Most Retirees are Cautious Spenders

After accumulating a nest egg, retirees are reluctant to spend it


When seniors retire, unless they purchase annuities or utilize traditional pensions, they are expected to have a plan to spend down their assets. The problem is that if you live longer than expected you could run out of money and become completely dependent on Social Security.

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Most retirees are cautious about spending down their life savings. The net worth of most middle class retirees begins declining very slowly after age 70, according a new Urban Institute analysis of 40,250 people born before 1947. For the wealthiest 20 percent retirees net worth increases until age 85 before beginning to gradually decrease. “Our results are reassuring for households in the top 80 percent of the income distribution,” write researchers Rudolph Penner and Karen Smith. “But the data indicate that the lowest income quintile quickly becomes almost wholly dependent on Social Security after retirement.”

The poorest 20 percent of retirees never accumulated much wealth, even immediately before retiring. This group of seniors generally spend their wealth quickly and then have only Social Security income to sustain them. Net worth, in this study, included housing, retirement accounts, stocks, bonds, bank accounts, property, and business equity and subtracted out debt retirees owed.

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Most seniors in the study did not spend the capital gains associated with the housing bubble or the surge in stock values between 2002 and 2006. “It is less clear whether they wisely understood the gains were transitory or they were victims of inertia,” say Penner and Smith. “In either case, older households’ frugality left them in better shape to endure the crash that followed.”