Studies have shown that some retirees draw down their savings much slower than expected. What is at the root of this hesitancy to spend retirement savings?

If you have ever watched an episode of Hoarders, you know how warped the human mind can become. In a similar way, this can be what it’s like for some retirees. They lack the financial security to feel confident about spending their own money.

Savings Conundrum

For many retirees, determining how much retirement savings to withdraw each year is a major problem. What feels like an impossible task is compounded by the fear of the unknown.

Some middle-class retirees in their 80s have used only about 25 percent of their savings. Stop and think about that for a minute. Average life expectancy is 79, yet these people living on borrowed time have barely touched their savings.

Required minimum distributions or RMDs are government-mandated withdrawals from pre-tax retirement accounts beginning at age 73. Vanguard recently reported that many savers reinvest their RMDs rather than spending them. Even those with modest savings commonly reinvest up to a third of their RMDs.

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Half of retirees surveyed agreed with this statement: The thought of spending retirement savings is uncomfortable, even if it's for my retirement goals and plans.

To those of us still working, none of this makes any sense.

Root Causes

There are a number of reasons why retirees are reluctant to spend their savings. First off, after saving all those years they become emotionally attached to their retirement accounts. The numbers should be going up, not down. They have trouble flipping the switch.

Second, there is concern over potential health issues and end-of-life healthcare costs. It’s like a great unknown hanging over your head.

Third, many people want to leave an inheritance for their heirs. The less they spend, the bigger the endowment.

Most of us find it difficult to face our own mortality. Ever notice how the definition of "old" changes as we age? It keeps moving out 20 years beyond our current age.

The simple truth is, spending your retirement savings means facing your mortality. You are not going to live forever (not on this earth, anyway). If you spend down your retirement savings, you are essentially accepting the fact that you are going to die in a certain number of years.

The math is not difficult. Let’s say you have a million dollars and you are 80 years old. You think maybe you will live to 90, so best-case scenario you have 10 years left. You can withdraw $100,000 per year. If you consider investment returns, Social Security and taxes, it's not that simple, but it gets you in the ballpark. If that’s you and you are only withdrawing like $20,000 each year, you could be living much better.

Flawed Studies

Can we agree that not every study is grounded in sound logic? Case in point, it's not hard to find studies that link diet soda to heart disease. Have any of these so-called experts ever considered the fact that most people who drink diet soda are overweight? Diet soda doesn’t lead to heart disease, being overweight leads to heart disease.

Consider this: in order for someone to have too tight a grip on their money, they need to have money in the first place. It follows that anyone who is conservative enough to save money for retirement is also conservative enough not to want to spend it.

Studies that point to this as a problem don't say anything about the nearly half of all Americans who don’t have anything saved for retirement. Do you think those people would have any trouble spending their retirement savings if they had any?

The point is, this is a problem, but if the numbers were watered down with all the people who don’t have any retirement savings the percentage of retirees it affects would be drastically less.

Final Thoughts

If you or someone you know struggles with spending money in retirement or retirement planning in general, seek help. Sit down with a financial advisor or avail yourself to sophisticated retirement planning software. Here is an article on the best retirement planning software.

Life is too short to live with anxiety over money. Every problem has a solution if you are diligent in finding the answer. Seek to create balance in your life.

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