The Psychology of Retirement Income: From Saving to Spending

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The Psychology of Retirement Income: From Saving to Spending

2024-11-26 19:00 Last Updated At：19:21

The narrative of a miserly, Scrooge-like figure hoarding his wealth for years instead of enjoying his retirement might seem unbelievable—but unfortunately, it isn’t relegated only to fiction. It’s a cold reality for many retirees.

According to the Life Cycle Hypothesis, this shouldn’t need to happen. A retiree who is financially prepared for retirement should keep a consistent income in retirement, and her overall consumption should not change.

About 25% of retirees fall into the camp of people who decrease spending during retirement.

Moreover, research suggests this problem may worsen. Researchers found that the issue was most pronounced with individuals who use their own savings for retirement income—whereas people with guaranteed sources of income, such as annuities, Social Security, and pensions, were more likely to spend their income.

One line of thinking posits that people simply don’t need to spend as much in retirement. For example, when people retire, they may experience a drop in work-related expenses. They may be able to spend more time doing things they had to pay for in the past—now making meals at home or mowing their own lawn—and searching for the best deals for their purchases. And they may pay off their mortgage, thus decreasing their expenses.

Another line of thought points to more psychological reasons behind a change in spending patterns.

Before retirement, a person may be more susceptible to present bias (the tendency to focus more on the present situation at the expense of long-term planning) because their future labor income is uncertain, and they don’t yet feel an ownership of that money. That uncertainty gives them the flexibility to think things like, “I’ll work more hours next month to make up for this trip,” or “My boss will cough up that bonus soon.”

However, after retirement, they are on a fixed income and the money they are spending is coming from their own pocket. This shift triggers loss aversion—that is, the desire to avoid losses outweighs the desire to experience gains. In retirement, we know that overspending today will result in a sure loss in future consumption. In a world where that future you is 85 years old and unable to work, that future loss looms much larger than an extra extravagance today.

Every retiree is different, and different explanations may ring true based on their personal circumstances, so retirees may benefit from taking stock of their retirement spending.

Start by gauging your financial affairs and have a clear understanding of how much you can spend.

Try tracking your spending using an online tool that breaks down spending by category. It’s ideal to do this before you retire, but not essential. On a quarterly basis, check your overall spending and take note of any categories where your spending patterns have changed. Do these changes align with your financial goals? Did your spending on eating out suddenly drop, even though you love trying new cuisines with friends?

If you fall into the underspending camp, research suggests that people using guaranteed income sources are more willing to spend their income.

If you don’t want to take the leap to guaranteed income sources, try reframing your retirement income as a paycheck that someone else is paying you.

Although not spending enough money in retirement may not be a universal problem, it does represent a huge, missed opportunity for the retirees in question. It’s important to remember that this is the money you’ve spent years toiling over and protecting. Now, during a long and happy retirement, is the time to put that money and free time to good use, funneling both resources into your version of a life well-lived.

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This article was provided to The Associated Press by Morningstar. For more personal finance content, go to  https://www.morningstar.com/personal-finance

Samantha Lamas is a senior behavioral researcher at Morningstar.

Top EU diplomat says Israel has 'no excuses' to refuse a ceasefire with Hezbollah

2024-11-26 19:15 Last Updated At：19:20

FIUGGI, Italy (AP) — The European Union’s top diplomat said Tuesday there were “no excuses” for Israel to refuse to accept a ceasefire with the Lebanese militant group Hezbollah, saying all its security concerns had been addressed in the U.S.-French-brokered deal.

Josep Borrell, the outgoing EU foreign policy chief, called for increased pressure on Israel to blunt extremists in the government who are refusing to accept the deal. Speaking on the sidelines of a Group of Seven meeting in Italy, Borrell warned that if a ceasefire is not implemented, “Lebanon will fall apart."

Israeli officials said Prime Minister Benjamin Netanyahu’s security Cabinet was set to convene Tuesday to discuss a proposed ceasefire. Among the issues that remain is an Israeli demand to reserve the right to act should Hezbollah violate its obligations under the emerging deal.

Borrell said under the proposed agreement, the U.S. would chair a ceasefire implementation committee, with France participating at the request of Lebanon.

