Are Retirees Spending Their Savings Too Slowly?

Are Retirees Spending Their Savings Too Slowly?
Photo by Dean Drobot /

Retirees are generally spending their assets at a “very slow” rate, according to the nonprofit Employee Benefit Research Institute.

In fact, a recent EBRI analysis found that many retirees are spending at a much lower rate than most retirement models have traditionally figured.

Seeking to learn how retirees spend money in the years after their retirement, EBRI examined data from the Health and Retirement Study, an effort of federal agencies and the University of Michigan that dates back to 1992. EBRI describes it as “the most comprehensive survey of older Americans in the country.”

EBRI’s analysis found that within their first 18 years of retirement:

  • Retirees with less than $200,000 in nonhousing assets immediately before retirement spent a median of 24.4 percent of their assets.
  • Retirees with at least $200,000 but less than $500,000 in nonhousing assets immediately before retirement spent a median of 27.2 percent of their assets.

Wealthier retirees spent an even smaller share of their nonhousing assets, exhausting 11.8 percent within their first 20 years of retirement.

The study defines “nonhousing assets” as all sources of wealth — except for a primary home and any employer-sponsored retirement accounts, such as a 401(k) — minus debts.

The study notes that a rate like 24.4 percent is “definitely much lower than what has been traditionally assumed by most retirement models.” At the same time, it is not beyond explanation.

It continues:

“These households had very few assets and they faced a lot of uncertainties. So, it was not ‘irrational’ for them to have held on to their assets as long as possible.”

Why retirees spend so little

EBRI does not identify the reasons why so many retirees spend so little in retirement. But the nonprofit notes that possible explanations include retirees:

  • Intentionally preserving their assets due to uncertainties like life span, medical expenses and market returns.
  • Intentionally preserving their assets so they can pass them on to heirs.
  • Being unable to switch from saving throughout their working lives to spending in retirement.
  • Lacking the education necessary to know how to safely spend down their retirement savings and thus erring on the side of caution.

Determining your so-called draw-down rate — the amount of your retirement savings you can spend annually — is indeed complicated. It is also heavily dependent upon how much money you are able to save for retirement by the time you retire.

So, if you have yet to retire, you may be better off first focusing on building up your assets as much as possible before you retire. For help with that, check out “Ask Stacy: How Can I Know I’ll Have Enough to Retire?

What do you make of retirees spending rates? Share your thoughts below or on our Facebook page.

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