Leadership1 publisher2 min readPublished
Older Americans with $500,000 in assets still balk at spending it, Prudential finds
Prudential's survey of more than 3,000 Americans aged 50 and older found only 39% of those with $500,000 or more feel comfortable spending on enjoyment. For advisers and employers, the data puts the problem in how savings get drawn down once the saving is done.
The Board Room · Leadership desk
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What happened
- Seventy percent of respondents with more than $500,000 would rather leave too much behind than risk running out, compared with just over half of the full sample.
- Across all respondents, only 14% felt comfortable spending each month on enjoyment such as hobbies, travel and dining out.
- Among those with more than $500,000 in investable assets, 44% did not know how long their money would need to last.
- Two-thirds said they would prefer a guaranteed monthly check to a lump sum, and Prudential's experts said the findings should inform the debate on guaranteed income.
Compiled by The Board RoomSomething wrong?How this is made
Why it matters
- decision Employers and advisers have to choose how much retirement planning effort moves from contribution rates to drawdown schedules for people who have already saved.
- cost Retirees pay for underspending themselves, in travel, hobbies and paid help they put off while their balances stay intact.
- exposure People who know their essential costs are covered for life can still underspend on everything above that floor, and advice focused on accumulation does not reach that risk.
- precedent A stated two-thirds preference for a monthly check gives guaranteed-income products a demand case that their sellers can now cite.
More money makes people more comfortable spending, but only up to a point. Respondents with more than $500,000 in investable assets were about 2.8 times as likely as the full sample to feel comfortable spending for enjoyment [1]. Even so, 61% of them were not [2]. Across the whole sample, 42% said they had been unable to balance living in the moment against waiting for life to progress before enjoying it [6].
David Blanchette, head of retirement research for Prudential Financial, said the common assumption is that "savings looks like a mountain where you climb this mountain, then you save this wealth, then you spend it down" [5]. "In reality, it's not a mountain for most people. It's a plateau," he said [15]. Planning that ends at the retirement date covers only the climb. Business Insider reported that anxiety ran higher among pre-retirees, fewer than a quarter of whom had a clear retirement plan [12].
Scott Scovel had saved $3 million but kept working instead of retiring at 58, out of fear of hyperinflation, according to Business Insider [14]. "For decades, I'd heard retirement advice encouraging me to 'save more!' But no one explained that at some point, I'd need to radically shift my lifestyle and 'spend more!'" he told the publication [16].
A skeptic would say this caution is rational. Nearly half of respondents hesitated to spend because they doubt Social Security will still be available [7]. More than two in five said inflation had made them more cautious, and a third cited long-term care costs [7]. Those risks are real, and weighing them is reasonable. The same survey found that almost half knew they could cover their essential living expenses for life [11].
A drawdown plan can settle how long the money has to last. Guilt is a separate barrier in this data. Nearly two-thirds of respondents felt guilty spending on entertainment and adventures, rising to 86% for purchases such as a beach house or a sports car [8]. About two-thirds found it hard to justify paying someone for housekeeping or gardening [9].
The guaranteed-income recommendation comes from the company that ran the survey [c1, c13]. I think the remedy fits the problem the data describes, because a monthly check sets a spending horizon by design. The results as reported do not compare how freely people with guaranteed income or a written drawdown plan spend against people with neither.
What to watch
- Whether Prudential releases cross-tabs comparing spending comfort among respondents with guaranteed income or a written drawdown plan against those without.
- Whether the 39% comfort figure for the $500,000-plus group moves in the next Retirement Pulse survey.