How Couples Deplete Retirement Savings

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.”