March 21, 2022

When markets rise, the case for retirees spending more strengthens. Yet, many retirees are hesitant to spend. Why? We don’t want to run out of money!

We don’t know how long we’ll live, how much things will cost, or how our investments will perform. So, we naturally protect ourselves from harm due to running out of money and not be able to afford the lives we want.

It makes sense. We spend a lifetime saving, so it’s hard to flip to a spending mindset, even on things we might need.

For instance, long-term care (LTC) is a concern because we don’t know if we’ll need it, and if we do, we know it can be expensive – into six figures, on average. And our family experiences influence us.

I’ve seen it myself – your level of financial planning, especially around LTC, is likely influenced by your family experience. People whose parents died young often don’t see the value of LTC planning. Conversely, people whose parents died in their 90s and needed LTC understand the need because they lived through it with family.

Interestingly, sources of retirement income affect spending too. J.P. Morgan Chase examined retiree clients who get most of their income from pensions and annuities versus those who get it from investments. The analysis found those with guaranteed income sources spend more freely in retirement.

Among clients with up to $3 million in net worth, those who received 60-80% of their income from regular payments spent 26% more in retirement than did those with 20-40% of their income from regular payments. People with $3 million to $5 million in net worth receiving more regular income spent 47% more.

Past research from the Employee Benefit Research Institute confirms this “comfort factor” with guaranteed income too.

This really speaks to peace of mind. Guaranteed income means you don’t have to stare at account balances and worry.

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