Retire Those Fears

Meir Statman

THE DRUMBEAT OF “retirement crisis” is much too loud. While 54% of retirees believe there’s a national retirement crisis, just 4% describe their own retirement situation as a crisis. And whereas 90% of recent retirees are able to spend freely, within reason, or can cover their needs and also engage in some discretionary spending, only 10% say that they’re on a strict budget.

Concern about running out of money is regularly exaggerated by inflated estimates of life expectancy. Social Security tables indicate that, on average, only one in 10 of today’s 65-year-old men will live to age 95. Moreover, older people spend less, in large part because physical limitations make them less able to spend and because they’re less inclined to spend for personal reasons.

Spending at age 84, adjusted for inflation, is 23% less than it was at age 62 among college-educated American couples. Spending on movies, theatre, opera and concerts declines by more than 50% between the ages of 60 and 80. Spending on hearing aids, nursing homes and funeral expenses increases by more than 50%.

We need not feel guilty about spending our hard-earned savings on ourselves. I wrote an article for TheWall Street Journal on the subject, prompting one reader to comment: “During my career I was a very conscientious saver and investor. I always maxed out my 401(k) contribution and put a large percentage of my salary and bonus into a deferred compensation program. I have had a difficult time changing my mindset from a saver to a spender. This article helped me make that mental transition. The first thing I did was to go out and get fitted for a new set of PING golf clubs and I didn’t feel guilty about it!”

Some people derive no pleasure from spending on themselves. Another reader wrote: “If one has never derived pleasure from material things, why would that change in retirement? A cup of coffee and a walk on the beach at dawn and I’m happy. The psychic income from being over-saved has value.”

I empathize with this reader. I, too, like a cup of coffee and a walk on the beach, even if not at dawn. But why not share “over-saved” money with family and the needy? One reader who has embraced this lesson wrote: “I learned from my mom that the greatest joy in life is giving to your family. She would give something to all her six children, their spouses, the grandchildren, the great-grandchildren, and all their spouses on their birthdays, anniversaries, St. Patrick’s Day, Valentine’s Day, and no reason at all. If you want the closest thing to eternal life, try this.”

Another wrote about balancing spending on himself, his family and the needy: “I am deriving pleasure from assuming the strategy of ‘I am through saving. Now I am spending.’ Judiciously, to be sure, but nevertheless with a view to obtaining satisfaction. Thus, my wife and I have made some long-desired renovations to our home, plan to schedule at least two major overseas vacations a year, supplement our children’s financial needs at a time when they need it and when I can see the result. I devote more time and financial support to charitable work. I continue to spend time exercising at a local athletic club, now free thanks to Silver Sneakers. I read more, and indulge in my love of classical music. All of this gives me significant satisfaction.”

My wife and I have rebalanced our spending on ourselves, our family and the needy over the years. We have contributed a substantial amount toward the purchase of a house by our younger daughter, we bought a house for our disabled older daughter, and we’ve contributed much to the needy and to support the causes that matter to us.

One important rebalancing point occurred in late 2016, when United Airlines failed to upgrade us from economy to business class on either leg of a long trip from California to Israel. It dawned on us that we’re sufficiently old and sufficiently well-off to afford business class on long trips, and this is what we have done ever since. And we have increased substantially our contributions to the needy and to support the causes that matter to us.

One reader faulted me for failing to “address preserving capital for the next generation, which is a priority for some of us octogenarians.” But why not give money to the next generation with a warm hand rather than with a cold one?

I end with a story about the so-called dangers of giving adult children money without asking them to pay it back, a danger emphasized by some financial advisors who approached me after a conference presentation on the subject. One advisor stood aside, waiting until all the others had left.

“I burst out crying when you said, ‘It is better to give with a warm hand than with a cold one’.” Indeed, she had tears in her eyes when she spoke to me. It turned out that she lent her son some $27,000 for college tuition and now demanded that he pay her by the agreed schedule. She reasoned that paying by schedule would benefit her son, teaching him financial responsibility.

But the son was now financially squeezed, at the beginning of his career, lacking even money to buy his girlfriend an engagement ring, and his mother’s demand soured their relationship. The mother had more than enough to forgive the loan without imposing any hardship on her, giving with a warm hand rather than with a cold one. I hope this is what she did that day. And I hope that she shares her story and lessons with her clients.

Meir Statman is a finance professor at Santa Clara University and a leading expert on behavioral finance. His books include Finance for Normal People and What Investors Really Want.

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