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Are You Preventing Yourself From Having Your Dream Retirement?

This new study says some older Americans may be doing just that

By Matt Fellowes

Innovations in medicine and technology have extended human life by over 30 years since 1900. This has helped double the amount of time the average adult now spends in retirement compared to several decades ago. But the benefits of longer lives and retirement may be limited if older households curb their consumption or investment in preventive health measures because they are overly pessimistic about their future financial health.

Overly negative viewpoints toward the future may also create self-fulfilling economic problems if they lead to an overly aggressive fixed-income portfolio.

To assess these possibilities, we at United Income (a new money management system designed to bring retirement dreams to life) — analyzed consumer sentiment and spending data from the University of Michigan commissioned by the Social Security Administration and U.S. Commerce Department, among other federal agencies.

We found:

Adults become less optimistic about future economic growth and financial health as they age. In 2014, for instance, adults over 64 were over 40 percent less optimistic about their future financial health, over 30 percent more skeptical about future economic growth and 40 percent less convinced of future stock market increases compared to adults under 35.

Declining financial optimism as adults age has accelerated as longevity has increased. The gap in economic optimism between younger and older Americans, for instance, has increased by 3 percent for every one year added to the life expectancy of the average U.S. adult.

Sentiment about future stock market growth becomes overly conservative as adults age. The average older adult felt like the stock market had less than a 50 percent 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 percent chance of increasing in most of those same years.

Concerns about declining personal financial well-being also become overstated as adults age. We found that wealth and investments generally grow in value as people age.

Similarly, the average retired adult who dies in his or her 60s leaves behind $296,000 in net wealth, $313,000 if the person dies in his or her 70s, $315,000 in his or her 80s and $238,000 in his or her 90s.

Perhaps as a reaction to declining financial optimism, the average adult 60 years or older will trim spending by about 2.5 percent every year, or by about 20 percent over a 10-year period. We also found that spending drops faster for people in their 80s compared to those in their 60s and 70s — falling byabout 30 percent, on average, over a 10-year time-period.


In addition, spending volatility becomes more extreme as we age. The average household in their 60s saw their annual spending vary by 6 percent during a two-year period from 2000 to 2012 while annual spending varied by 9 percent for people in their 70s or older.

What This Means for Older Adults, Advisers and Policymakers

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. Yet, our confidence about future economic growth and our own financial well-being wanes as we age and in some cases overly so. This may be one reason why spending deaccelerates for aging households as they seek to maintain wealth at the expense of income preservation.

For financial advisers, these data signify that special care needs to be taken to educate people about their biases to avoid investment portfolios and financial plans that are too conservative and become self-fulfilling prophecies of economic problems.

For policymakers, these data indicate that how much people spend as they age is an issue that deserves attention alongside of the broad efforts to increase savings for retirement.

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Matt Fellowes is founder and CEO of United Income, which creates easier and more empowering money management for aging households. Previously, he was chief innovation officer at Morningstar and founder and CEO of HelloWallet, a human resources and financial wellness advisory firm which was later acquired by Morningstar. Read More
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