The Real Reason Boomers Hoard Money in Their Retirement Accounts
A recent survey by the Employee Benefit Research Institute (EBRI) gave me some surprising insight into my spending habits. This is what I learned: I’m not alone.
I’m not alone in my reluctance to take money out of my retirement accounts. I’m not alone in choosing to spend less rather than draw down assets. I’d rather keep sitting on my nest egg than break it open and gobble it up, and most older Americans feel exactly the same way.
According to the EBRI survey, the majority of retirees want to draw down only a fraction of their savings or none at all during their golden years. In fact, many of the respondents said they wanted to continue growing their wealth, to accumulate rather than spend, and other research bears this out.
But why on earth would we want to save money when spending it is a lot more fun? I mean, you can’t take it with you, right? So what makes boomers so protective of their stash?
Survey says !— Spending retirement savings isn’t necessary
Thirty-seven percent of the respondents to the ERBI’s survey said spending down their savings wasn’t necessary. I guess I could say the same.
Many of those who say they don’t need to spend their savings probably have sufficient income to maintain their preretirement lifestyle without it. My husband and I, sadly, are not among them. Even so, we’re perfectly willing to adjust to our lower-income retirement lifestyle by spending less. So when I say “it isn’t necessary” to break into our retirement accounts, what I really mean is that we can squeak by without doing that.
We can eat in instead of eating out. We need to be taking extra-special care of our bodies at this stage of life anyway, and making nutritious, home-cooked meals is a smart way to do that.
We can keep wearing our worn-out rags for a few more years. Nothing we don is going to turn us back into the hotties we once were, so we might as well channel our disposable income into something that will. Propane comes to mind. Or electricity.
We can entertain ourselves or (believe it or not) go without entertainment. It doesn’t matter if we don’t have a wardrobe for the nightlife anymore; we have no nightlife either. When we talk about early retirement these days, what we mean is lights-out by 10 p.m. Nothing good happens after that anyway (anymore), and we’ll be up at the crack of dawn at the latest. Our bladders will demand it.
Remove these major expenses from your life, and it’s easy to see why so many of us can say it’s not necessary to spend our savings. But some survey respondents had more generous reasons for being frugal.
Survey says! — We want to leave a bequest
Those kind souls hope to hang onto their money so that someday they can leave it behind for someone else to spend. I’ve often heard my mother say she wants to leave something to my sister and me; it’s a common sentiment among parents.
But if there’s anything left of my mother’s money after she’s gone, my sister and I will likely hang onto it too, just as she has. We’ll hang onto it for our peace of mind, for knowing that it could buy us a comfortable few days or weeks at the end of our lives before we pass on and pass whatever’s left in our own estates on to those coming along behind us.
Survey says! — Saving for unforeseen costs
We’ve been taught to keep money in an emergency fund, to squirrel a little away in case we need it. But emergencies are always coming for the aged, and they’re closing the gap in their pursuit of us with every passing day.
Our bodies are wearing out; our reflexes are getting slower. We don’t think as critically or as quickly as we once did. We’re targets. And when the inevitable hit comes, it’s not just coming for us. It’s coming for our wallets, too.
Survey says! — Afraid of running out of money
The EBRI survey authors were probably thinking about the increase in longevity when they included this possibility as a choice. Boomers can expect to live a long time after they retire. We need a stash that will last us 30 years, maybe longer.
There’s a lot of overlap in the EBRI survey’s response choices. Most of the reasons for not spending our savings can be boiled down to just this one-we’re afraid of running out of money. Old people don’t spend down their retirement accounts because we’re worried about inflation (which could make us run out of money and we’re afraid of that); once assets are spent, they can’t be recovered (and we might need them and not have them, which is another way of saying we’re afraid we’ll run out of money); saving instead of spending makes us feel better (marginally less afraid that we’ll run out of money, which is our fear).
Some say we need to change our approach to money management
As I’ve read about the “problem” of boomers hoarding their cash, it’s easy to notice that most of the people who encourage us to loosen our purse strings have a vested interest in seeing that happen. Financial advisors tell us to live a little because, after all, we’ve earned it. They tell us to deal with our fears of the future by buying long-term-care insurance and annuities, which, as luck would have it, happen to be the products they’re selling. Sign here, please.
Children put pressure on us to give them their inheritance now since we don’t seem to need our money (based on their observation that we’re not spending it). They’ve read stories that tell them THE BIGGEST TRANSFER OF WEALTH IN HISTORY IS RIGHT AROUND THE CORNER! and they want that future now. We boomers are an endangered species rapidly nearing extinction, and when we’re gone, you, our children, will inherit the earth, not to mention all our stuff. Why postpone the inevitable?
Although, I must say that reminding us of this is not a very effective way to butter us up. You might want to think about that.
And financial advisors, know this: since we’re afraid of running out of money (see above), we’re not about to buy an expensive insurance policy because we might never need long-term care for a period that exceeds Medicare’s provision for it. And annuities don’t give us a loud enough bang for our buck. We can get better returns elsewhere. Nice try, though.
The scary truth is, most boomers are at high risk of being impoverished, not because we didn’t earn enough, not because we didn’t save enough, and not because we don’t have the right financial products in our portfolios. We’re at high risk of losing everything because elder care in the U.S. can be outrageously expensive.
We know we could draw the short straw in the end-of-life lottery, and we’re not willingly going to do anything that would worsen our odds. The deck is already stacked against us. Know when to hold em, and all that.
The impetus for change may be upon us
I was thrilled to see that President Biden’s proposed infrastructure plan includes money for the care of the elderly. I can’t speak for every boomer, but if I knew I could count on being cared for in my final days, I’d be a lot more willing to spend down my retirement savings. I’d be more eager to do my part to stimulate the economy. I’d be more comfortable with handing over some of my assets to the causes and people I love. I’d feel as happy and secure as a Scandanavian, I guess. I can only imagine it.
But until that happens, I’m hanging on to every penny. I’m afraid I might need it.