March 29, 2021

Here’s Why So Many People Intend to Die With Money in the Bank

There’s a school of thought that you should spend down all your assets in retirement…

There’s a school of thought that you should spend down all your assets in retirement and “bounce the check to the undertaker,” as Michael Bloomberg, founder and majority owner of Bloomberg LP, our publisher, likes to say. But not many Americans subscribe to that school of thought. A fascinating survey from the Employee Benefit Research Institute explores how people feel about spending in retirement. It doesn’t fit with finance theory. “There’s just something we’re not getting quite right in understanding how people navigate retirement,” Lori Lucas, the president and chief executive officer of EBRI, said March 24 in announcing the results.

As this first chart shows, only 14.1% of respondents think they’ll spend down all their assets. If you add up the three left-most columns, 57% plan to grow their assets in retirement, leave them untouched, or spend down only a little. The survey by EBRI, a nonprofit research group, was conducted in September and covered 2,000 Americans ages 62 to 75, 97% of whom were retired. So U.S. undertakers don’t need to fear bounced checks.

The second chart zeroes in on the people who said they don’t plan to spend down their assets in retirement. They were asked why not, and multiple responses were permitted. Three of the answers seem like different ways of saying the same thing: “saving for unforeseen costs,” “afraid of running out of money,” and “once assets spent, cannot be recovered.”

Which of the following are reasons you plan not to spend down your assets in retirement?

The most intriguing answer in this second chart is “makes me feel better.” In standard finance and economic theory, saving for its own sake makes no sense because the only purpose of money is to pay for things. You feel better when you spend, not when you refrain from spending. Clearly, though, a lot of retirees find satisfaction in the very act of saving. This third chart gets at that:

Saving as much as I can makes me feel happy and fulfilled.