Retirees have a spending problem, but it's not like what you think.
In a study done by New York Life in 2023, it showed that only 16% of retirees withdraw from their retirement accounts on a regular basis.
The study goes on to show that 30% of retirees don't withdraw any money from their retirement portfolios.
That’s striking.
It’s no wonder that most current retirees have 80% of their pre-retirement savings still in tack nearly after 17 years in retirement according to Blackrock. In the same report, Blackrock shows that 1/3 of the retirees in the same cohort actually grew their assets during retirement.
These numbers are shocking, but I get it.
People are used to the income spigot flowing freely while they're working. Once retirement hits though, the paycheck goes away.
It's big mental hurdle to get over.
For 30+ years you're programmed to contribute money paycheck to your 401k. Once retirement hits, you have to pivot 180 degrees and start withdrawing funds from the nest egg you've worked so hard to build.
It’s not an easy transition to make.
Retirees are hesitant to take retirement withdraws often times see their portfolio rise during retirement as a result.
The Solution (Sort Of):
I wish I could tell you what the solution is, but I’m not sure I have the answer. It goes deeper than just taking more money out of a portfolio.
From my experience, the lack of spending in retirement for retirees can be boiled down into 3 categories:
Unsure what a safe withdraw rate is for them in retirement
Lack of purpose in retirement
Worried about future costs
All of these are legitimate concerns but it doesn’t mean the best course of action is to spend nothing or very little.
If you’re worried about withdraw rates, consider consulting with a financial planner who help you.
If you’re struggling with a reason to withdraw from your portfolio, consider gifting money to your kids or grandchildren. It’ll likely help them out, and you’ll get the pleasure of watching them enjoy it.
I hear from many retirees that don’t withdraw from their portfolio because they don’t ‘need’ to buy anything. For those who are charitably inclined, consider making charitable donations to your favorite charity. Depending on your situation, it may have substantial tax benefits as well.
If you’re worried about future expenses, work with a professional to help you project how your portfolio withstands rising costs over time. If you have a specific future concern like healthcare, consider looking into long-term care coverage.
Wrap-Up
For some retirees, not taking portfolio withdraws seems like a foreign concept. For others, it’s something that they struggle with every day. This is for the latter. You’ve worked hard to accumulate wealth. Now, it’s your time to enjoy the fruits of your labor.
About The Author
Caleb Pepperday, CFP®, ChFC® provides Fee-Only Financial Planning and Investment Management Services for medical professionals. Advanced Practice Planning, LLC is based in Missoula, MT, but primarily works with clients in a virtual capacity nationwide. As a CERTIFIED FINANCIAL PLANNER™ and fiduciary, Caleb Pepperday works to create financial plans for medical professionals with their best interest in mind. As a Fee-Only financial planner, Caleb Pepperday is only compensated through the investment management or financial planning fees that you pay him directly and never earns a commission. Caleb Pepperday primarily focuses on helping mid-career and pre-retiree Physician Assistants/Physician Associates retire with confidence.
Disclosures:
The information provided in this article is for educational purposes only and is not intended as financial, legal, or tax advice. No content within should be construed as such. The material presented is based on general financial principles and concepts, and individual financial and tax situations may vary.
Readers are strongly encouraged to consult with a qualified financial advisor, tax professional, or legal expert for personalized advice regarding their specific financial, tax, or legal circumstances. Any actions taken based on the information in this article are at the reader’s own discretion and risk.
The author and publisher make no representations or warranties regarding the accuracy, applicability, or completeness of the information provided. This article does not endorse or promote any specific financial products, services, or companies. Readers are responsible for conducting their own research and due diligence before making any financial, legal, or tax-related decisions.
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