Should Retired Baby Boomers Spend More and Worry Less?
Many Baby Boomers, often shackled by the fearful teachings of their Depression-era parents, are not spending enough of their savings early in retirement, and Sarasota author and business owner David Kennon is on a mission to stop retirees from sabotaging their own retirement.
“For 18 years, I’ve sat down with thousands of retiring Baby Boomers to help them determine optimal timing for their Social Security benefits. From nearly all of them I hear the same refrain, ‘I’m worried I’m going to outlive my money.’ It doesn’t seem to matter whether they have $200,000 in the bank or 2 million, the dread is the same.”
Kennon continues, “I’ve also sat down with many people in their 80s and 90s to whom I always ask the same question, ‘What advice do you have for those of us who are just starting our retirement journey?’ And the answer is nearly always the same. ‘Spend more money earlier in your retirement. By the time we realized that we wouldn’t outlive our money, we were too old to enjoy it’.”
As outlined in Kennon’s new book, Spend More, Worry Less(SpendMoreWorryLess.com/Amazon.com), Kennon’s formula for a better retirement follows three steps. The first is to invest retirement savings in a diversified portfolio of stocks and bonds with at least half of the money in stocks. Second, take out 5 percent per year from those savings starting in the very first year of retirement. Last, spend the money. “When clients tell me they don’t really need the extra money, I still insist they begin withdrawals. I refuse to let them die with all of this money,” he says. “You deserve to enjoy the fruits of your labor. Spend the money.”
Kennon uses historical data to back up his recommendation. “One reference I use is a 30-year study by the Federal Reserve that tracked retiree spending and found, incredibly, that people, on average, were dying with about 60 percent more money than the day they retired. This is the biggest injustice facing the Baby Boomer population today,” Kennon says. “It is painful to see the regret in the faces of people nearing the end of their life when they realize they missed their only chance to enjoy the money they worked so hard to save.”
Kennon notes that 87 years of economic history point to the same fact. Assuming the money is invested and working as outlined in his first step, people who withdrew 5 percent from their savings each year would have ended up dying with more money than they started with 100 percent of the time.
“It doesn’t matter if you retired in 1940 or 1960 or 1997. If you took 5 percent per year, 20 years later you would have ended up with more than you started with,” he says. “This isn’t my opinion, it is purely historical data. The simplest way to understand it is this. If a diversified portfolio of stock and bonds does not return an average of 5 percent between now and the end of your life, it is the first time in modern economic history that it hasn’t.”
Kennon says he spent three years developing his book, which he believes could radically alter the way Baby Boomers view their savings and spending for the rest of their lives. “My overwhelming conclusion is that the transition from working and saving to retiring and spending is a stressful experience due to the intense fear of running out of money,” he says. “It doesn’t help when Baby Boomers watch the daily stock market coverage on television. The continuous fear-based rhetoric seen on the financial news adds to the Depression-era mentality from their parents. That profoundly affects their mental state, which in turn affects their decisions about whether they can afford a new kitchen, take that vacation, spoil their grandkids, or support a cause they believe in.”
Could Kennon’s message spread throughout the country? That’s his plan. “The country needs to start a national conversation about this terrible injustice,” he says. “It is causing so much needless worry, pain, and regret.”