Originally published: 9/28/2021.
One of the least appreciated challenges in the passage from work to retirement is adjusting your mindset from saver to spender.
One consequence of spending reluctance is that the standard of living for many retirees is below what they can otherwise afford, resulting in a “retirement consumption gap” ranging from 8 percent to over 50 percent. The consequence is that about one-third of retirees increased their assets over the first 18 years in retirement.1
What accounts for this spending hesitation?
The primary reason retirees underspend may be a conscious choice. For instance, one survey found that only 43 percent of retirees planned to spend all their retirement savings, while a majority indicated a desire to either spend only a portion of their total savings or grow their assets.2
When retirees were asked why they didn’t want to spend down more of their assets, the reasons were varied:
"The guarantee of predictable, steady income for a lifetime creates greater confidence in spending, reduces financial and emotional stress, and promotes overall higher levels of happiness and security in retirement."
Many reasons, one conclusion
While the motives given for their restrained spending are many, they reflect a common concern—retirees don’t want “overspending” to derail their objectives, whether that objective is not to run out of money or to make a charitable bequest.
That may be why retirees with lifetime income, e.g., a defined benefit pension plan, had higher spending satisfaction and financial confidence in retirement.4
In other words, the guarantee of predictable, steady income for a lifetime creates greater confidence in spending, reduces financial and emotional stress, and promotes overall higher levels of happiness and security in retirement.
Switching to a Spending Mindset
There are several ways retirees can become more comfortable with spending, without compromising their financial goals or security.
For instance, seven in 10 baby boomers with a financial advisor reported feeling “excited and confident” or “happy and cautiously optimistic” about retirement versus just one-third of boomers without a financial advisor.6
Learn more about how New York Life can help you achieve a more secure and rewarding retirement or find a New York Life financial professional near you.
Go back to our newsroom to read more stories.