Do Not Be Afraid to Spend During Your Retirement

OCTOBER 19, 2018
Conor Killmurray
There are many different ways you can build your retirement fund, and there are even more ways you can spend it once you retire. You can finally travel out of the country, settle down someplace quiet, or spoil any grandchildren you might have. However, according to a new study from investment firm BlackRock, the majority of current retirees had 80% of their pre-retirement savings remaining after nearly 20 years of retirement.retirement savings

That seems counter intuitive to the idea that you save as much as you can leading into retirement, so you can then use that money throughout retirement how you see fit. This trend, however, is rooted in retirees feeling scared about their future due to negative financial outlooks and the inability to shake their savings mindset.

More reasons for negativity

78% of recent retirees reported being anxious and pessimistic about their future retirement, particularly when it comes to future health concerns. For retirees who are more than a decade into retirement 65% polled reported the same concerns.

As the BlackRock study points out, more recent retirees feel anxious and pessimistic about their future partially because they are carrying more debt than later retirees. This is also true for future retirees as medical school students are looking at increased debt, along with a lack of knowledge on how to handle it.

Current retirees and future retirees also won’t see the same level of social security benefits. While social security funding won’t run out, the payout won’t be same in the near future.

Some retirees are able to get a pension from their last place of employment. Only 25% of them believe they will have to use their assets in an emergency, whereas, retirees without a pension income are more likely (55%) to touch their assets for expenses.              

The accumulation mindset is hard to shake

More than half of retirees would rather they keep their money untouched and grow it in case they have to use it.

On the other hand, 1 in 4 retirees would simply rather their assets stay untouched. Only 43% of retirees in BlackRock’s study reported wanting to spend consistently in retirement. And an equal amount are planning on purposely cutting their normal spending in fear of higher healthcare costs.

You can still spend

For the majority of people, being cautious and pessimistic about the future is their preferred strategy. Yet, being proactive about your retirement is increasingly becoming the new trend and there are simple ways to help avoid feeling fearful of your future retirement before you even retire.

Morbidly, you can use the Social Security Administration life expectancy calculator to see how many extra years you might have after retirement on average. This can help you shape a retirement plan based on how many years you expect to be retired, instead of worrying about increasing your savings with an undefined timetable.

You can also save for each stage of your retirement and focus on categorizing your anticipated needs. This idea comes from the Age Banding model, by Somnath Basu, that suggests calculating anticipated expenses for such categories like healthcare, leisure, and basic living needs.

Then take those expenses and extrapolate them for roughly 30 years of retirement. By doing this you will get an estimate on what you need to live your ideal life. That way, when retirement rolls around, you don’t have to focus on saving everything for a possible healthcare scare.

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