last.
“Retirees face several risks — uncertain life span, uncertain medical expenses, uncertain market returns — that might cause many to spend their retirement assets more slowly,” wrote Sudipto Banerjee, who authored the EBRI report. “In addition, throughout their working lives, many people develop a saving habit. Also, having guaranteed income for life, such as a pension, doesn’t make retirees more likely to spend down their assets either. To the contrary, of all the subgroups studied, pensioners have the lowest asset spend-down rates.”
Research shows that in the first two decades of retirement, the majority of retirees don’t spend down their assets, and “this behavior is not limited to those with lower levels [of] assets,” Banerjee wrote. “In fact, those with the highest level of assets show the lowest rates of spending down.”
Here’s the breakdown of EBRI’s findings:
— Within the first 18 years of retirement, individuals with less than $200,000 in non-housing assets immediately before retirement had spent down (at the median) about one-quarter of their assets.
— Retirees with incomes between $200,000 and $500,000 immediately before retirement had spent down 27.2 percent within the first 18 years.
— At the median, retirees with at least $500,000 had spent down only 11.8 percent within the first 20 years of retirement.
There’s no doubt I’ll probably be one of those slow spenders. I’m just wired to save, not splurge. But I’m trying to break the habit. I don’t want to die having not enjoyed my money.
Here are some tips to help you or your spouse let go of some of your retirement funds:
— Figure out a baseline of your necessary spending. Review your retirement budget. If you know you have enough to cover your needs, you can free yourself from that fear and have some fun. Remember, your budget shows you what you cannot afford — but it also shows you what you can afford. So, just like you used to budget to replace a car, put in a line item for that cruise or safari.
— Review your net-worth statement. This is how my husband gets me to loosen my grip on our savings. The net-worth statement has all the numbers in one place. It offers a big-picture look at what you have. And if you have a lot, you can afford to treat yourself.
— Consider your beneficiaries. Sure, you may want to leave them some money. But ask yourself: Do you want them to enjoy your money more than you?