Are Retirees Spending Their Savings Too Slowly?

saving money
Photo by Dean Drobot / Shutterstock.com

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.

How to find cheaper car insurance in minutes

Getting a better deal on car insurance doesn't have to be hard. You can have The Zebra, an insurance comparison site compare quotes in just a few minutes and find you the best rates. Consumers save an average of $368 per year, according to the site, so if you're ready to secure your new rate, get started now.

Read Next
7 Ways to Save Even More at Dollar Stores
7 Ways to Save Even More at Dollar Stores

Yes, it’s possible to pay less than a buck for items from a dollar store. Here’s how.

Never Put These 8 Things in a Microwave Oven
Never Put These 8 Things in a Microwave Oven

A microwave can be a busy cook’s best friend. But heating certain things in a microwave can cause disaster.

9 Free Things That Used to Cost Us Money
9 Free Things That Used to Cost Us Money

Not everything is getting more expensive.

How to Prepare Your Finances for Retirement in 7 Steps
How to Prepare Your Finances for Retirement in 7 Steps

Here is how to get your finances in shape for your golden years, one step at a time.

70% of Older Adults Botch This Basic Retirement Question
70% of Older Adults Botch This Basic Retirement Question

Can you answer this fundamental retirement income question?

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
Will I Get My Ex-Husband’s Social Security When He Dies?
Will I Get My Ex-Husband’s Social Security When He Dies?

Two factors determine how much money is coming to you.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

16 Amazon Purchases That We Are Loving Right Now
16 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

5 Household Disinfectants That Can Destroy the Coronavirus
5 Household Disinfectants That Can Destroy the Coronavirus

You likely already have some of these products at home.

22 Things You Should Always Buy at a Dollar Store
22 Things You Should Always Buy at a Dollar Store

The dollar store has great bargains on these purchases.

20 Things That Are Actually Worth Stockpiling
20 Things That Are Actually Worth Stockpiling

You probably don’t need a year’s supply of toilet paper to survive an outbreak, but consider stocking up on these items.

6 Reasons I Will Never Trust Suze Orman
6 Reasons I Will Never Trust Suze Orman

Beware: The self-proclaimed personal finance expert has a track record that suggests more sizzle than steak.

America’s Most Reliable Appliance Brand Is a Surprise
America’s Most Reliable Appliance Brand Is a Surprise

Have you heard of this appliance manufacturer?

The Top 11 Jobs That Employers Want Retirees to Do
The Top 11 Jobs That Employers Want Retirees to Do

Tired of age discrimination? Businesses are clamoring for older workers to fill certain roles.

This Type of Social Security Benefit Is Often Overlooked
This Type of Social Security Benefit Is Often Overlooked

The Social Security Administration is not helping certain people get money to which they are entitled, a report says.

9 Everyday Problems You Can Solve With Vaseline
9 Everyday Problems You Can Solve With Vaseline

Forget expensive specialty products. Good ol’ petroleum jelly can address many common annoyances.

Getting These 2 Shots Could Reduce Your Risk of Dementia
Getting These 2 Shots Could Reduce Your Risk of Dementia

These vaccines may lower the risk of Alzheimer’s disease by up to 40%.

19 Purchases That Buyers Almost Always Regret
19 Purchases That Buyers Almost Always Regret

Think twice before buying these things.

7 Tips for Building an Emergency Stockpile
7 Tips for Building an Emergency Stockpile

A pandemic or natural disaster could leave you reliant on your existing food supply. Is your pantry prepared?

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

8 of the Worst Things to Buy at a Dollar Store
8 of the Worst Things to Buy at a Dollar Store

Not everything sold at dollar stores is a great bargain or a safe purchase. Here’s our list of products to avoid.

41 Things You Should Never Buy
41 Things You Should Never Buy

Some purchases are just plain dumb. Give yourself — and your budget — a break. Don’t spend money on this stuff.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

9 Things That Are Free in August
9 Things That Are Free in August

As summer enters the home stretch, we’ve rounded up these sizzling freebies.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.