Your spending habits in retirement may have more to do with your personality than any debts or financial goals.
A study, compiled by the American Psychological Association and published in the journal Psychology and Aging, found that people who are generally more positive and extroverted will spend their retirement savings slower than someone more negative and prone to pleasing people.
The study analysed personality and psychological data from more than 3600 people aged 50 or older (the average age was 70). Participants were asked to complete a series of personality-based interview questions, with answers then matched with individual tax records of withdrawals from retirement accounts.
“Little is known about what personally motivates retirees to withdraw money from their investment portfolios, as most studies on portfolio withdrawal rates address technical issues, such as minimising risk of financial shortfall or making spending adjustments based on perceived life expectancy,” Professor Sarah Asebedo, co-author of the study, told Science Daily.
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The purpose of the study was to investigate how personality traits are related to portfolio withdrawal decisions of retirees.
“We found that those with greater conscientiousness, extroversion, positive emotions and feelings of control over their finances withdrew from their retirement portfolios at a lower rate than those with greater openness, agreeableness, neuroticism and negative emotions,” Prof Asebedo says.
The results of the study are similar to others related to spending habits and personality types across all age groups, suggesting that the spending (or saving) habits we develop during our working lives usually carry through to retirement.
But while your personality may influence your retirement spending, it’s not as simple as ‘spending fast bad, spending slow good’ as a person’s individual circumstances should always be considered.
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Prof Asebedo says her study should provide quality information to financial professionals advising people on their retirement spending.
“A higher portfolio withdrawal rate is concerning if it places the individual on a path to run out of money too early,” she says.
“However, if the higher portfolio withdrawal rate does not run the risk of running out of money, then it may very well be facilitating a life well lived.
“Similarly, a lower withdrawal rate is a good thing if it facilitates controlled spending from the portfolio at a level that protects it from early depletion.
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“If the individual is under-spending and forgoing experiences that they would enjoy because of a saving habit they are unable to break, then the low withdrawal rate is a missed opportunity to maximise the life that they have saved for,” Prof Asebedo says.
“Results suggest that financial professionals might benefit from performing a personality assessment on clients, as it may reveal characteristics and attitudes that influence their portfolio withdrawal decisions. As a result, financial professionals will be able to deliver tailored recommendations that account for the personality and psychological characteristics underpinning clients’ behaviour.”
What type of spender are you? Are your spending habits any different in retirement? Let us know in the comments section below.
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