Affluent Retirees Scared To Draw Down Savings, Ep #200

Jul 12, 2021

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Episode 200! I can’t believe I’ve made it to this landmark episode. Thank you all for joining me on this journey and I hope you'll join me for the next 200.

I enjoy looking back and reminiscing on previous episodes, but I don’t have to go too far back to find my most recent favorite. Episode 199 is one of my most recent favorites. In it, I interviewed world-renowned Disney expert, Lou Mongello, to discuss multigenerational Disney trips. Check it out if taking the grandkids to Disney is on your bucket list.

In this episode, we’re covering two retirement headlines. The first is from Investment News and it describes how some leading retirement experts question whether advisors should rethink their assumptions about retirement spending when creating financial plans. The 2nd retirement headline is from HumbleDollar.com titled Secret Sauce. This article describes the aspects of work that we want to hang onto, those that we might not, and it outlines six steps to design a successful and ideal retirement.

Outline of This Episode

[2:22] How we should rethink our assumptions about retirement spending
[9:30] How to plan your retirement withdrawal rate
[11:20] To have a successful retirement, you need to have an understanding of work

People in retirement live differently

Mary Beth Franklin recently wrote an article for Investment News about retirement spending. She sourced a study completed by the Employee Benefit Research Institute (EBRI) which analyzed the spending of 2000 retirees. The study found diversity in the way people live in retirement based on financial status, retirement goals, demographics, and spending habits. Mary Beth's article focuses on the results for those that were classified as affluent and comfortable retirees.

Not many affluent retirees plan to spend their savings

In the article, affluent retirees were defined as those with financial assets exceeding $320,000 and an annual income of $100,000 or more. Most of them were also mortgage-free with zero debt. Their most common sources of income were defined as employer benefit plans, Social Security, and personal savings. They reported that they feel they have saved enough for retirement and only 1 in 3 plans to spend all or a significant portion of their savings.

Comfortable retirees may spend only a small portion of their assets

Comfortable retirees had mid-levels of financial assets between $99,000 and $320,000 and an annual retirement income of less than $100,000 a year. Many still had a mortgage and other debts. Most of these people cited workplace retirement savings and Social Security as their major sources of income. Almost 75% of these comfortable retirees said that their retirement savings are sufficient or more than meet their needs, however, more than half of them plan to grow, maintain, or spend only a small portion of their assets.

Why are affluent and comfortable retirees hesitant to spend their retirement savings?

The study found that the Baby Boomer generation wishes to retain assets rather than spending them down. So the question is, why don’t these retirees wish to spend their retirement savings?

This may be due to the fact that their Social Security income or pension provides enough to meet their expenses, but it could also be due to an inability to switch gears from accumulation to decumulation. Another reason may be that many retirees don't know how to determine a sustainable withdrawal rate that considers future uncertainties, and this lack of knowledge makes them wary to spend their nest eggs.

I think the key to confidently spending and living off your savings is to understand how much it costs for you to live for a year in retirement. Listen in to hear how you can learn how to calculate your spending so that you can determine your sustainable withdrawal rate in retirement.