Retirees, Go Ahead and Spend a Little (More)

Successful savers have prospered by living below their means. Frugality often becomes a preference—sometimes to an excessive degree.

Hispanic couple using laptop in kitchen
(Image credit: ©Jose Luis Pelaez Inc LLC)

It's no secret that many Americans have not saved enough for retirement. But here's the flip side of the coin: retirees who don't spend enough of their savings.

A recent study by the Employee Benefit Research Institute found that the majority of retirees are spending down their assets surprisingly slowly during the first two decades of retirement. People who retired with $200,000 to $500,000 in savings, not including their homes, had spent a bit more than one-fourth of their assets, EBRI found. Those with more assets -- $500,000 or more -- had parted with even less, spending down less than 12% of savings over a 20-year span. And about one-third of the retirees in the study increased their savings over the period.

EBRI theorizes that retirees might spend at slow rates because they're uncertain about how much money they'll need, how long it will have to last or what a safe rate of spending might be. But conversations with financial planners and behavioral finance experts suggest that another of EBRIs theories is more relevant than you might think: Some people have a behavioral roadblock that simply makes it hard to spend their money.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Nature and nurture. People are reluctant spenders due to both personality and habit, says Meir Statman, a professor at Santa Clara University, in Santa Clara, Calif. Successful savers have prospered by living below their means, and over time, that frugality becomes a matter of preference—hardwired, sometimes to an excessive degree. "Tightwads are usually disciplined in many other areas of their life," says certified financial planner Ann Reilley Gugle of Charlotte, N.C. "Spending can be associated with weakness or recklessness." Frugality can also develop into a competitive pastime, she says. Picture a millionaire many times over who obsessively clips coupons.

Planners report that inherited money can pose a challenge if heirs feel that they don't deserve to spend money they didn't earn. Those who have always lived modestly may fear that a more lavish lifestyle will change their relationships with neighbors and friends. Some folks just need to adjust to a new phase of life. "I work with a lot of people who have trouble turning their saving plan into a spending plan," says CFP Benjamin Rickey of Yakima, Wash. "Occasionally, they're hoarding money. But most just have a hard time rewiring themselves."

The first step is to find appealing spending options. "I can afford a $300 meal, but it makes me feel stupid -- like the chef is in the back laughing uproariously," says Statman. You may have zero interest in fancy restaurants or luxury cruises. But like Statman, you might discover that flying business class is worth every penny. Or you may gain the confidence to continue driving by upgrading to a car with the latest safety features.

People unaccustomed to and uninterested in spending on themselves often find it more palatable to help children or grandchildren, or to donate to charity. Gifford Lehman, a CFP in Monterey, Calif., has a client who is a retired teacher, whose modest appearance belies a hefty in­heritance. "Her passion is philanthropy, which is a form of consumption for her," Lehman says. A charitable remainder trust will eventually benefit a charity she has selected. It generates income in the meantime, allowing her to make other donations, mostly anonymously.

It helps to set up a spending strategy. See Make Your Money Last Through Retirement for ways to make your income last a lifetime. If you're more than set but spending still troubles you, consider the alternative, says Rickey: "Clients are acutely aware of the risk of running out of money. There's also the risk of dying on a large pile of beans that never got put to good use."

Anne Kates Smith
Executive Editor, Kiplinger's Personal Finance

Anne Kates Smith brings Wall Street to Main Street, with decades of experience covering investments and personal finance for real people trying to navigate fast-changing markets, preserve financial security or plan for the future. She oversees the magazine's investing coverage,  authors Kiplinger’s biannual stock-market outlooks and writes the "Your Mind and Your Money" column, a take on behavioral finance and how investors can get out of their own way. Smith began her journalism career as a writer and columnist for USA Today. Prior to joining Kiplinger, she was a senior editor at U.S. News & World Report and a contributing columnist for TheStreet. Smith is a graduate of St. John's College in Annapolis, Md., the third-oldest college in America.