Retirees fear spending savings, study finds

Many individuals dedicate decades to accumulating retirement funds, only to overlook a crucial aspect: how to spend that money after retirement. A recent U.S. study reveals that while many diligently build retirement assets, they fail to create a plan for withdrawing them. This oversight can lead to a fear of outliving their savings, causing them to be overly cautious with their spending.

The financial planning strategy known as "decumulation" focuses on how retirees can systematically draw down assets to support their lifestyle without depleting their entire nest egg. However, a Corebridge Financial study found that only 31% of Americans are familiar with the term. Furthermore, among working individuals aged 55 and older, a mere 29% have established a withdrawal plan for their retirement accounts. This indicates a widespread gap between saving for retirement and planning for its expenditure.

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Only 31% of Americans know the meaning of 'decumulation'.

Research from the Employee Benefit Research Institute suggests that about one-third of retirees still hold as much, or even more, in retirement assets in their mid-80s as they did in early retirement. Experts believe this may signify "unnecessary underspending" among some retirees who, despite having the capacity for higher living expenses, opt for excessive frugality due to concerns about future financial insecurity.

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The importance of a plan for how to spend money in retirement is no less than the accumulation of assets before retirement.

Personal finance expert Jean Chatzky emphasizes that planning how to spend in retirement is as vital as accumulating assets beforehand. She notes that while most people lack a strategy for systematic withdrawals, having a clear plan can provide retirees with greater security and control when accessing their hard-earned wealth. The Corebridge study surveyed 2,210 adults aged 45-79 with over $100,000 in investable assets. Only 6% regretted leaving assets behind after death, while 56% feared spending all their retirement money before passing away.

Retirees' anxieties are not unfounded. The two primary financial risks they cite are high healthcare costs and the erosion of purchasing power due to inflation. Over 70% of retirees stated these concerns prevent them from spending more. While the "4% rule", withdrawing 4% in the first year and adjusting for inflation annually, is a common strategy, experts increasingly view it as a starting point rather than a universal formula. It doesn't fully account for market volatility, taxes, investment fees, or exceptionally long retirements. The challenge of "how to spend" may be even more pronounced for younger generations, who often rely more on self-directed plans like 401(k)s and lack the predictable income from traditional pensions. Experts now advocate for building stable, predictable retirement cash flows, potentially through annuities, to supplement Social Security and provide a sense of financial stability. Ultimately, the key to retirement finance may lie not just in "how much to save," but in developing a withdrawal strategy that allows for comfortable spending without premature depletion, transforming accumulated assets into a reliable income stream.

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