Why affluent boomers are cutting back despite retirement savings

Wealthy boomers who hold more than half of America's wealth are living well below their means instead of enjoying their retirement years, daunted by the prospect of financing life into their nineties, according to a new study from Prudential Financial reported by Fortune.

The Fortune 500 investment and retirement planning firm surveyed approximately 20,000 people over 50 and found that married 65-year-olds with at least $100,000 in financial assets withdrew an average of 2.1% of their savings annually—nearly half the usual spending rate of retirees.

David Blanchett, head of retirement research at PGIM DC Solutions, a Prudential Financial affiliate and coauthor of the study, told the Wall Street Journal that "since 1926, retirees have been able to spend 4% of their savings per annum without risking running out of money in the last 30 years of their lives."

The prospect of living beyond 95 years has become an increasingly likely reality for older Americans, driving concerns about rising costs of housing, health care, bills, and food. The Prudential study concluded that instead of taking cruise vacations or traveling the world, wealthy retirees are choosing to live below their means.

Researchers have termed this behavior the "retirement consumption puzzle," where individuals who have accumulated wealth over decades continue to save rather than spend in retirement. One research paper noted that "individuals do not plan rationally for an expected reduction in income at retirement."

This pattern contradicts assumptions about boomers enjoying comfortable retirements in their mortgage-free McMansions. Federal Reserve data shows fewer than half of all boomers have saved enough for retirement, with 43% of Americans aged 55 to 64 reporting no retirement savings at all in 2022. That same year, 30% of people over 65 were economically insecure, earning less than $27,180 annually.

The financial uncertainty has led to a rise in "unretiring." In the United Kingdom, nearly 20% of baby boomers and late Generation Xers are rejoining the workforce or planning to do so. The Pew Research Center reports that the number of Americans working past 65 has quadrupled since the 1980s, with almost 20% of Americans 65 and older currently employed.

Today, approximately 11 million Americans aged 65 or older remain in the workforce, accounting for 7% of all wages and salaries paid by U.S. employers, up from 2% in 1987. Many cite their inability to afford their envisioned retirement lifestyle—not luxury beach houses, but basic financial security to meet their changing needs as they age.

Instead of retiring completely, these seniors are extending their careers or taking part-time positions to maintain their standard of living.