Retirement: Overcoming the high cost of fear

Fear drives many financial decisions, including decisions concerning retirement savings.

A panel at the Alliance for Lifetime Income Summit described why Americans fear spending down their retirement savings and routinely claim Social Security early – and how fear often drives those decisions.

“Throughout our entire lives, we are conditioned to spend our income and keep our savings,” said David John, senior strategic policy advisor with AARP Public Policy Institute. “Then you reach retirement and you have more money in your retirement account than you ever saw in your life. So early on, you wonder how you spend that much money. Do you take all that money and put it in a single premium immediate annuity and then see how much you get each month?

The emotional element of spending retirement savings “is the second worse problem we have,” John said.

Retirement fear: 'Not a dollars and cents problem'

“The biggest problem is throwing up your hands and saying: 'You deal with it and have a great life.'  People either spend a lot of it or fear to spend any of it. This is a real problem but it’s not a dollars and cents problem. It must be approached recognizing people have emotions and they don’t make decisions based on dollars and cents.”

John said the country doesn’t have enough financial advisors “who can sit down with you in the traditional way.”

“It’s likely we will need to see a mixture of individuals online possibly working with artificial intelligence or parts of it for guidance. But it must be something people can understand and that the individual feels is in their interest.”

Fears about Social Security

Fear often drives people to claim Social Security benefits early, and that fear can have a cost, said Ramsey Alwin, president and CEO of the National Council on Aging.

“People fear that Social Security won’t be there or that they won’t live long enough to enjoy it,” she said. “They want to get that benefit but then they come back when those dollars are not enough.”

Claiming Social Security early can work when someone is caregiving and needs another income stream, she said. “That usually works for a few years but then the income stream ends – someone in the household is no longer working – and then someone needs help with finding a job or with having enough money to pay for household needs.”

Alwin said people often plan around their retirement financial portfolio but she believes people also should cultivate what she called “your longevity portfolio.”

“It’s not just your savings but your skills and your viability to work. We need to be able to do a skill refresh so people could be redeployed into more age-friendly occupations. It’s your wealth, your skills, your network, your connections with loved ones and your health. It needs to be cultivated and nurtured just like your financial assets.”

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