Bloomberg article: Nervous Retirees Are Too Scared to Spend

[Socmonkey]

https://www.bloomberg.com/news/articles/2019-08-22/nervous-retirees-with-money-to-spare-are-sitting-on-their-wealth


Some tidbits from the article.

...even very rich clients often have a crippling reluctance to fully enjoy their money. “I am surprised how often I sit with a retired couple and have to encourage them to spend more,” ... If well-off retirees are more frugal than necessary, they end up denying themselves the fruits of a lifetime of hard work.

Of course, some of these people have no problem spending their fortunes on luxury real estate, private jets, or generous philanthropy. Your more typical millionaire, though, is often tightfisted. Retirement experts and financial advisers disagree on exactly why.

Despite ultralow interest rates, advisers say it can be difficult to persuade retirees to tap savings rather than just live on their tiny bond coupons and dividend checks.

The biggest beneficiaries of the wealth generated over the past 10 years may be the children of the rich. The more conservatively their parents spend, the more they’ll inherit.

BOTTOM LINE - Wealthy retirees’ reluctance to draw down their savings is trapping millions of dollars that could be stimulating the economy.

[Zamboni]

Well, many of these folks got rich by being frugal and not spending their money, and habits are hard to break.

Also, why should you spend more, just because you can, if you are perfectly happy with your current life?

[2sk22]

Well, there is the (legitimate) cost of long term care that scares a lot of wealthy people.

So take my household as an example. Our net worth is really up there according to the charts in the NY times article that was discussed here recently https://www.nytimes.com/interactive/2019/08/01/upshot/are-you-rich.html

• House is paid off and no interest in a second home. We do have some modest renovation planned.
• Kids college education has been provided for.
• We have two cars, both hybrids that work well - no hurry to replace with an electric immediately.
• We have all the electronics toys we can possibly use and no need for any more.
• We don't really travel a lot - not all that enthusiastic about world travel.

What I have done recently is to greatly step up charitable donations.

[RedmondStash]

Well, there is the (legitimate) cost of long term care that scares a lot of wealthy people.

I think this is very true. This and health-care costs generally.

Plus there is constant doom and gloom about the next big recession hitting any day now.

I know I'm reluctant to spend lavishly. I'm probably semi-FIREd, and knowing I might have to live on my current nest egg for the rest of my life is daunting, especially as it is subject to the vicissitudes of the market.

It is just way too easy to go unexpectedly bankrupt in America. You're always playing the odds; it's never a sure thing.

[norajean]

Why would you spend more than necessary? And on what?

[Bateaux]

I have no plan to ever draw down principal.  Going with 3 percent withdrawal rate.

[Villanelle]

This is my parents.  They re in their 70s, millionaires (perhaps two+ time over, and if not, then certainly close), and still have income that comes close to or maybe exceeds their expenses.  Yet I go shipping with my mom and she sees a sweater she loves, but she can't bear to spend $40 on it.

Thankfully, they do allow themselves some splurges.  Their house is gorgeous, they just did a minor remodel they've wanted to do since they moved in years ago (cutting a pass-through in a wall, so not a major expense), and they travel, not super cheaply, a couple of times a year.  Still, I wish that they would allow themselves a few more "wants", since it seems the wants do exist.   Certainly, they aren't unhappy, but... buy the sweater!! But they are frugal by habit.

I worry this will be me, too, especially in the earlier years--that I deprive to the point of feeling, well... deprived because I'm scared. 

[Schaefer Light]

Nervous workers are too scared to spend, too.  When I was in my old job, I was terrified of spending because I thought I could lose my job at any time.  I felt like I needed to save as much money as possible due to the possibility of having to endure a long period of unemployment.  It turned out that I did get laid off and had a five month period of unemployment.  After going through that, I know one thing - I want to be FI if that ever happens again.

[MrThatsDifferent]

I’m scared I will do the opposite. I’m not a frugal person, but I’m also not a buyer. I am a money isn’t an issue person, but what I’ve seen is that adds up and I don’t pay attention until I wonder, hey, where’d all that money go? It’s something I’ll have to work on by the time I FIRE.

[TempusFugit]

It depends on their reason for not spending more.  If it's because they're perfectly happy and content, that all of their needs are met, then that's one thing. The title and premise of the article isn't that retirees are all perfectly content with their spending.  It's that they are afraid to spend.   

If it's just fear, isn't that the same thing we spend so much time on the forums talking people out of? How is it different than trying to convince people that they have enough and can stop piling up more money?   

That's when we direct folks to the "Stop worrying about the 4% rule" thread. 

[Kazyan]

Nervous workers are too scared to spend, too.  When I was in my old job, I was terrified of spending because I thought I could lose my job at any time.  I felt like I needed to save as much money as possible due to the possibility of having to endure a long period of unemployment.  It turned out that I did get laid off and had a five month period of unemployment.  After going through that, I know one thing - I want to be FI if that ever happens again.

A similar sentiment here. I might chill out about my spending if I knew I'd have my job forever, but actually it feels like a one-time windfall that I must stash away as much of as possible before the well runs dry.

Though I'm a lot more risk-averse thatn is healthy and I understand how most people aren't, it's still hard to imagine how "living within your means" with a savings rate of 5-10% sounds reasonable at all, since your means can be snatched away at any time. With the rate of technological change and how recession-era difficulty in getting a job seems to be the new normal, losing one's job isn't a freak accident anymore. It's just...what's going to happen to you sooner or later.

[Bloop Bloop]

What's there to spend on anyway? Everyone has a hobby, whether it's cars or bikes or chess or scuba diving or travel, to spend money on - but otherwise, besides food, there's nothing that particularly attracts my dollars.

[2sk22]

What's there to spend on anyway? Everyone has a hobby, whether it's cars or bikes or chess or scuba diving or travel, to spend money on - but otherwise, besides food, there's nothing that particularly attracts my dollars.

Agree - earlier this year, I had to pay a lot of money to get rid of junk that had accumulated in my house over the course of more than  twenty years. When I was looking at the huge pile of stuff we were getting rid off, I resolved to never allow so much stuff to accumulate again.

[wageslave23]

I don't get the part about the money being trapped like it's not still in the economy.  It's either in stocks, bonds, or savings accounts, etc.  All of which redeploy the money back into the economy

[PDXTabs]

I don't get the part about the money being trapped like it's not still in the economy.  It's either in stocks, bonds, or savings accounts, etc.  All of which redeploy the money back into the economy

If everyone put all of their money into savings tomorrow and spent nothing you would quickly see that in fact the velocity of money in a savings account is very low.

[EscapeVelocity2020]

BOTTOM LINE - Wealthy retirees’ reluctance to draw down their savings is trapping millions of dollars that could be stimulating the economy.

Most folks only like to spend what they think is sustainable, especially when they aren't making money.  It's nicer to have $1M throwing off a 'never-ending spendable' dividend than figuring they will die in 20-ish years and should boost spending with some of the principal.  Human nature.