Older Americans Too Cautious?

Innovations in medicine and technology have extended human life by more than 30 years since 1900, which has helped to double the time the average adult now spends in retirement compared with several decades ago, notes Matt Fellowes, CEO of United Income, in a report.

Despite the retirement industry counsel that Americans draw down reduced income in retirement, Fellowes’ paper suggests older Americans are spending too little toward realizing 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 well-being wanes as we age and, in some cases overly so, which may be one reason why spending decelerates for aging households as they seek to maintain wealth.”

According to Fellowes, 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 (SSA) and U.S. Commerce Department, among other federal agencies, and found adults grow less optimistic about future economic growth and financial health as they age. In 2014, for instance, adults ages 64-plus were over 40% more pessimistic about their future financial health, over 30% more skeptical about future economic growth, and 40% less convinced they would see future stock market increases, compared with adults under 35.

In addition, the analysis shows, the average older adult believed 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 believed the 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 [his] 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 [with] 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 his 60s leaves behind $296,000 in net wealth; that climbs to $313,000 if he dies in his 70s.