Despite the regular and frequent calls urging Americans to save more and to get better prepared for retirement, here is a study that found that retirees are overwhelmingly not spending enough money. Not only that, but the studies find that many Americans continue saving AFTER retirement. It begs the question – what are we saving for? If we are saving in order to enjoy our retirement, then why do we find that Americans begin to cut spending by about 2.5 each year starting at 60, with this trend continuing for the next 10-15 years.
According to United Income, “Adults generally die with a similar amount of wealth regardless of what age they die. For example, the average retired adult who dies in their 60s leaves behind $296k in net wealth, $313k in their 70s, $315k in their 80s, and $238k in their 90s. We also find that older Americans have been leaving increasingly larger estates over time. Estate values grew by 130 percent between 2000-2002 and 2010-2012, although the growth in investable asset value size was just 20 percent. These data suggest that wealth preservation may be more important than income preservation for retirees – perhaps because financial optimism declines as we age.” So, what does this tell us? It shows us that we are increasingly more pessimistic about our financial future as we age, that the fear of the unknown has resulted in an entire generation that is not enjoying retirement, rather they continue to be worried about running out of money.
We know that retirees are hoarding cash out of fear, but what are they most afraid of? According to Christopher Browning, it is not knowing how much they can spend and still maintain their quality of life. While no one can predict your future health or other things that may come up, it seems to be suggested that we have a “one size fits all” mentality when it comes to saving for retirement. We are regularly bombarded with the message that we are not saving enough, that Americans are being forced to work longer and longer just to make ends meet. While that is true for many, it is not true for everyone. The message for a 30 year old should be distinct from that given to a 70 year old.
We are beginning to see the financial markets address the hoarding mentality of prepared retirees. Between reverse mortgages, longevity insurance for 80+, or other vehicles that help convert a retirement account into reliable cash payments, and additional medical insurance for catastrophic expenses or long term care, there are more and more options available to today’s retirees that will give them some peace of mind about their future while encouraging them to enjoy today and spend some of their money.
