(I’ve edited this post which originally included a brief summary of a trip up to DC. This retirement subject, however, needs more room for content, so we’ll commit a separate post to the trip and add to this deserving subject)
This retirement subject came up in a couple other posts, and if you spend time on retirement forums, it’s a regular item of discussion.
Most of us spend our childhood years developing money-saving habits and our adult years practicing those habits. Where you come from often dictates where you’re going. For example, in many cases growing up in low income families has a strong impact- either positive or negative- on spending habits later in life. That impact can put individuals or families on widely divergent financial trajectories:
- Often those who didn’t have much money as a child have a hard time making consistent, wise financial decisions when they do come into money.
- Others who grow up without much money commit themselves to break away from their current financial situation as soon as they control their own financial destiny, applying good spending/saving habits as money-making adults.
Those who grow up in wealthy families have a very different set of influences that shape financial and other decision making habits later in life, and can end up anywhere along the financial spectrum.
Then there are those of us who are just plain cheap- generally hesitant to spend money.
An excellent read on the early influences of financial habits, authored by someone who spent a career studying it, is The Millionaire Next Door (there are at least two editions). It will certainly be worthy of its own post in the future.
So after surviving childhood and the teen years, we’re off on our financial path for 35-40 years in the workforce. There are, of course, numerous factors influencing one’s personal finances along this journey, but hopefully we get to retirement with something besides Social Security to fund the rest of our days. As we reach that last day in the workforce, we need to shift from a focus on saving for retirement to spending in retirement. This may not seem like such a difficult transition, but for a surprising number of retirees, it is.
Time to do a little studying. I was intrigued to see how much research has been (and continues to be) committed to retirement, and much of it is focused on this shift from saving to spending. The challenge was to find research from a source that didn’t have some sort of bias. For example, in 1998 the Social Security Administration established two research centers: Center for Retirement Research at Boston College and the Michigan Retirement and Disability Research Center (https://mrdrc.isr.umich.edu/) at the University of Michigan (Michael’s editorial comment #1. Here comes the bias. As with many other USG-funded sources, there are often specific narratives that published research must stay within. Based on my initial look through available research in these sources, if a study’s conclusions are not within the government narratives, it’s not likely to get published.).
I also found several interesting articles on the subject, including one here:
It was interesting reading and made some excellent points, but while reading the article, my “spider senses” kept tingling until I read about the authors. All three worked for an annuities division within a major investment firm. I would certainly recommend the article for reading, but the favorable conclusions on investing in annuities was predictable.
So that’s four sources to consider (without going very far in analysis)- a book, two research centers, and a recent article. I’ll give you a fifth in just a moment. There are some general themes running through most of them- for many retirees, reasons for holding back on spending in their golden years include:
- Fear of outliving one’s money
- Persistent concern for market performance
- Health concerns that might lead to long term care or other serious drains on retirement funds
It’s worth looking deeper than that, but I’m going to have to make that a separate post.
Natalie Colley, a New York City-based investment manager writing for Forbes, comments, “I’ve observed this amongst my own clients, as well. The shift from saving to spending is particularly challenging for those who have diligently saved throughout their lives. Consider the irony of dedicating years of tireless work, frugality, and possibly sacrificing meaningful moments in pursuit of deadlines, only to realize that your amassed wealth surpasses your actual needs, and you find it difficult to actually spend what you’ve saved.” (Forbes.com, 30 August 2023)
She continues:
“Ultimately, there is no distinctly negative consequence to not spending your money in retirement. For those retirees who find themselves hesitant to spend what they’ve accumulated, the primary hurdle to overcome is psychological. In a world where the narrative to “save, save, save” drowns out all else, it’s all too easy to overlook the equally valid notion that there is no merit in living a more modest life than your means allow. Yet, with careful planning and conscientiousness, this obstacle can be overcome, paving the way for a gratifying retirement journey.”
(Michael’s editorial comment #2. While I agree with the observation that a major cause is psychological, I’m not in agreement with some of her other points. For instance, I would argue against the thought that this is “…a world where the narrative to “save, save, save” drowns out all else”. Dissenting views are welcome in this forum.)
The Investments and Wealth Institute article mentioned above also brings attention to the mental side of this issue:
“By the very nature of what those who are well-positioned in their retirement often read about personal finance, most of us are conditioned to believe that saving money and being frugal is the highest virtue. It’s this mindset that can subsequently hold retirees back from enjoying their money to the fullest.”
So this post tosses out some initial thoughts, but we’re just barely scratching the surface of a complex subject. I’ll post some related content soon, but in the meantime, I welcome related thoughts/comments.