How Couples Deplete Retirement Savings

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Americans who save for retirement throughout their working lives often hold tight to that savings after they retire. A new study shows they eventually do spend much of this money and sheds light on where it goes.

The study focuses on the retirement spending patterns of couples, adding to similar past studies on single retirees. While both spouses are alive, the researchers found that a couple’s wealth remains relatively stable over time – until they start paying for medical care, nursing homes, and other major end-of-life expenses.

The researchers examined spending patterns for more than 4,600 households over a 15-year period using a subset of the Health and Retirement Study that collects data on the health and wealth of people over age 70. Wealth included savings and retirement accounts, investments, and home equity.

Couples in two different income groups were compared: the average couple at the 20th percentile has about $14,000 in post-retirement income and $70,000 in wealth at age 74; the 80th percentile couple has more than $30,000 in income and $330,000 in wealth.

Here are the study’s main findings:

  • For couples in both income groups, wealth remains much the same so long as both spouses are alive.
  • For the higher-income couples, wealth declines by about $60,000 during the year of the first spouse’s death, with the largest outlays going toward medical and nursing home care.
  • The wealth of lower-income couples also drops sharply if the husband is the first to die – but, interestingly, wealth changes very little if the wife passes away first.
  • After the second spouse dies, lower-income couples’ savings have been largely depleted. But higher-income couples leave an estate for their heirs.

So, what drives people to cling to the assets they have when they enter their retirement? The researchers suggest that a “significant fraction of all assets held in retirement are used to self-insure against the risk of high medical and death expenses.”

The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium. The opinions and conclusions expressed are solely those of the author(s) and do not represent the opinions or policy of SSA or any agency of the federal government. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.

Gail Lindholm

This study makes perfect sense. From observation of friends and family, low- to middle-income couples seem to rely heavily on fixed income from Social Security and disability for retirement. (Also, other retirement systems like teacher, military, civil service, and other pensions.) These mechanisms often have provisions that significantly reduce payments when the primary beneficiary dies, so the survivor is left stranded if there are not significant assets to fill the gap. Many women did not accumulate benefits of any consequence prior to the most recent 2 or 3 decades due to lack of, intermittent, or under-employment that was reinforced by lower pay scales and promote-ability than men in general. Once retired (for both men and women), there is very limited opportunity to increase income outside of these mechanisms for age discrimination, health, and skill set reasons. Also, it seems that many are highly reliant on debt (short- and long-term) to continue to finance their lifestyle choices, which further erodes their income flexibility. The onset of significant health issues and costs quickly consumes their savings and assets, or must be financed by credit. Often, survivors are still supporting children and grandchildren and even parents in various ways. Without a lifetime of asset accumulation and management, which only the higher income groups seem attuned to, the low- and middle-income couples face many hurdles to maintaining adequate income. My experience with family is that many not only leave no estate for heirs, but often leave debt that ends up going into default as the remaining meager assets will not cover the debt – especially on credit cards and outstanding medical bills. It is obvious that we need an annuity based, mandatory savings system beyond Social Security since our culture values short-term reward and the consumer lifestyle over long-term savings and debt reduction.

Michael Waggoner

A very interesting study. I concur in the suggestion that people with the resources may be self-insuring against risks of high expenses.
I would like to see a breakdown of the types of wealth. A home is likely to be kept, where possible, but money may be withdrawn with home equity loans. A defined contribution pension will likely be spent to pay for retirement, and Required Minimum Distribution may apply. Other investments may be kept as self-insurance.

Dave G.

I’m always amazed at folks who think the need for life insurance somehow ends at retirement. Life insurance is a great way to provide a replacement asset at death, replenishing funds drawn down for health care. And it can be purchased on the installment plan and paid up or at least paying for itself upon retirement.

Another mistake I often see is letting Medicare supplemental coverage lapse or never purchasing it at all. I just ran into an 82 year old who was healthy until his appendix burst. He needed 78 days of skilled nursing. With no Medicare supplement, he had to pay from when Medicare ended (after 20 days). At $157.50 per day co-pay, it adds up fast, plus other services and care.

    Dave G.

    Note: Medicare skilled nursing doesn’t end after 20 days, but does require a $157.50 daily co-pay for days 21-100. After 100 days of skilled care, Medicare ends.


Have these people never heard of Medicaid?

Jonathan D

That’s interesting that so much money is used to self insure against high medical and death expenses. Where can we see the figures from the study?

Kim Blanton, blog writer

2 readers asked for more information, so here goes:
1. Yes long-term care policy lapses are shown in research to be an issue. Here’s a blog about that:
2. To get the dollar figures for how couples deplete assets, here’s a link to the paper:

Thanks, as always, for reading and happy holidays!
Kim (blog writer)

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