Retirees' Reluctance to Spend Savings: A Growing Concern

As retirees live longer and face increasing financial uncertainty, their reluctance to spend their savings has become a growing concern. A recent study by BlackRock in conjunction with the Employee Benefit Research Institute (EBRI) revealed that, on average, retirees still have 80% of their pre-retirement savings remaining after almost two decades of retirement. This phenomenon, often referred to as the "retirement savings paradox," has significant implications for both retirees and the broader economy.



The primary factors driving retirees' reluctance to spend their savings can be attributed to several key themes:

1. Retirees prefer to keep their assets untouched: Only one in four retirees feels they will have to spend down principal at all to fund their desired lifestyle. Most retirees prioritize financial security over living it up in retirement.
2. Retirees retain their accumulation mindset: Very few retirees plan to systematically spend down assets. They have a deep-seated fear of experiencing a critical financial or medical shock or outliving their money.
3. Retirees with pension income are less likely to spend down: Because they don't need to, retirees with defined benefit pension income are less likely to touch their saved assets to cover expenses compared to those without such traditional pension benefits.
4. Men and women approach finances in retirement differently: Retired women report higher levels of financial worry and are more risk-averse than retired men. They often live longer and typically enter retirement with lower asset balances, which contributes to their financial concerns.
5. Recent retirees are less optimistic: Recent retirees report higher anxiety and pessimism than those retired for more than 10 years, particularly around future health concerns. They are also more likely to carry debt.

The fear of outliving savings or experiencing a financial shock significantly influences retirees' spending behavior. To mitigate this fear, retirees can adopt several strategies, such as diversification, purchasing annuities, maintaining an emergency fund, regular reviews, and improving their financial literacy.

Pensions and other stable income sources play a significant role in retirees' decision-making regarding spending and investing their savings. Retirees with defined benefit pension income are less likely to spend down their saved assets to cover expenses, as they have a more stable and predictable source of income. This reduces their dependence on their savings and allows them to maintain a more conservative investment strategy.

In conclusion, the reluctance of retirees to spend their savings has become a pressing issue that requires attention from both individuals and policymakers. By understanding the factors driving this behavior and implementing appropriate strategies, retirees can better manage their finances and enjoy a more secure and fulfilling retirement.