Guaranteed Income and Retirement Spending Behavior

This research paper investigates the relationship between the composition of retirement wealth and spending behaviors among retirees. It presents findings that retirees with a higher percentage of annuitized income tend to spend more than those relying on non-annuitized wealth. The paper discusses the implications of longevity risk and how it affects retirees' spending decisions, suggesting that those who do not transfer this risk may spend less. The authors analyze data from the Health and Retirement Study, comparing actual spending to potential spending based on guaranteed income sources. The results indicate that households with more guaranteed income spend significantly more than those with equivalent non-annuitized savings. The paper also highlights a survey revealing that a majority of respondents feel more comfortable spending additional income rather than drawing from their wealth. These findings underscore the importance of financial advisors in guiding retirees to consider shifting assets into guaranteed income to enhance their spending capacity in retirement.