Dear Prudence – Are Well-Funded Retirees Not Spending Enough?

Dear Prudence – Are Well-Funded Retirees Not Spending Enough?

Down the halls of retirement planning offices, the air has been ringing with warnings: the longevity crisis is here.

You may live to 100! Act now! You’ll need money for travel and long-term healthcare, a new car or a coat, or open-heart surgery. Laggards in planning, ponder the life of a sans-pension oldster! Don’t say we didn’t warn you to save, or offer you enriching investments at a reasonable fee.

Worry, ponder, and then strategize – with the help of the experts. That’s how our business works – retirement planning, estate management, life insurance, the whole shebang – because all of life works just so. Yet the best of ideas can be taken too far.

I know some women – well, sure I do. They’re a bit older, like me, but still hotly engaged in life.

They all seem to own small businesses. One has a horse farm; her sis publishes a lifestyle magazine; a third manages a financial communications firm; yet another – well, she’s a famous billionaire; enough said. She did jail time and from what she says, billions aren’t worth the headache. I’ll take her word, because how would I know?

Small-time success is the sweetest, say the ladies. When I’m home, in upstate New York, we’ll take in a lunch or dinner; it makes one a might peckish, being surrounded by three or four Graces. It’s troubling, though; they never bother with menus. Always the same order: grilled fish; salad; diet iced tea; no dessert. I order the curry chicken salad and onion rings; maybe calamari and lamb chops, and I leave room for dessert – one, at the least.

Always the grilled healthy choice and rabbit chow! Yes, they are healthy. But at these meals, I ever hit my cue: don’t be so prudent, Prudence. Look at these buttery mashed potatoes… can’t you gals lighten up just once or thrice? For a Catholic, I’m pretty devilish; no pitchfork needed, just knife and fork.

Would it spoil some vast eternal plan to let go on occasion? My Jupiterian waistband might dissent, yet… mealtime is sunny-ray-of-joy time, and with the Sun of our lives past meridian, we should relax just a tad.

My French doctor in Moscow ever enjoined: “People underestimate the role of happiness in good health and longevity.” Will you live to 100 by avoiding the things that make living that long worthwhile? Is that a wise, prudent course?

The thought crossed my mind after perusing new research from JPMorgan Asset Management. It’s entitled, “Mystery no more: Portfolio allocation, income and spending in retirement.” The company sees it as a landmark study in understanding how we manage our incomes in retirement.

Too many retirees among those who’ve diligently saved and invested are too frugal in their spending, particularly early on in the no-labor zone, finds the study.

One other thing JPM discovered was that most retirees don’t touch their IRAs until the required minimum distributions (RMDs) kick in at age 72. The RMD limit was once 70½, but the Secure Act of 2019 raised it to give Americans, chronically unprepared for retirement, more time to work and invest. Congress is now mulling a boost to age 75. This may work out for underfunded pre-retirees, but for those in retirement, it might stifle their joy even harder.

That’s because retirees are using the RMD limit as “guidance” for when to start tapping their nest eggs. Let’s say you retire at my age – 62. Instead of withdrawing some dough from your IRA and hitting the road to Timbuktu – a vista I long to see – you say to yourself, ‘No, better wait until I see 72 candles cake-side’. I slap my forehead, just for you.

I remember graffiti from 1982: ‘Why wait? Riot!’ Retirement spending is like that: hesitate, and the opportunity for happy mayhem can vanish.

Let’s state it: the RMD threshold is not a spending guideline. Retirement planning is a many-headed hydra, but planners tend to focus on the main tasks: growing accounts and keeping them stable. Yet now we’ve all learned it, thanks to JPM: spending needs solid planning, too.

I turned up another sharp source, a paper by David Blanchett and Michael S. Finke: “Guaranteed Income: A License to Spend,” released June 28. These two boffins independently confirm JPM’s research: fear of longevity risk is making rational retirees loath to spend in early retirement. OK, we get it – we warned them about living too long, going broke, and they listened. But retirees are missing chances to enjoy life and letting their everyday lifestyles shrivel up. Prudence needs to learn her limits.

Finke and Blanchett turned over a stone of interest: retirees with proportionally more guaranteed income – Social Security, annuities; even that rare bird, a company pension – spend more than those who depend mainly on investment income. It’s a matter of proportion: the more income one draws from guaranteed sources, the more likely one is to spend and enjoy it.

At the same time, at retirement, a step-down in lifestyle is normal. Older people can make do with a smaller house, a less-luxurious car. I’m not retired, yet as I have aged, my lifestyle has simplified; it suits me. Fine and dandy, but I’d hate for fresh-minted retirees to say, “Forget Paris. What if we get sick later on?”

My sister Annie worked as a geriatric nurse. Many of her patients were wealthy, savvy with a sawbuck, comfortably set for retirement – that halcyon age for living out the dreams they’d deferred in their driving career years.

For those of my sister’s acquaintance, it hadn’t worked out; severe illness had laid them low. Annie specialized in cancer care.

“Don’t wait to live,” her patients enjoined. “When you get sick, it’s too late.” Hale and hearty retirees, you should be making hay in the autumnal sunshine, living leisurely dreams, not pinching pennies. If you’ve recently retired or are just on the cusp, it isn’t too late to whip up a spending plan to live well today, be secure tomorrow.

We’re ready to hear from you, dear Prudence; so open your eyes, and greet a brand new day.

The Time Bomb’s Last Seconds – Eleventh-Hour Responses to Biden’s Tax Boost High Anxiety: A $3.5 Trillion Budget – and Higher Taxes for the Wealthy – Draw Near