A study from Ameriprise shows that 68 percent of retirees haven’t begun to withdraw their money, aside from taking required minimum distributions.
Nearly seven out of 10 retirees are not withdrawing money beyond their required distributions and the reasons might be because they don’t have enough money or they are simply afraid they don’t.
Retirees blame tax complexities and concerns about outliving their money for their reluctance to splurge. Many say they’re counting on Social Security to mitigate the need to take too much money out of their personal retirement accounts.
But one big fly in the ointment is an obvious issue – too many Americans are significantly underfunded when they reach retirement age. According to the Ameriprise study, 25 percent of survey respondents say they fell short of their savings goal by a whopping $250,000.
A Vexing Issue
The study, which tracked 1,000 U.S. retirees who mainly left the workforce in their 50s or 60s, shows that older Americans are so anxious about their financial situation, that spending money has become a vexing issue for them.
The fear of not having enough cash in retirement for a 30- or 40-year run is a big concern for retirees. To change that, some advisors are adding new products to their portfolio.
Doug Mitchell, owner of Auburn, Ala.-based Ogletree Financial Services, said, “As advisors, we need to introduce products such as annuities and single premium life insurance or asset-based long-term care insurance into their portfolios.”
Income Versus Investing
After devoting their whole lives to saving, retirees are having a hard time becoming spenders again.
What retirees need is a roadmap.
Michael Foguth, founder of Foguth Financial Group, in Brighton, Mich., believes an income plan could help assuage retirees’ long-term money concerns. Most of our clients are not spending as much money as they could in retirement due in part to the fact that they don’t have an income plan, they only have investment plans,” said Foguth.
Investment plans are great, but they don’t give the retiree a roadmap of how much money they can spend safely and not run out at a certain age, Foguth said. An income plan can provide this information to the client.
“This helps us show the client what their income will look like before they even enter retirement. This, in turn, gives them the peace-of-mind knowing what their retirement income could or should look like each and every year.”
Other investment professionals say psychology plays a big role in the reluctance to spend money in retirement, with “savings addiction” an emerging reality.
Once individuals hit the retirement stage, they are dealing with something that they have not had to witness in a long time; money actually leaving the account.
Ashley Agnew, associate director of relationship development at CenterPoint Advisors, in Needham, Mass, said, “There is a psychological anchoring to the values making it difficult to spend during this natural distribution stage,” she said. “The real fear comes simply from living with more money going out than is coming in.”
In the end, what skittish retirees need from advisors on the spending issue is some tough love and a good push.
“I have one family that has more than enough saved for retirement,” said Scott G. Eichler, an investment advisor at Newport Wealth Advisors, in Newport Beach, Calif. “They were very concerned about taking a one week vacation and spending any money. We’ve worked together for years and I exclaimed in our last quarterly meeting, “You can go on a six month, luxurious vacation without making a dent in your savings! Go!”
Eichler said he pulled out a series of retirement income illustrations to prove he was correct. “They finally took the plunge and went to Europe for three weeks,” he said. “They can’t wait to go again.”
Brian O’Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC’s Guide to Creating Wealth. He’s a regular contributor to major media business platforms. Brian may be contacted at firstname.lastname@example.org.
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