Blackrock Study on Retirement Spending

The Blackrock Study Spending in Retirement…or not? in my opinion successfully captures a fundamental mental framing that I think more than a few retirees have.  Here again is a good example of the difference between Homo economicus and the rest of us. 

Most retirees in our study appear to have coped and managed pretty well in retirement. Many could have afforded to withdraw a little and, in some cases, a lot more from their retirement accounts but chose not to, potentially leaving in some cases large amounts of hard-earned savings unspent. While many might find this puzzling, research suggests16 that people would rather not touch their savings and instead adjust their lifestyle, making cutbacks where necessary and shifting to “needs” over “wants.” Others may feel the need to hold on to wealth as a form of self-insurance instead of acquiring an annuity to deal with a number of life’s uncertainties, such as longevity risk. Retirees may also hold back due to deeper behavioral biases or tendencies. After being told to “save, save, save,” for decades, the idea of shifting to “spend, spend, spend” underweights the power of inertia and the comfort associated with the status quo.17 The common framing of decumulation as a time to withdraw or remove assets rather than say gaining new experiences faces a strong “loss aversion” bias as well.18 Even the uncertainty or ambiguity regarding longevity itself can lead people to select more certain, but possibly sub-optimal decisions.19 These biases can be exacerbated given the person’s risk tolerances, experience (or lack of) with the investment industry and investing and the overall saving/spending relationship (often family influenced). Retirement planning and financial advice that acknowledges and incorporates solutions to these types of biases could help mitigate behaviors getting in the way of retirees spending a bit more on themselves and using those assets saved over decades.

...and on the other hand...

Future retirees may not be so lucky. Many will likely retire into an environment with multiple headwinds and face growing pressure to save more and maximize the value of their entire retirement savings—principal and all—unless they are willing/able to make dramatic cuts in their retirement lifestyle...Future retirees will face obstacles not seen by prior generations and many of the apparent behavioral biases possibly holding back current retirees from spending will be at play among future retirees as well. Whether they can gain the confidence to spend retirement assets if and when needed—or not and potentially see major adjustments to their lifestyle instead—remains to be seen.