Getting All of the Benefits of Retirement Spending

Christine Benz: This transition from saving all of your working years to actually spending from your portfolio. That's another thing, apart from this dividend versus capital question--people simply have trouble spending from their portfolios, some people, if they've been in the mode of being heavy savers their whole lives. What behavioral forces are at work there?

Statman: Well, people derive utilitarian, expressive and emotional benefits from spending and they also suffer costs. And so, if an advisor, say, advises a client, says, you have plenty of money; why don't you take a cruise around the world? Well, if it were me, I would jump midway because …

Benz: You get so bored.

Statman: Yeah, this is not my kind of thing. So, you really have to ask yourself what matters to me, what matters to you. And it can be some things that are indulgences for you that you did not indulge before in, such as flying business class when you go abroad. Or it might be increasing substantially your contributions to charity or inviting your entire family to join you on a cruise and having all of them join in dinner. How wonderful it is for the person who is paying for it and how wonderful is it for the family because, after all, you cannot take it with you.

Benz: Right. So, you mentioned benefits that people derive from their savings. And so, the utilitarian benefits would just be my ability to spend money on stuff I want. The emotional benefits would be stuff like, I go for that dinner with my family and it gives me great memories and I feel loved with people I care about.

Statman: Exactly.

Benz: Let's talk about expressive benefits. What does that mean?

Statman: Well, when you save you say to yourself and to other people, I am a responsible person; I'm a responsible father; I can support my children rather than being supported by my children. That really is something that you, kind of, as a part of your image, just think about your image to yourself, if you have to ask your kids to send you some money because you are running out of food.

Benz: OK. A lot of behavioral, emotional issues wrapped up here. Thank you so much, Meir, for being here to discuss them with us.

Statman: Thanks, Christine.

Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.