The host asked how common it is for retirees to live frugally even when they don't need to. Chatsky cites research from the Employee Benefit Research Institute and gives two reasons: spending down is a complicated puzzle across account types, and it is emotionally hard.
…She was very, very willing to spend the income that she had. She was willing to spend the Social Security and the pension, but she did not want to see the balance in the retirement account go down. And when she passed away, she actually had more in that retirement account than she started with.
Well, yeah, it's not the case for everyone, of course, but how common is it for retirees to live frugally, even if they don't need to?
It's fairly common. Ebri, the Employee Benefits Research Institute, has done some looking into this. And when they looked at a group of retirees with about $500,000 in assets, not counting the equity in their homes, 20 years down the road, they had only spent 12% of their money. And I think it's for two reasons. The first is that spending down is a fairly complicated math puzzle. By the time you get to retirement, you're likely to have money in taxable accounts, tax-deferred accounts, and maybe some tax-free Roth accounts. And figuring out how to get the money out of those accounts can all be pretty dodgy. But the emotional lift of it all is, I think, even more tedious and more problematic because we've spent such a long time working for many of us toward a particular retirement number that when we start to spend and when we see the numbers start to dip, it doesn't feel like we're using the money. It feels like we're losing the money.
Is this something people have always struggled with? Or is there something else happening in the economy now that's made it more common?
It's a 401k phenomenon. If you think back a couple of generations, many more people had pensions.
Right.