“On the proposal agreement brokered by the U.S. and France, Israel has all security concerns (addressed),” Borrell told reporters in Fiuggi, Italy. “There is not an excuse for not implementing a ceasefire. Otherwise, Lebanon will fall apart.”

Following the October 2023 Hamas attacks in Israel, months of back-and-forth fighting between Israel and the Iranian-backed Hezbollah have erupted into a full-blown war in recent months, with Israel killing Hezbollah’s main leaders and sending ground forces into southern Lebanon.

Israeli bombardment has killed more than 3,500 people in Lebanon and wounded more than 15,000, according to the Lebanese Health Ministry. On the Israeli side, about 90 soldiers and nearly 50 civilians have been killed by rockets, drones and missiles in northern Israel and in the fighting on the ground in Lebanon.

The G7 meeting of foreign ministers from the world's leading industrialized nations, the last of the Biden administration, was dominated on Monday by the Mideast wars in Gaza and Lebanon. The G7 ministers were joined by the foreign ministers of the “Arab Quintet”: Saudi Arabia, Jordan, Egypt, Qatar and the United Arab Emirates.

Borrell, whose term ends Dec. 1, said he proposed to the G7 and Arab ministers that the U.N. Security Council take up a resolution specifically demanding humanitarian assistance reach Palestinians in Gaza, saying deliveries there have been completely impeded.

“The two-state solution will come later. Everything will come later. But we are talking about weeks or days,” for desperate Palestinians, he said. “Hunger has been used as an arm against people who are completely abandoned.”

It was a reference to the main accusation leveled by the International Criminal Court in its arrest warrants against Netanyahu and his former defense minister. Israel has angrily denied the charges, calling them antisemitic and a victory for terrorism and said the charges failed to recognize the country’s right to defend itself.

Borrell said the signatories to ICC, including six of the seven G7 members, are obliged under international law to respect and implement the court’s decisions. The U.S. is not a party to the court and has called the arrest warrants “outrageous.”

Host Italy put the ICC warrants on the G7 agenda at the last minute, but there was no consensus on the wording of how the G7 would respond given the position of the U.S., Israel’s closest ally.

Italy, too, has said it respects the court but expressed concern that the warrants were politically motivated and ill-advised given Netanyahu is necessary for any deal to end the conflicts in Gaza and Lebanon.

“Like it or not, the International Criminal Court is a court as powerful as any national court,” Borrell said. “And if the Europeans don’t support International Criminal Court then there would not be any hope for justice.”

By Tuesday, Italian Foreign Minister Antonio Tajani acknowledged Italy's obligations. Italy was one of the first signatories of the ICC and hosted the 1998 Rome conference that gave birth to it.

“We are friends of Israel but I think we need to respect international law,” he said as he waited to greet U.S. Secretary of State Antony Blinken.

While the G7 meeting was dominated Monday by the Mideast conflicts, the attention turned Tuesday to Ukraine. Ukrainian Foreign Minister Andrii Sybiha was on hand and briefed the ministers on Russian attacks on Ukraine's energy infrastructure, Tajani said.

“We want to repeat, visibly, our solidarity from Italy and the G7,” Tajani told the ministers at the start of Tuesday’s session. “Support to Kyiv is a priority.”

The G7 has been at the forefront of providing military and economic support for Ukraine since Russia’s full-scale invasion in February 2022, and G7 members are particularly concerned about how a Trump administration will change the U.S. approach.

Trump has criticized the billions of dollars that the Biden administration has poured into Ukraine and has said he could end the war in 24 hours, comments that appear to suggest he would press Ukraine to surrender territory that Russia now occupies.

Tensions have only heightened since Russia attacked Ukraine last week with an experimental, hypersonic ballistic missile that escalated the nearly 33-month-old war. Russian President Vladimir Putin said the strike was retaliation for Kyiv’s use of U.S. and British longer-range missiles capable of striking deeper into Russian territory.

Blinken, at his final G7 before the Biden administration leaves office, thanked Tajani for the collaboration over the years and said Washington was still standing with its allies.

“Our countries are standing together, along with other partners, to deal with the ongoing Russian aggression against Ukraine," Blinken said. "We’re standing together to deal with some of the challenges posed by China. We’re standing together in looking to bring a sustainable, lasting peace in the Middle East.”

AP visual journalist Paolo Santalucia contributed.