Don’t Save Too Little, or Too Much

When Mike Maslowski has trouble sleeping, he cracks open a beer in his Wenonah, N.J., living room, watches old movies and does not worry about it.

“I don’t have to be anywhere at 8 a.m.,” said the 61-year-old retiree, who worked for 30 years as an ad salesman for the Philadelphia Inquirer and Daily News.

Most nights, though, Mr. Maslowski sleeps soundly. He is pretty sure that his financial philosophy is among the reasons: Unlike retirees who draw down their savings at the rate financial advisers often suggest — 4 percent of their portfolio value per year — he is more conservative. For him, 2 percent is a better number. “I hate the thought of dying with assets I could have enjoyed,” he said. But living below his means provides peace of mind.

He is far from alone. According to a September report from the Center for Retirement Research at Boston College, half of retirees are afraid to use their savings, often refusing to touch money they spent decades socking away expressly so they could enjoy leisure activities in their 60s, 70s, and 80s.

Given that 50 percent of households are currently at risk of not having the funds to maintain their living standards in retirement, according to the center, their fears are not unfounded. But while retirees who live extra cautiously may be securing the sense of contentment that comes with having the resources to deal with sudden expenses like long-term care, they may also be sacrificing quality of life to do it.

Mr. Maslowski, for example, studies grocery circulars for deals on chicken while watching football on TV and buys only used cars. He and his wife, Dorothy Chattin, a retired graphic designer, do not think of their moderate penny pinching as rooted in fear. “I’ve always been a fairly conservative, belt-and-suspenders kind of person,” he said.

But whether there is a creep toward too much belt-tightening in retirement is something financial experts like Tao Guo, an assistant professor of financial planning at William Paterson University and co-author of a 2016 Journal of Financial Planning article about spending in retirement, are beginning to worry about.

“I use the analogy of the ant versus the grasshopper,” Dr. Guo said. “When I tell that story to my kids, I always praise the ants for working hard all summer, saving for winter and being prepared.” When he talks to retirees and people planning for retirement, he is less enthusiastic about industrious ants. “What we found in our study is that, if people behave like ants, it can be very problematic. Once they get into the habit of saving, it’s very hard for them to break it. The behavior becomes sticky.”

Howard Groopman, a 69-year-old widower in Portland, Ore., who said he invested well while working at the I.R.S. for 24 years, knows the feeling. Throughout his career, “we never had any money,” he said, the result of having five children in Catholic schools while routinely putting money aside for retirement. “We drove old cars and didn’t take vacations. Everything I made was for the family. So I guess that’s my mind-set now.”

Mr. Groopman expects to take Social Security next year and required minimum distributions from his retirement accounts after that, and he plans to reinvest every penny. “My original intent was to draw down my savings,” he said. But getting off the gerbil wheel of saving has proved difficult.

Anek Belbase, a research fellow at the Center for Retirement Research, understands his predicament. “There’s a behavioral aspect to it,” Mr. Belbase said. With pensions disappearing — 81 percent of retirees currently receive income from a pension plan, according to the Insured Retirement Institute, but only 17 percent of current workers can expect to — 401(k)’s (and RRSPs) are increasingly funding retirement. Pensions disburse money in increments; these accounts allow for withdrawals as the account holder sees fit. “The issue becomes, you don’t want to raid your savings, so you become really reluctant to make withdrawals.”

Only two in 10 retirees are adhering to a withdrawal plan like the 4 percent rule, Mr. Belbase said. “The rest are flying by the seat of their pants.” And often not in a way that feels exhilarating.

Mr. Groopman, for example, said he was lonely. “I’m kind of drifting through life,” he said. “Mostly I stay home and watch TV. I’m on the computer for hours and hours every day.” Though he has the resources to travel and spend on social outings, he doesn’t. He expects to spend none of the money he is reinvesting and has earmarked it for his grandchildren.

If under-spenders are jeopardizing their social well-being, they may be risking their physical health, too, said Kristy L. Archuleta, associate professor of financial planning at the University of Georgia and a former president of the Financial Therapy Association.

“Let’s say you become afraid to spend money on fresh fruits and vegetables because they’re more expensive, so you start buying the cheapest foods possible,” she said. “That can create health problems, like diabetes. Or you may be afraid to get medical attention when you need it. When you have this fear of, I’m never going to have enough, it spills into so many other areas.”

For many, the fear of running out of money stems from the lack of a financial safety net in childhood, Dr. Archuleta said. Boomers might have had parents who lived through the Depression. Millennials are likely to follow in their fearful footsteps: Not only did they watch their parents struggle through the financial collapse in 2007 and 2008, but they are also often buried in student loans.

Maysee Salleva, a 33-year-old internist and pediatrician in Vancouver, Wash., is currently paying off more than $250,000 in loans. “I think long and hard about every purchase,” she said.

When her cracked phone screen started cutting her fingers recently, she did not run to the Apple store and plunk down a credit card. “My thought was, do I really need to purchase this?” she said. After she graduated from medical school in 2011, she lived for four years in a house without kitchen counters.

Her frugality, she said, is partly a practical response to her debt and partly the product of being raised by parents who struggled financially after immigrating from the Philippines.

“My dad is in his mid-60s and still works more than 60 hours a week” as a computer analyst, Dr. Salleva said. “He’s obsessed with retiring, to the point where he stretches his dollars as far as he can. He deprives himself a lot.”

As a physician, Dr. Salleva is not always sure that such deprivation is the right path. “When you see people who have two or three months to live, you start to think about striking the right balance between doing things now or putting them on hold,” she said. Her goal is to be intentional with her spending without letting fear take over.

That may not be easy, given the open-ended nature of life. But those who have taken robust or even just reasonable steps to build a nest egg probably should not worry so much, said Dan Keady, chief financial planning strategist at TIAA, which recently started an ad campaign called “Never Run Out.”

“Some people just need that behavioral nudge where you say, ‘Here’s your spending, let’s define your goals,’” Mr. Keady said.

He advises updating a financial plan once a year to account for rising equity markets and other unknowns. “All of us have this very rational fear of, I don’t want to be living on Social Security only. But by making small adjustments over time, you can walk through it logically.”

Retirement is no time to blow off a bucket list, he said, adding: “The bucket list is an important concept. It shouldn’t be trivialized, especially when there’s money sitting on the side.”

This article originally appeared in The New York Times.

This article was written by Tammy La Gorce from The New York Times and was legally licensed by AdvisorStream through the NewsCred publisher network.