A recent report suggests that assuming that decumulation is the only approach retirees take regarding their accumulated funds is as inaccurate as it is simplistic.
In a recent report, T. Rowe Price says that it found that retirees are not monolithic in their management of retirement funds. To be sure, retirees do spend the money they’ve saved, and in increasing amounts as time passes. But the researchers found that retirees do so at a slower pace than they had expected to find.
How slowly? They found that retiree spending grows approximately two percentage points less than is commonly assumed, rather than increasing their spending in a way that matches the inflation rate. “That means people who have been retired for a number of years are spending much less than what we generally assume,” says the report.
Mindset Is Key
A key difference is mindset, T. Rowe Price suggests. They found that 30% of retirees adjust their balances to maintain their spending, while 70% adjust their spending to maintain their retirement funds.
They also found that spending less is voluntary, and not a choice that is made because of shrinking balances. They base this finding on data showing that real spending by households with a low net worth is “almost flat throughout retirement,” while households with higher net worth reduced their real spending faster than the overall retiree population did.
The report offers three reasons for retirees preserving, rather than simply spending down, their resources:
1. Having a specific future goal such as covering upcoming and/or possible medical expenses or leaving an inheritance.
2. Deriving satisfaction from a retirement funds balance or using the balance as an indicator in assessing one’s situation and circumstances.
3. Continuing a pattern of behavior from earlier in life of controlling spending in order to save money.
