THE PSYCHOLOGY OF RETIREMENT INCOME: FROM SAVING TO SPENDING

The narrative of a miserly, Scrooge-like figure hoarding his wealth for years instead of enjoying his retirement might seem unbelievable—but unfortunately, it isn’t relegated only to fiction. It’s a cold reality for many retirees.

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According to the Life Cycle Hypothesis, this shouldn’t need to happen. A retiree who is financially prepared for retirement should keep a consistent income in retirement, and her overall consumption should not change.

WHO IS STRUGGLING TO SPEND THEIR RETIREMENT INCOME?

About 25% of retirees fall into the camp of people who decrease spending during retirement.

Moreover, research suggests this problem may worsen. Researchers found that the issue was most pronounced with individuals who use their own savings for retirement income—whereas people with guaranteed sources of income, such as annuities, Social Security, and pensions, were more likely to spend their income.

WHY DO PEOPLE HAVE TROUBLE SHIFTING FROM A SAVING TO SPENDING MINDSET?