REPORT: retirees are hoarding cash, but why?

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A new study reveals that many retirees in the United States are continuing to save beyond retirement and cutting their spending due to fear of the unknown.

According to Bloomberg, the millions of retired Americans who are not spending have “put the U.S. in a perverse situation. Younger generations aren’t saving enough as their income slips further behind previous generations. Older Americans meanwhile sit atop unprecedented piles of assets built through stock market and real estate booms. Yet these retirees, or at least the affluent ones, aren’t spending it.”

According to an analysis of University of Michigan survey data by financial planning software company United Income, the average American over the age of 60 cuts spending 2.5 percent per year, or about 20 percent over a 10-year period.

Matt Fellowes, CEO of United Income, claims that millions of Americans are living too frugally, entering their 80s wealthier than they were in their 60s and 70s—on average and adjusting for inflation.

This also means that Americans are dying with more money than they used to, creating more inherited wealth. An analysis performed by United Income compared the estates of people who died between 2000 to 2002 with those who died between 2010 to 2012. Despite just having lived through a financial crisis and worldwide recession, the latter group’s estate values were 130 percent higher.

“We have to get people comfortable with enjoying their retirement and spending their money,” Fellowes said.

Other studies have revealed the same phenomenon. A 2016 study published in the Journal of Financial Planning discovered that the wealthiest fifth of U.S. retirees were spending 53 percent less than they could have. Conversely, the poorest 40 percent spent more than they safely should, with the median retiree spending approximately 8 percent less than recommended.

Researchers studied possible reasons why affluent retirees might be so hesitant to spend, including the desire to leave an inheritance or concerns about future medical expenses. As it turns out, the most cited reason was the fear of running out of money too early.

“We found that even in a worst-case scenario, they could have spent more,” said Texas Tech University Professor Christopher Browning, one of the study’s authors. “There have to be other explanations,” he said, asserting that the reasons are not rational.

The hesitation to spend could be attributable to habit. Browning notes that something strange happens when people retire. Because they are not receiving a regular paycheck, retirees become fearful of spending. They abandon goals set prior to retirement, as well as spending plans, because they are afraid to see the balances on their retirement accounts drop, even by a small percentage.

Browning advises financial planners encourage their most frugal clients to make big purchases–such as a second home or an expensive car–before they retire, and utilize their savings. The goal, Browning adds, is “training people to spend.”


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