Expert: It's 'a little scary' for retirees to spend their savings
After decades of saving, retirees are often reluctant to draw from their nest egg in their golden years, according to a pension expert.
"[The] reality is that many of us are used to spending less than our income during our working years and then retiring, and it feels a little strange spending our savings," Michael Finke, professor of investment and retired from American College, recently told Yahoo Finance Live. "It can seem a little scary to spend our savings."
Finke described why certain people, especially those with high retirement savings, do not spend as much as possible because their spending sacrifices are not worthwhile during the working years.
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Retirees generally fall into two camps: donors and non-donors, Finke said, with research showing that pensioners are more likely to spend.
"Those who have a pension spend significantly more than those who have the same wealth and assets," he said. "People just tend to keep fewer assets - they don't really spend them."
Retirees generally fall into two camps: donors and non-donors. Finke said research suggests pensioners are more willing to spend. (Photo: Getty)
Immediately after retirement, people tend to lose the most money and “have the most fun spending,” he said. After all, people usually have the most energy to spend on things like big vacations and moving.
Read more: 3 important factors to consider when planning your retirement
Finke's advice is to resist the temptation to own retirement icons like RVs or vacation homes.
"Try different things," he said, while still "using your money - don't just sit on it."
Instead of spending money on everyone, he encouraged new retirees to think about what will bring the most joy, rather than "throwing all the money into one thing."
Given the dwindling availability of pensions, especially in the private sector, Finke said the next best thing would be a pension or financial product that guarantees a lifelong stream of income. This allows retirees to enjoy the money they have saved because "it gives you a license to spend it without worrying about running out of money," he said.
"Remember, there are only two things you can do with your money when you retire," he said. "Spend it or give it to someone else."
The Yahoo Money sister site Cashay has a weekly newsletter.
Stephanie is a reporter for Yahoo Money and Cashay, a new personal finance website. Follow her on Twitter @SJAsymkos.
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