RETIREMENT INSIGHTS

To spend or not to spend?

Dec 11, 2024 | Anne Ackerley, Nick Nefouse CFA
Man strolls down a path bordered by two hedges, illustrating the importance of both spending and investing during retirement.

Key points

  • 01

    Dipping into the nest egg

    On average across all wealth levels, our research found that most current retirees still had 80% of their pre-retirement savings after almost two decades of retirement.

  • 02

    6 stand-out findings

    Why do some retirees not spend down their assets in retirement? We identified 6 key themes and drivers of retiree spending behavior.

  • 03

    Fear of the unknown

    Worries about health and associated costs in later life may compel retirees to “husband” assets, favoring financial security over maximizing spending.

Nest eggs will need to work harder

With the confluence of declining pension incomes and longer lifespans, the strong retirement asset retention seen in this last generation of retirees will not likely be repeated for much longer. Future retirees will need a greater percentage of overall income generated from retirement assets—meaning nest eggs will need to work harder for longer. This is not inherently a bad thing, but it will require a more proactive and focused effort all around: improved savings rates and consistent investing, sound guidance and innovative investment solutions to manage risk and income needs.

In order to better understand why retirees are either spending down assets or not, BlackRock engaged Greenwald and Associates to conduct 19 in-depth interviews and survey 1,510 retirees in February 2018 to seek deeper insight into how retirees really think about spending and investing in retirement to better understand the motivations and biases driving the numbers.

Six key themes

We identified six key themes and drivers of retiree spending behavior that emerged from the findings and offer “lessons learned” to help advisors advance conversations at both the plan sponsor and plan participant levels.

1.Retirees prefer to keep their assets untouched

Very few want to tap into their savings to finance their spending in retirement, especially those with high levels of assets who are very content to leave all or a significant amount of savings unspent.

Only one in four feels they will have to spend down principal at all to fund their desired lifestyle. For most, retirement is not a time to live it up, it is more important to feel financially secure.

1 in 4 feel they will have to spend down principal

2.Retirees more often plan to spend consistently—increasing with age

43% plan to consistently spend throughout retirement, however 25% do not have a spending plan. One in six plan to spend more right after retirement when healthy, typically for travel, and then cut spending later.

An equal number plan to purposely curtail spending early in retirement to save assets for later in life where there is fear of higher health care or long-term care costs. After several years into retirement, the desire to spend consistently increased to 61%.

43% plan to consistently spend throughout retirement.

3.Retirees retain their accumulation mindset

Five years into retirement, less than one in five have set asset level goals for the end of life. Among those with goals, over half aim to grow their assets, and there is almost no planning for systematic spend down of assets nor any asset level planning at all. If assets do decrease, there is a clear desire to keep assets above a certain minimum level.

For many, saving and accumulation habits die hard, and spending is hampered by deep-seated fear that they may experience a critical financial or medical shock or otherwise outlive their money.

For those with goals, over half want to grow assets.

4.Retirees with pension income less likely to spend down, because they don't need to

We found significant differences in spending and overall financial optimism between retirees with defined benefit pension income compared to those without such traditional pension benefits.

Those with pension income are more likely to have seen their assets increase and be optimistic about the future — while those without pension income are more likely to experience financial anxiety and more likely to have spent down principal to cover monthly living needs. Unfortunately, with pensions soon becoming a thing of the past, we will see fewer and fewer people retire with this source of income.

Retirees with pension income more optimistic, 25% likely to touch assets for expenses.
Retirees without pension income less optimistic 55% likely to touch assets for expenses.

5.Men and women approach finances in retirement differently

Retired women report higher levels of financial worry and are more risk averse than retired men. As a result, men are more apt than women to spend consistently throughout retirement (48% vs. 38%) and allocate their investments differently.

Compared with men, women find financial setbacks or a major investment loss more difficult to cope with and are more likely to expect their assets to decrease. For women, these fears are well-founded, as they often live longer and typically enter retirement with lower asset balances due to pay gender differences and income gaps due to child-rearing and elder care.

Men are more apt to spend consistently. 48% men and 38% women.

6.Recent retirees are less optimistic

Recent retirees report higher anxiety and pessimism than those retired for more than ten years, particularly around future health concerns. Additionally, major investment loss is more concerning to recent retirees.

One in three recent retirees say it would be emotionally difficult to cope with an investment loss compared to only one in four of those who have been retired for longer. By some metrics, recent retirees are at a disadvantage, with more carrying debt than earlier retirees.

Recent retirees report higher anxiety than those retired longer