Study Finds Retirees Often Too Conservative with Savings, Impacting Enjoyment

A recent study by the Alliance for Lifetime Income reveals that many retirees in the U.S. tend to be overly conservative with their retirement savings, often spending only 2% annually, which is significantly below the commonly advised 4% withdrawal rule. This cautious approach is largely influenced by loss aversion, a psychological tendency to avoid losses more than seek gains, leading retirees to rely more on lifetime income sources like Social Security, pensions, and annuities rather than tapping into savings. The study highlights the three distinct retirement phases: go-go years (early 60s), slow-go years (70s to early 80s), and no-go years (mid-80s and beyond). The go-go years, marked by higher energy and opportunity for activities such as travel, justify a higher spending rate to enjoy retirement experiences while physically able. Financial planning experts suggest retirees should differentiate spending strategies across these phases, ensuring essential living expenses are covered by stable income sources and allocating additional funds for discretionary spending during the go-go years. Advisors are encouraged to conduct annual 'joy audits' with retirees to combat overly conservative spending habits and promote a fulfilling retirement experience. The findings underline a need for a balanced retirement strategy that safeguards financial security while also emphasizing quality of life during retirement's earlier and more active years.