But there’s also a third possibility. As Ackerley says, maybe today’s retirees don’t have to spend their retirement assets because they are among the “lucky few.”
Many of today’s retirees in their seventies enjoyed both a pension and a 401(k) plan, which for them was a supplemental savings option, not their primary accumulation vehicle. One suspects a healthy chunk of these folks also have dividend-paying stocks.
Public policies have also tilted in their favor. Retirees also are benefitting from changes to Social Security in the 1980s and Medicare in 2003.
If that were not enough, most of these folks have been been saving and investing over four decades, when both stocks and bonds were appreciating more than 70 percent of the time. And except for the early 1990s and the 2008-2012 period, real estate prices have been rising as well.
But if current retirees could afford to spend more, why aren’t they? Some may be saving for what they suspect will be out-of-pocket medical expenses at some point. An analysis of their spending habits shows that health-care expenses do rise gradually while transportation and entertainment outlays tend to decline.
Still, current retirees could afford to spend a little more and “in some cases, a lot more,” according to the study. But many choose not to. Behavioral biases may prompt people to make sub-optimal decisions, the study suggests.
It’s also possible they have outside sources of income, like part-time work, consulting or ownership of rental properties that the study didn’t fully capture.
For those who have financial advisors, I have another theory. Many advisors tell clients to rely on their taxable accounts early in retirement while leaving their qualified plan assets alone so they can continue to enjoy the benefits of tax deferral.
Future Retirees May Not Be Lucky
Ackerley acknowledged the research leaves many questions unanswered and said BlackRock is conducting further research.