Saving for retirement can be stressful for many consumers, as a wide array of factors come into play as consumers leave the workforce.
Now, a new study conducted by researchers from the American Psychological Association has found that saving and spending habits in retirement could come down to personality types.
“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 researcher Sarah Asebedo, PhD. “The purpose of this study was to investigate how personality traits are related to portfolio withdrawal decisions of retirees.”
What impacts spending habits?
To understand how personality type played a role in consumers’ retirement spending habits, the researchers had over 3,600 people respond to National Institute on Aging’s Health and Retirement Study.
The researchers were primarily concerned with five personality traits that mental health professionals typically look for to determine personality types: neuroticism, extroversion, openness, agreeableness, and conscientiousness. After collecting the survey data, the researchers were also able to look at the participants’ tax information in order to accurately assess how they were handling their spending habits.
The study revealed that personality type was closely linked to how retired consumers handled their money. Those who loved adventure and showed signs of creativity, as well as those who were often worried, nervous, or negative, were all more likely to spend faster than those who were more organized, cautious, and more positive overall.
The researchers also discovered that a person’s sense of control over their own finances played a big role in how retirees spent or saved; those who felt more in control were better at saving than those who were more stressed about money.
Saving and spending
Though many consumers stress about saving enough for retirement, the researchers encourage consumers not to worry just because their personality type might signal they’re more likely to make more withdrawals.
These findings simply signify a trend emerging among retirees, and consumers should be mindful of their personal financial situations when thinking about their spending and saving habits.
“A higher portfolio withdrawal rate is concerning if it places the individual on a path to run out of money too early,” said Asebedo. “However, if the higher portfolio rate does not run the risk of running out of money, then it may very well be facilitating a life well-lived. 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 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 they have saved for.”