Most People Never Spend All Their Retirement Savings—Here’s Why

It’s a good problem to have: having too much money saved for retirement and having additional money to leave to your heirs. Here’s a look at the types of people who are saving a lot in their lifetimes and how you can be one of them.

Who Saves the Most?

A National Bureau of Economic Research study reveals what types of people work and save the most.

According to the study, married men work in the labor force and save “substantially” throughout their lifetimes. Married women’s time in the labor market peaks in middle age.

Single men show a decline in working in the labor market and in their savings after age 40 compared with men who are married. Single women work less than single men and accumulate less wealth.

Both single men and single women without marriage prospects increase their participation in the labor force and increase their savings from an early age.

The study also found that couples have more than twice the wealth of singles at all ages and that a person’s wealth decreases only modestly after retirement.

Small Decrease of Wealth After Retirement

The study reveals that people only spend a modest amount of their wealth after they retire, and this differs from a life-cycle model. Wanting to save is one of the reasons why people have a smaller drawdown of wealth after they retire. The study found that, in particular, saving for medical expenses and saving money to bequeath it when they die are two main saving motives for those studied.

Another factor to consider when looking at modest spending in retirement is the lifespans of wealthy people. They live longer and retain their greater wealth as they age.

How to Save More Than You Need for Retirement

If you’re interested in leaving behind money to heirs or just want an extra cushion of money in retirement, consider these tips to save more for your later years.

• Start saving early. “It’s not only valuable for the sake of establishing a habit, but small amounts grow astronomically with compounding interest over the decades,” said Samantha Mockford, a certified financial planner at Citrine Capital.
• But starting later is OK. “If you feel like it’s ‘too late’ to have time on your side, think again,” Mockford said. “Do what you can in your current season of life.”
• Be aggressive. Don’t be afraid in investing in riskier assets, like stocks, if you’re 10 or more years away from retirement. “This means that the account value’s spikes would be higher, and dips would be lower, but the overall upward trend would be steeper over time,” Mockford says. “As you near retirement, invest your retirement savings more conservatively.”
• Automate retirement savings. Have money from your paycheck go straight to your Roth IRA or traditional IRA. “Make a budget and set your paycheck deferrals to a percentage that is challenging but realistic,” Mockford said.
• Maximize tax-advantaged accounts. “Increase your 401(k) or 403(b) contributions, put more money in your Roth IRAs, contribute to an HSA if possible, and open 529s for your kids. The earlier in life you do this, the better,” said Tom Arasz, lead financial advisor at Bmore Financially Fit.
• Work with a financial planner. If you aren’t confident in choosing investments on your own, enlist the help of a fiduciary financial planner to steer you toward a successful retirement.

How to Spend Down Retirement Savings Responsibly

Once you’ve made it to retirement with more than you think you’ll need, here’s how to manage your hefty nest egg.

• Make conservative choices with your investments. “Invest more conservatively while drawing down your accounts—that means a higher proportion of bonds to equities in your diversified portfolio,” Mockford says.
• Establish a new budget. Rethink your spending now that you are in retirement. “Make a spending plan based on your values that includes your regular expenses—like food and clothes—but also irregular expenses—such as travel, replacing your car every set number of years, hobbies, spoiling grandkids, etc.,” Mockford says. “Adjust this number for inflation each year.”
• Give to charity from your IRA. “If you make regular donations to a registered nonprofit, consider making those same donations directly from your IRA. These ‘qualified charitable distributions’ count toward your annual required minimum distribution, and it is better for you and the charity’s bottom line,” Mockford says.
• Work a fun job. “Many people find it fun and freeing to supplement retirement income with some earned income from a fun, low-pressure job. Or, if they’ve calculated that their retirement savings are sufficient, but they want to work for fun and delay beginning distributions,” Mockford said

The Bottom Line

Saving and investing today so you have more than enough in your retirement savings is a smart investment strategy. Invest early to take advantage of compounding interest and make the most of tax-advantaged accounts—such as 401(k)s and individual retirement accounts. And if you need help, find a fiduciary financial planner for advice on choosing investments and making a financial plan.