Many people save their whole working lives for retirement. Others get a late start and hustle to save in their 40s and 50s to build a nest egg. But when the time comes to relax and enjoy what they’ve earned and saved, 50% of retirees feel uncertain about spending their retirement savings, according to a new poll from Corebridge Financial. Additionally, 70% said it’s important that their nest egg doesn’t shrink in retirement.
In contrast to this, 61% of Americans said they view retirement as a time to enjoy themselves. While it’s entirely possible to enjoy yourself without spending money, reducing stress around finances contributes to a better lifestyle, overall.
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A Tale of Two Retirees
Corebridge executive Bryan Pinksy shared a story of how his own mother and his girlfriend’s mother each began handling money differently in retirement.
“My dad passed two years ago, and every time we talk, my mom is so proud about how she hasn’t spent any of the life insurance money,” Pinsky said. “I want her to spend it. She’s creating this new, exciting next chapter of her life.”
On the other hand, his girlfriend’s mother had a decumulation plan for retirement and confidently treated for dinner when Pinsky and his girlfriend would visit. “It’s something she liked to do. We couldn’t argue with her. It gave her joy to be able to spend that money,” he said.
Personal finance expert Jean Chatzky pointed out how the Corebridge survey data supported these real-life examples. “Retirees struggle emotionally when flipping the switch from saving to spending. In fact, 38% of retirees said they have spent less than they wanted in order to preserve their next eggs,” she said.
Pinsky agreed, “One of the statistics that jumped out to me is that only 28% are comfortable with seeing their savings declining in retirement.”
How a Spending Plan Can Shift Your Mindset in Retirement
Both experts said they were surprised by how many people worry about spending money during retirement but, upon closer analysis, it makes sense.
“Think about our life cycle,” Pinsky explained. “Until you get to retirement, you’re working, building up your nest egg, and everyone is always telling you that you need more for retirement. You’re used to that balance going up throughout your working life. But there hasn’t been as much education around spending down or decumulation. It’s a big mindset shift to think about moving from building that nest egg to using that nest egg, and why it’s okay if that balance shrinks over time.”
The willingness to spend money in retirement comes down to knowing you have established your priorities and have a plan.
“The further in advance of retirement you create a plan, the greater chance you have of making that plan work,” Pinsky said.
For women approaching retirement, this is even more crucial, Chatzky pointed out.
“One of the most effective retirement planning strategies for women is scenario planning,” she said. “Women often face unique financial realities in retirement, including longer life expectancies and major life transitions that can affect income and expenses. The goal is to build flexibility into your plan so you’re better prepared for whatever the future may bring.”
“It’s a big mindset shift to think about moving from building that nest egg to using that nest egg, and why it’s okay if that balance shrinks over time.”
Create a Vision for Retirement
Your plan should be based on the reality of your finances, but also on your vision for your lifestyle in retirement.
You may have bucket list items like travel or continuing education on your mind. You may want to support specific charities. You may value time with your grandchildren or extended family.
Starting to plan for retirement in your working years gives you more time to correlate your savings to your expenses.
“With less than 1 in 3 (29%) pre-retirees having a plan for how they’ll withdraw money in retirement, there is a clear opportunity for more people to take that vital step, build their confidence and enjoy their retirements when the future arrives,” Chatzky said. “Over half (55%) of retirees with a spending plan reported feeling highly confident they can manage spending throughout retirement, compared to only 29% without a plan.”
Shift from Thinking About a Lump Sum to Monthly Income
One mistake people often make is thinking of retirement savings as a lump sum rather than what they can draw from that money for income throughout retirement.
“A lot of the education we provide is helping people think about the income they’ll need versus that big pile of money,” Pinsky said.
Your plan should take into account your needs, including monthly bills, and your wants, such as travel and hobbies, that will make your retirement fulfilling.
“The survey showed that confidence increases dramatically when people have a clear retirement withdrawal strategy and understand where their retirement income will come from,” Chatzky said.
How Guaranteed Income Can Help
While Social Security can contribute to retirement income, it won’t be enough for most people to enjoy their retirement. In the survey, 47% of respondents said they’d prefer $60,000 per year guaranteed for life compared to 41% who said they’d prefer a $1 million lump sum at age 65.
Retirees surveyed said that guaranteed income would allow them to spend more on things like travel (69%), home improvements (29%) and dining out (25%).
“[A guaranteed income] provides them that peace-of-mind. They’re not selling stock to go out to dinner. They’re not transferring money out of a savings account to go on a trip,” Pinsky said. “Most people spend more early in retirement. As they get older, they’re not quite as able-bodied and they tend to do less things like travel. Expenditures tend to decline as people age through retirement.”
He suggested a guaranteed annuity with flexible terms as one solution to scale with your income needs.
“An annuity provides that certainty that enables you to do those things for as long as you can, as long as you want, because you have that paycheck,” he said.
Some annuities don’t require you to take minimum distributions at a certain age and offer flexibility in how much you take.
“If you were to pass away before you used that money up, the amount remaining goes to your beneficiary,” Pinsky said.
Annuities: What to Consider
Retirement isn’t a “one-size-fits-all” situation. An annuity may not be the right choice for everyone. Some elements to consider include your overall risk tolerance, the gap between your expenses and expected income in retirement, and what would happen if you did run out of money.
Placing 10% to 30% of your retirement savings in an annuity may allow you to invest other money more aggressively or just face market volatility with less apprehension, Pinsky noted.
“Emotions drive our activity, behavior, and decision-making,” Pinsky said. “Our survey made it very clear that people have a fear of running out of money. The more you can remove emotion from your plan you can live the way you want in retirement.”
