Retirement is supposed to be the time to spend down that hard-earned money you have saved over a lifetime. But it appears that seniors today didn’t get the memo.
The Employee Benefit Research Institute’s 2022 Spending in Retirement Survey asked nearly 2000 individuals aged 62 to 75 about their spending habits during retirement. The results are surprising.
The following are the top seven reasons retirees cited for staying frugal in retirement.
Feeling that spending down assets is unnecessary
Of those asked in the survey, 36 per cent cited this as a major reason for not spending savings and 42 per cent cited it as a minor reason.
People tend to cut back on spending naturally as they age. As retirees transition from their go-go years to their slow-go years or no-go years, they naturally spend less money on travel, events and day to day activities.
Read: How much you’ll spend in a comfortable retirement
Wanting to leave as much as possible to heirs
The majority of parents want to do everything they can to set their children up with the best lives possible, this includes trying to leave them an inheritance.
More than one-third of respondents (36 per cent) cited giving more to loved ones as a major reason for not spending savings and 30 per cent cited it as a minor reason.
Fear of running out of money
The shift in income during retirement can be scary, even if you’re expecting it. For workers who have earned a pay cheque for decades, the shift to using money from super can be difficult. After spending a lifetime saving money, it can feel unsettling to begin pulling cash from accounts that were previously off-limits.
“When people start paying themselves, they get scared,” says Dolph Janis, founder and owner of Clear Income Strategies Group.
Although the majority of retirees expect they will have plenty of money to get through retirement, 44 per cent plan to spend down all or a significant portion of what they have, according to the Employee Benefit Research Institute survey.
A whopping 43 per cent of respondents cited fear of running out of money as a major reason for not spending savings and 24 per cent cited it as a minor reason.
Saving assets for an unforeseen cost later in retirement
“The good news is you get to live a long life,” says Stephen Daney, investment adviser at Better Money Decisions and founder of The Life Money Center. “The bad news is that you may have only planned for [age] 75 or 80.”
The longer you live, the more chance you have of life throwing you an unexpected curveball. Sure, things may be fine now, but how long are they guaranteed to stay that way?
Many seniors draw the purse strings tight because they believe a rainy day is out there somewhere. In fact, 44 per cent of those surveyed cited this as a major reason for not spending savings and 40 per cent cited it as a minor reason.
Read: Is your nest egg under threat?
Concern about inflation
The recent spate of inflation has shaken the confidence of millions of Australians, and the situation is even scarier when you no longer have a pay cheque to depend on, or a pay rise to strive for. Of those surveyed, 49 per cent cited concern about inflation as a major reason for not spending savings, and 36 per cent cited it as a minor reason.
Knowing that once assets are spent, they can’t be recovered
Once you’ve made that purchase or spent that money, it typically can’t be undone. Getting a promotion or landing a new job in hopes of generating additional income can be difficult, especially for those close to, or past, retirement age.
A little extra caution about spending in your golden years is probably warranted, in fact, 55 per cent of those surveyed cited this as a major reason for not spending savings, and 27 per cent cited it as a minor reason.
Feeling better when account balances remain high
One 2017 report found that retirees aged 60 or older trim their spending by 2.5 per cent a year. This reduction in spending by retirees might be a logical consequence of running out of money. However, report also found that wealth tends to grow as people age.
But, after a lifetime of saving, it can be gratifying to see your bank balance up there. Enjoying a high account balance was cited as a major reason for not spending savings by 58 per cent of respondents and as a minor reason for 32 per cent.
A whopping 90 per cent of those who are frugal during retirement say they simply feel good about knowing they have a larger nest egg.
Read: How not to die with retirement regret
Dangers of extreme frugality
Being frugal may seem like a virtue, but it doesn’t come without faults. The most obvious problem is that it’s difficult for seniors to enjoy retirement if they refuse to spend any of their money. If you become obsessed with penny-pinching, that’s a problem.
“Those who have higher incomes are generally living too frugally,” says Matt Fellowes, founder and CEO of United Income. Mr Fellowes says the problems go deeper. According to his research, seniors may delay preventive care or withdraw from social activities to save money. Both can have a negative effect on senior health and wellbeing.
Do you think you’re frugal? What reason resonates with you the most? Let us know in the comments section below.
The problem is that as you age it becomes difficult to spend down your money. In our 60’s and 70’s we did a few trips around the World, maybe 2 a year but by the 80’s travel becomes very expensive because your body demands Business class. You travel less by car so it doesn’t need replacing – we are down to 70,000kms in 10yrs. Health costs go up so that becomes a bigger expense. You take up bowls and drop out of the more expensive golf because it is easier on the body. In our case more goes towards charities because there are people out there doing it tough. We are not rich but comfortable and with around 10yrs left to our 90’s there is no way we could spend our Superannuation, it will just keep going up and eventually go to the kids – at some point we will cash it in so it is not taxed when it goes to our estate.