Despite accumulating wealth for decades, many baby boomers are now ultra-frugal, fearing they might go broke during their retirement years. Researchers refer to this trend as the “retirement consumption puzzle.”
A recent study by Prudential Financial surveyed around 20,000 people over 50 years old and found that retirees are living well below their means. Married 65-year-olds with at least $100,000 in financial assets withdrew an average of only 2.1% of their savings annually, nearly half the usual spending rate of retirees.
David Blanchett, head of retirement research at PGIM DC Solutions, an affiliate of Prudential Financial, explained that since 1926, retirees have been able to spend 4% of their savings per year without risking running out of money in the last 30 years of their lives. However, with the prospect of living up to 95 years old, the cost of housing, healthcare, bills, and food is expected to rise significantly.
As a result, wealthier retirees are increasingly spending below their means, opting for frugality over lavish lifestyles. This phenomenon is part of the “retirement consumption puzzle,” where retirees, despite their accumulated wealth, feel unprepared for the jobless years ahead and continue to save instead of enjoying their retirement.
Contrary to the assumption that boomers are enjoying a comfortable retirement, Federal Reserve data reveals that fewer than half of all boomers have saved enough for retirement. In 2022, 43% of 55- to 64-year-olds had no retirement savings, and 30% of people over 65 were economically insecure, earning less than $27,180.
The New Retirement: Working Beyond 65
“Unretiring” has become a global phenomenon. In the U.K., nearly 20% of baby boomers and late Gen Xers are rejoining the workforce or planning to. In the U.S., the number of people working past 65 has quadrupled since the 1980s. Today, almost 20% of Americans 65 and older are employed, nearly double the share from 35 years ago.
Many retirees are returning to work not to live out extravagant dreams but to attain the minimum financial certainty needed to meet their changing needs as they age. This trend is expected to worsen as Gen Xers, the next generation of retirees, struggle with financial insecurity and saving for retirement.
Source: Fortune
