Five types of retirees: why financial security is about more than wealth

We’re all familiar with the images of retirement that financial firms often use in brochures and on websites: smiling couples having coffee on the porch in the morning and enjoying a round of golf in the afternoon, or perhaps strolling the beach, hand in hand.

But in fact, many older Americans struggle financially after they retire. And even those who have significant retirement account balances may struggle to feel confident about the security of their income stream. Will it last as long as they do?

Among retirees who place a high value on financial stability, it stands to reason that improving financial security may also boost happiness and satisfaction. But beyond basic necessities like food, housing, transportation and healthcare, how much does a retiree’s wealth matter to their satisfaction?

To ask it another way, if clients of modest means can make choices that enhance their retirement income security — even without increasing their overall wealth — might they also improve their retirement satisfaction?

In this article, we’ll take a closer look at factors that influence contentment in retirement, and how for some retirees, one key to satisfaction may be more strategic than mathematical. It may not be how much wealth retirees hold, but what they do to prepare for retirement, and how they choose to help secure their income.

Wealth and financial well-being are intertwined — but not the same thing

Saving and investing for retirement are essential for most retirees. After all, it takes money to pay for the essentials in life. Even so, there’s wisdom in the adage, “Money can’t buy happiness.”

In fact, the study of happiness economics considers many factors beyond wealth: health, education, use of time, psychological well-being, and various environmental factors all influence individual happiness.1 

This suggests that the ways retirees use and manage the wealth they have may be just as important as having it in the first place, when it comes to their quality of life.

In June of 2023, the average monthly Social Security retirement benefit was $1,837.3 Yet, 53% of retirees with no private income sources report they’re “at least okay financially.”2 On the whole, retirees report high levels of financial well-being — but among those who have income sources aside from Social Security or other public sources, rates of those who say they’re at least okay are significantly higher.2

A closer look at the diverse experiences of retirees can help illustrate the powerful force of a more secure retirement income on the satisfaction of retirees ranging from affluent to average.

1. Abundant assets: the affluent retiree

Wealthy retirees may have diverse investment portfolios and substantial savings — the ingredients of an idyllic retirement, one might think. And it’s true, 87% of retirees receiving interest, dividends, or rental income say they’re doing okay financially.2 But what about the rest of them?

Well-being depends not only on wealth itself, but also on how retirees use their resources. For some, the transition from saving and investing to decumulation is fraught. A fear of overspending can hold some people back from engaging in the things that add meaning to life. Conversely, a lack of discipline, unforeseen circumstances or market volatility can lead others to overspend early in retirement, putting their later years at risk.

For an affluent retiree, the benefit of guaranteed lifetime income may be more emotional than financial, by enabling them to focus on fulfilling activities and social connections that add purpose to life’s golden years.

2. Comfortable and content: the stable retiree

With 92% of retirees 65 and older receiving Social Security benefits and 65% receiving pensions, it’s not hard to envision a retirement life built on the financial security of guaranteed income.2 While the amounts may vary widely, a key source of satisfaction these retirees enjoy is the same: stability.

That kind of predictability can help retirees across income levels to plan and enjoy a comfortable lifestyle that balances leisure with budget-conscious living. Even so, it’s important for clients of this type to consider the possibility of increasing healthcare costs as they age. 

In fact, 24% of retirees reported their spending levels were higher than they expected before retirement, and the less affluent the retiree, the more they attributed that spending increase to rising costs.4

3. Making ends meet: the at-risk retiree

With 29% of U.S. retirees citing health issues as their reason for retiring and another 15% saying they retired to become a caretaker, it’s not hard to imagine the stress of stretching limited resources through a retirement that wasn’t what they’d planned.2

These retirees may be at risk of a lower standard of living than they had in their working years out of a lack of time to save and plan, healthcare expenses and the unexpected costs that may be associated with caretaking. The situation can be exacerbated by limited availability to pursue part-time work or other income-generating activities. And retirees who rent, rather than own, their homes can face rising housing costs, and could be at risk of taking on increasing debt.

As a result, this group may find themselves experiencing a drastically different retirement than they’d hoped.

4. Struggling to scrape by: the financially insecure retiree

Retirees without sufficient guaranteed sources of income may have to withdraw from savings, continue working for pay, drastically reduce spending — or some combination of all of these.

But along with the high numbers of individuals who retire due to their own health or a caretaking need, another 10% of retirees say they didn’t leave work by choice.2 So it’s not surprising that among Social Security beneficiaries 65 and older, 12% of men and 15% of women rely on that monthly benefit for 90% or more of their income.3

That can lead to significant financial challenges, and these retirees’ well-being may depend on the support of social safety nets, community resources and family members to meet essential needs.

5. Somewhere in the middle: the “average” retiree

Is there an “average” retiree? In 2022, real median income for householders 65 and older was $50,290 — a 2.1% decline from the previous year.5 

Among those 65 and over, 25% were homeowners with a mortgage and another 23% were renters — and here’s a sampling of average annual expenditures among them:6

  • Housing – $20,362
  • Transportation – $8,172
  • Healthcare – $7,540
  • Food – $7,306
  • Utilities – $4,236

All together, these essential expenses leave little wiggle room for discretionary spending, underscoring the need for careful financial planning and budget management in retirement.

As defined benefit plans continue their downward trend, financial professionals may find clients are interested in creating their own plan for guaranteed income with annuities. Income annuities, for example, can provide guaranteed income for life and help mitigate market volatility, inflation and interest-rate risks.

Of course, most clients don’t fit neatly into any single retiree category. Their wealth and financial security are often a mix of complexities that include personal experiences that have influenced their decisions over many years. Taking a personalized, behavioral finance approach can help you and your clients better understand not just the numbers, but also the core values that drive meaning in their lives and the motivations that can help them stay on track for a financially secure retirement. 

The more time they have, the better, so don’t wait. Get started with our helpful guide to Behavioral Finance Advice.

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