Data & Research May 16, 2017

Are Older Americans Being Too Cautious With Saving and Spending?

Despite retirement industry suggestions that Americans should draw down less income in retirement, a paper suggests older Americans are not spending enough to live their retirement dreams.
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Innovations in medicine and technology have extended human life by over 30 years since 1900, which has helped to double the amount of time the average adult now spends in retirement compared to several decades ago, notes Matt Fellowes, CEO of United Income in a report.

Despite retirement industry suggestions that Americans should draw down less income in retirement, Fellowes’ paper suggests older Americans are not spending enough to live their retirement dreams. “Longer lives and retirements have ushered in an extraordinary opportunity for older adults to live out life-long dreams, embark on second careers, or use their experience and knowledge to give back to the next generation,” he writes. “Yet, our confidence about future economic growth and our own financial wellbeing wanes as we age and in some cases overly so, which may be on reason why spending deaccelerates for aging households as they seek to maintain wealth at the expense of income preservation.”

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Fellowes suggests the “data signify that special care needs to be taken to educate age cohorts about their biases to avoid investment portfolios and financial plans that are too conservative and become self-fulfilling prophecies of economic problems.”

United Income analyzed consumer sentiment and spending data from the University of Michigan that was commissioned by the Social Security Administration and U.S. Commerce Department, among other federal agencies, and found adults become less optimistic about future economic growth and financial health as they age. In 2014, for instance, adults older than 64 were more than 40% less optimistic about their future financial health, more than 30% more skeptical about future economic growth, and 40% less convinced of future stock market increases, compared to adults younger than 35.

In addition, the analysis showed the average older adult felt like the stock market had less than a 50% chance of increasing every year between 2002 and 2014—even though most major stock market indexes increased in all but two of those years. By contrast, every other age group felt like the stock market had more than a 50% chance of increasing in most of those same years.

“Perhaps as a reaction to declining financial optimism, the average adult 60 years or older will trim their spending by about 2.5% every year, or by about 20% over a 10-year period. We also find that spending drops faster for people in their 80s compared to those in their 60s and 70s, falling by about 30%, on average, over a 10-year time-period. In addition, spending volatility grows as we age—increasing from an average of 6% variance for adults in their 60s to 9% for people in their 70s or older,” the paper says.

The analysis also found that wealth and investments generally grow in value as people age. The average retired adult who dies in their 60s leaves behind $296,000 in net wealth, $313,000 in their 70s, $315,000 in their 80s, and $238,000 in their 90s.

The full report, “Living Too Frugally? Economic Sentiment & Spending Among Older Americans,” is here.

Client Service May 16, 2017

Divorce Derails Retirement Outlook for Many

“Although more women are taking the reins of their household finances, divorce and widowhood remain significant roadblocks to achieving true financial security,” according to a new study from Allianz Life.
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The latest update of Allianz Life Insurance Company of North America’s ongoing study, “Women, Money and Power,” suggests the majority of women who went through a divorce say the effect “created a personal financial crisis.”

In fact, it is a strong majority indicating as much: 64%. Nearly an equal amount (59%) noted that losing their spouse/significant other due to divorce was a real “wake-up call” for them from a financial standpoint.

“Although fewer widowed respondents (43%) said losing their spouse due to the spouse’s death created a financial crisis, a full 60% felt the loss of their spouse served as a financial wake-up call,” the study explains.

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Interestingly, these responses came “despite the fact that the majority of women in the study (51%) claimed they are the chief financial officer of their household.” The findings are also somewhat surprising given that more than two-thirds of women said they currently feel financially secure, with that number rising to 73% for married women. Evidently married couples rely strongly on each other to feel financially secure.

“It’s clear that no matter how confident women feel about their current financial situation and ability to manage money, divorce and/or becoming a widow can create turmoil that has lasting effects,” observes Allianz Life Senior Director of Consumer Insights Deb Repya. “It’s important that women play an active role in every aspect of their family’s financial planning so they are better prepared for whatever challenges the future may bring.”

NEXT: Worries about an uncertain future 

Asked what worries keep them up at night, more than a third (34%) of women in the study identified “running out of money in retirement” as their top concern.

“Not surprisingly, this fear was much higher for divorcees and widows with half of all divorced respondents and a full 40% of widowed respondents ranking it as their biggest worry,” the study explains. “Furthermore, divorced women said they struggle the most with saving enough to meet their goals, with 65% agreeing it’s hard to save for both short- and long-term goals because they live paycheck to paycheck. This response was significantly higher than that from either single (51%) or married (47%) respondents.”

Allianz warns only 30% of women in the study reported using a financial professional for guidance, “but 75% of those who do say they wish they had done it sooner.” Naturally there is an opportunity for advisers to better serve this client segment.

“While connecting with a financial professional can help instill confidence to deal with future challenges, these relationships can also be problematic, as many women say they feel left out of the financial planning conversation,” Allianz adds. “More than half claim the professional treats their spouse/partner as the decisionmaker, and this happens regardless of whether the financial professional is male or female.”

The study concludes that, even for members of married couples, it is best not to wholly depend on others for financial security.

“It’s never too early to start building up your financial acumen, whether that means researching financial topics on your own, getting more practice by taking on increased responsibility at home or communicating the importance of financial planning to younger family members,” Repya says.

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