Withdrawals from retirement portfolio are driven by personality according to a new study
Some people are more likely than others to spend their retirement savings faster, but is this an entirely individual decision or is there a personality type that is more likely to do so?
That’s what a study by researchers at Texas Tech University wanted to find out and they discovered that personality has more to do with retirement spending than levels of debt or desire to leave an inheritance.
“Little is known about what personally motivates retirees to withdraw money from their investment portfolios as most studies on portfolio withdrawal rates address technical issues, such as minimizing risk of financial shortfall or making spending adjustments based on perceived life expectancy,” said Sarah Asebedo, PhD, of Texas Tech University and lead author on the study. “The purpose of this study was to investigate how personality traits are related to portfolio withdrawal decisions of retirees.”
The study, published by the American Psychological Association, found that the fastest spenders were those who are agreeable or more open to new experiences, and those who are neurotic or negative.
Extroverts and those with a positive attitude are less likely to burn through their savings quickly.
The study of more than 3,600 people aged 50+ (average age 70) scored them based on the five key personality traits: Openness to experience conscientiousness, extroversion, agreeableness, and neuroticism.
But researchers also considered how much control participants believed they have over their financial situation and how negative or positive they were over the previous 30 days.
Results accounted for technical factors such as expectation of leaving an inheritance, age, marital status and mortgage debt; which are known to affect portfolio withdrawal decisions.
“We found that those with greater conscientiousness, extroversion, positive emotions and feelings of control over their finances withdrew from their retirement portfolios at a lower rate than those with greater openness, agreeableness, neuroticism and negative emotions,” Asebedo said.
FAs should take note
The study “The Psychology of Portfolio Withdrawal Rates,” by Sarah Asebedo, PhD., and Christopher Browning, suggests that financial advisors should consider their clients’ personalities when developing retirement strategies.
And faster withdrawal rates are not necessarily bad, or slower rates good, says Asebedo.
“A higher portfolio withdrawal rate is concerning if it places the individual on a path to run out of money too early. However, if the higher portfolio withdrawal rate does not run the risk of running out of money, then it may very well be facilitating a life well-lived,” she said. “Similarly, a lower withdrawal rate is a good thing if it facilitates controlled spending from the portfolio at a level that protects it from early depletion. If the individual is under-spending and forgoing experiences that they would enjoy because of a saving habit they are unable to break, then the low withdrawal rate is a missed opportunity to maximize the life that they have saved for.”
Does our personality influence how quickly we spend our retirement savings? A new study published in the journal Psychology and Aging suggests that certain traits may affect how often we tap into that nest egg. https://t.co/zLyCSnC9zV
— American Psychological Association (@APA) November 18, 2019
