◼ FINANCE Bloomberg Businessweek August26, 201921ILLUSTRATION
BY
JOE
MELHUISH.
DATA:
BUREAU
OF
LABOR
STATISTICS
concentrated among households that are averse
to spending it,” says Matt Fellowes, a former
Brookings Institution fellow who’s founder and
chief executive officer of United Income, a retire-
ment planning startup. “It’s trillions and trillions
ofwealththatisnotbenefitinganyoneexcept
assetmanagers.”
Americans’combinednetworthis $109trillion,
accordingtothebalancesheetforallindividuals
andcharitiestalliedbytheFedeachquarter.That’s
upfromlessthan$57trillion during the worst of
the Great Recession 10 years ago. The money dis-
proportionately flowed to the rich. Of course, some
of these people have no problem spending their
fortunes on luxury real estate, private jets, or gen-
erous philanthropy. Your more typical millionaire,
though, is often tightfisted. Retirement experts and
financial advisers disagree on exactly why.
Some caution with money is rational when
there’s so much uncertainty about investment
returns, medical costs, and longevity. “The rea-
son they don’t spend in retirement is because they
worry about running out of money,” says David
Lau,founderandCEOofDPLFinancialPartners.
“Youdon’tknowwhensomeoneisgoingtodie,
youdon’tknowwhensomeoneis goingtogetsick.”
YetMillersaysthateventrulywealthyretirees,
whohavemorethanenoughassetstocoverany
eventuality,oftenignoreheradviceonwhat’ssafe
tospend.That’seventhoughsheassuresthem
hercalculationsaredonewithsophisticatedplan-
ningsoftwarethatcangameoutvariousscenarios,
includinglivingto 100 andseveremarketdown-
turnssuchastheonein2008.“Theykeepdeny-
ingthemselvestodayforfearofwhatcouldhappen
tomorrow,”shesays.
Manyclientsthinkthey’redoingsomething
wrongif theyspendmoneyina waythatcauses
portfoliobalancestodrop.“Nevertouchtheprin-
cipal”isclassicadvicethat’sa relicofaneraof
double-digit interest rates, when even conser-
vative investments could produce substantial
income. Despite ultralow interest rates, advisers
say it can be difficult to persuade retirees to tap
savings rather than just live on their tiny bond
coupons and dividend checks. “Wealth is really
a source of identity for people,” Fellowes says.
“By spending their wealth, they’re losing some of
their identity. There’s an aversion to seeing their
balances go down, even if it’s excess wealth” that
they’ll never need.
Age is a crucial factor. The older people are,
studies have found, the less risk they’ll take. And
today’s wealth holders are older than the afflu-
ent of previous decades. The Fed’s most recentThe U.S. economic recovery, the longest in
recorded history, has increased Americans’
wealthby$52trillion,accordingtotheFederal
Reserve.WallStreetis burstingwithnewmoney.
U.S.stockstradenearrecordhighs.Privateequity
firmssearchhighandlowforplacestodeploymore
than$1trillionofinvestorcash.Banks,enjoyinga
glutofdeposits,paysaversinterestratesthatare
minusculefromanhistoricperspective.
Alltheserichesshouldgeneratelotsofeconomic
activity.Thewell-offcouldbebuyingthemselves
littleluxuriesordoingsomethingmoreproduc-
tive,likestartingnewbusinessesorexpandingold
ones.Ortheycoulddonatemoretocharity.Atthe
veryleast,theextrafinancialcushionshouldmake
Americansfeelmoresecure.
Ifonly.Manyoftherecovery’sbiggestben-
eficiariesfeelanxious.Andfinancialadviserssay
evenveryrichclientsoftenhavea cripplingreluc-
tancetofullyenjoytheirmoney.“Iamsurprised
howoftenI sitwitha retiredcoupleandhaveto
encouragethemtospendmore,”saysLizMiller,
presidentofSummitPlaceFinancialAdvisors,
a NewJersey-basedfirmspecializinginhigh-
net-worth clients.
If well-off retirees are more frugal than neces-
sary, they end up denying themselves the fruits
of a lifetime of hard work. Their heirs eventually
benefit, but the vitality of the American econ-
omy suffers. “Wealth is getting more and moreToo
Scared
To
Spend
Even wealthy American
retirees are often reluctant
to enjoy their money’97-’98 ’16-’1780%400● Change in average
annualspendingof
Americanssince’97-’98
Allconsumers 65 or
older
Consumers 65 or
older earning at least
$70k a year