Reitrees Not Spending Down Their Assets?

Apparently retirees - a significant percentage - are not spending down their assets in their post-work years. One study says 26% only spend their RMDs (Required Minimum Distributions) from their IRAs - the money they put away, mostly pre-tax, during their working years, much in 401ks. 

While we're not sure this is as big a deal as some think, we'll concede this: It flies in the face of the theory that Boomer retirees will be big spending catalysts for economic growth. The lack of spending makes it a big deal - at least to the big spending Boomers contingent - given the picture painted of a bunch of Boomers enjoying their money in their retirement - and thus goosing the economy to ever greater heights.

It reminds us of the great trillion dollar transfer of assets from the dying generation to the next. This theory has been fostered for years. It posits that there's a generation of folks with trillions in savings and investments (including their homes) that will be left to the children. This was trumpeted to financial advisors over and over: Prepare yourselves for this great transfer. If you're smart you'll garner all these assets and build a gigantic book of business - or something like that. 

Has this happened? Is this happening? So far, nothing of the sort seems to be going on. Maybe the avalanche will come some day. Maybe, but, advisors, don't hold your breath. Just get to work and do your best for your clients here and now. 

But back to that other theory of the Great Boomer Spend and it's impact on our economy. 

First of all, is an economy vibrant and healthy if it's strength depends on profligate geezers? 

If we're to believe that we had a mostly robust economy the past few decades, why this reliance on geezers spending in retirement? What happened to whatever it was that made the economy robust during those decades. After all, no one at the time thought that retiree spending was driving economic growth. 

Here's a thought: Maybe all that growth was the present day retirees spending what for many were robust earnings during the great stock bull market that began around 1980-1982 and lasted until, well, kind of now (according to some). Oh, wait, but didn't a lot of these folks bulk up on debt to fuel their spending? That would explain the Boomers who have mortgages they want to get rid or, some with reverse mortgages, some by selling their homes and taking whatever profits they have to move to smaller, less expensive digs.

Of course, there are statistics that tell us many Boomers have huge 401ks/IRAs. Add them up and you get a potential explosion of spending in retirement, right?

Not if they only spend their RMDs.

And what of the other half? You know, the infamous Boomers who are retiring with little savings, pretty much dependent on social security? Don't know if there are any surveys or studies on what these folks do. But common sense might lead us to think they're being careful in their spending down, perhaps just taking RMDs. They certainly will not boost economic activity if they're living off of social security and RMDs. Just makes sense, right?

Then there's a contingent of folks who desire to leave stuff to their children. They may have sufficient assets to boost their spending and personally enjoy (whatever might be that source of enjoyment) more of what they've saved, but they choose not to. And so they hold back on the spending for themselves so their children might enjoy the fruits of their lifelong labors.

Of course, there are those whose view is that their ideal scenario is that they've spent their last buck on the day they die. Self-centered? It seems so, doesn't it? Absurd? Absolutely! 

Which leads us back to those who spend only their RMDs. Fact is, many folks simply get nervous about their assets lasting until they're dead. So they take what the government forces them to take and that's that. For these folks, it won't matter how many apps or spreadsheets "demonstrate" that, with some given asset allocation, their assets should last a lifetime - and more. Or with some specific discipline, along with that asset allocation, they can avoid running out of money. Their innate skepticism about such theoretical demonstrations will cause them to ignore any and all arguments that they should spend more.

Besides, it can be a bit annoying hearing others tell you that "You should enjoy your money," or "You earned the right to enjoy your money be saving all your life," or variations thereof.

The point of all this is simply to provide examples, based both on personal and professional experience, as well as studies like the one that was referenced at the beginning of this post. Those examples can serve as a way to discount the grandiose claims that today's Boomers represent a vast reservoir of spending that will spill into our economy and boost activity.

Unless we're missing something, we haven't seen it happen, and don't expect that to change any time soon.