For retirees, not spending enough is emerging as big issue

Older Americans often worry about outliving their savings in retirement. The fear is more than understandable.

Yet several studies suggest the danger is exaggerated. The bigger concern may well be that too many retirees are sacrificing experiences and memories to financial prudence.

Here is the basic dilemma when managing retirement savings in the 401(k) era. On the one hand, you can enjoy spending plenty of savings in the early years of retirement, but you risk having to make drastic lifestyle cuts later. On the other hand, if you are too conservative with your spending, the risk is you will die with a flush portfolio and plenty of regrets.

A report by the BlackRock Retirement Institute, for example, found that after 17 to 18 years in retirement median assets were down only some 20 percent on average. Specifically, for the wealthiest group ($500,000 and above) the draw down was 17 percent. Medium-wealth households — $200,000 to less than $500,000 — had spent down their retirement assets by 23 percent.

Similarly, an article by four scholars published in the Journal of Financial Planning found a substantial "consumption gap" for retirees with financial assets at the median level and above.

These retirees could have spent more — significantly more for well-off households — than they did without running out of money.

What's going on? Several factors lie behind the caution. Many retirees don't develop a solid financial plan. They are unfamiliar with withdrawal strategies, not surprising considering the complexity of the topic. The value of retirement savings is subject to the whims of the market. Retirees are uncertain about how long they need to live off their retirement savings — five years or 30 years? The desire to leave heirs an inheritance is strong. Concerns about unknown but big medical bills late in life looms large.

You can't get rid of the uncertainty. Nevertheless, an implication of these studies is for near-retirees to focus less on safe withdrawal strategies while devoting more time developing smart spending strategies that add to quality of life. What do you want to accomplish during the retirement years? How about time with family, friends and community? Are there experiences important to you at this stage of life? A good motto to keep in mind comes from the 15th century French poet Charles D'Orleans: "It's very well to be thrifty, but don't amass a hoard of regrets."

Chris Farrell is senior economics contributor, "Marketplace," and commentator, Minnesota Public Radio.