Therapy for Retirement Underspenders?
Most of the stories we read about retirees is how they do not have enough saved and/or are over-spending. But there are retirees at the other end of the spectrum. They do not spend enough and it is needlessly hurting their lifestyle. Sometimes it even affects their health. Some of these people may need therapy. I’m serious.
They worked hard all their lives and managed to save $2 million. Today, they are both 72. Based on a very conservative withdrawal rate of 3%, they could easily afford to take $60,000 from their portfolio each year. Instead, they withdraw $10,000. With the $30,000 they get from Social Security, they live on $40,000 a year.
There is nothing wrong with being thrifty and frugal. But Martin and Eleanor are struggling with rational thinking. They are hurting themselves, including not seeing the dentist and not purchasing a hearing aide because they are “too expensive.” There is more. Read about it yourself.
You wonder what effort their children have made to rectify this situation. I can speculate a few scenarios.
It could be that the kids do not know that their parents have a $2 million nest egg sitting mostly dormant and unused. This is not unusual. I know of a family where even the spouse thought they were broke (and lived that way) because the irrationally frugal husband never shared information about their substantial wealth.
Another possible scenario is that the children think it is sadly amusing that their parents are so cheap. Maybe they make an occasional comment about it but that’s it. Of course, the parents ignore those comments.
A third scenario is that the children are seriously concerned about their parents bad spending habits (as in under-spending), have tried an “intervention” but were met with an adamant refusal to change or even to see a professional. (In these cases, the first professional to see may need to be a therapist.)
The fourth scenario – a cynical observation – is that the children may be thinking more about their inheritance than their parents’ happiness. With that in mind, watching their parents deprive themselves through life is easier to accept. Hopefully this is not the case although I’ve heard worse.
This is a situation where a long term retirement plan that included some form of consumption smoothing could have prevented Martin and Eleanor from adopting an irrational fear of spending. Now only therapy may fix things but at age 72, they could be resistant to any outside help.
This is a circumstance that I am trying to avoid. I want a reasonable balance between spending and financial security. It sure would help if savings interest rates would move up!
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