You’ve saved it, now spend it: Why are some retirees so reluctant to spend money when they can afford to?

We often hear about the fear of not having enough money in retirement, but what about the flip side — retirees who don’t spend what they’ve worked hard to sock away? Retirement is supposed to be the reward for decades of working and saving. So why are so many Canadians hesitant to dip into their nest eggs?
It’s a question that Malcolm Hamilton, a senior fellow of the C.D. Howe Institute and retired actuary, has concerned himself with throughout his career, dealing with pension plans, the costs of retirement, and how people behave in retirement.
“I was constantly contrasting what I could see in the retirement of my parents and in-laws, like my wife’s parents, and how different that was from the conventional wisdom of where Canadians were and how they behaved,” he says.
“Somebody asked me once, ‘What was the thing that I didn’t know that I would most like to know about retired people?’ The answer I gave at the time was, ‘I’d love to know why they don’t spend their money.’ ”
A 2021 Employee Benefit Research Institute survey of average American retirees aged 62 to 75 found that three-quarters of them had seen their assets remain the same or grow in retirement and they were not planning on spending those assets.
What’s driving this reluctance to spend, and what are they holding on to the money for?
“The reluctance to spend comes from a fear of running out of money, either from a bad market crash, higher than normal inflation, high expenses on health care as they age, or a higher than normal life expectancy,” says Robb Engen, an advice-only planner in Alberta. A new survey from CPP Investments found that nearly two-thirds of Canadians fear running out of money after they’ve finished working.
Increased life expectancy also has Canadians concerned about long-term finances. Samantha Sykes, a financial adviser with Raymond James, says the cost of long-term care, retirement homes and private personal support workers has skyrocketed. She says a lot of insurance companies have stopped offering long-term-care insurance policies, which means many people will have to pay out-of-pocket for long-term care.
“Retirement homes can start at $3,500/month with services added on, like medication administration, bathing, continence care, going up to $8,000-plus a month,” she says. “Aging in place with personal private care includes a blend of government-funded services and out-of-pocket coverage. Private personal support worker care starts around $55 an hour and you can engage it 24/7 — so that can go up to $30-40,000 a month at the highest end.”
The money lessons people learn throughout their lives can also drive a reluctance to spend, says Engen. “It could be scarcity or anxiety and that can be traced back to childhood,” he says. “It can also be traced back to a traumatic event of maybe losing a job. Those stay with you.”
Another reason for underspending at the cost of personal enjoyment is the shock of no longer getting a pay cheque. Engen says Canadians spend years working toward building their retirement plan only to suddenly have to turn off the savings taps and turn on the spending taps.
“It just doesn’t feel right,” he says. “The paycheque is landing in my chequing account, I can spend that. I can do whatever I want with it. I know another one’s coming next month.” Once you retire, that certainty is removed.
That’s what happened to Beth Gordon when she retired in 2021 from her job as an operational risk manager.
“I did find it difficult to adjust to the idea of drawing down the money that I’d been putting away for so long,” she says. “My pension is not that big because it got interrupted by an extended maternity leave, and I made some bad (investment) decisions. I do have savings, but it is a difficult mental adjustment to having a draw every month and seeing the balances go down.”
Gordon spoke with an adviser before she made the decision to retire and knows she’ll probably have enough money if she lives to be 95, but it still felt a bit like the unknown. “Stock markets go up and down, housing prices go up and down. So, you know, the situation can change.”
Engen says Canadians overestimate their retirement costs. He says that most Canadians are told their retirement savings should replace 70 per cent of their pre-retirement income per year. Add on fears of market crashes and the costs of long-term health care and how those might affect your savings, and he says many retirees are living on a fraction of their portfolio.
Hamilton says that the idea of needing 70 per cent of your income in retirement is too high and it benefits financial institutions.
“If you sell financial planning and savings, and if you manage people’s savings, you have a vested interest in people thinking they need to save very heavily,” he says. “It’s not clear to young people who have no idea how much they’re going to need to spend when they retire.”
Engen says that it would be easy to spend down to zero if we all knew our death date, but since we don’t have clocks on our wrists counting the minutes we have left, a more practical way to plan for future spending is to look at how you live now.
“The best predictor of your future spending is what you’re spending right now in your final working years,” he says.
He says assuming you’re mortgage free, assume you’ll have other costs like property taxes, insurance, maintenance and utilities, which will continue into retirement. Spending patterns may also shift but may not change that much. One example is spending on travel and hobbies might wane as you get older and the money budgeted for that may shift to health care.
“At the very basics, if you can maintain (the costs), run a plan that says you can maintain your current standard of living, into retirement. That’s your starting point, and then with more detailed planning, you can discover your true capacity for spending.”
Gordon has taken on contract work mostly due mostly to boredom but is thinking about retiring again. This time, she knows how to approach it both financially and personally.
“I think you have to give yourself time to get used to it and it helps to have some plans and decide what’s going to keep you busy,” she says. She plans on volunteering, including on her condo board.
“Get a good vision of how you’re going to spend your days, and what you like to spend money on, and try to build it around that.”