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Are you a Grasshopper or an Ant in your retirement?

The June'18 issue of the AAII Journal has an interesting article about observed spending/withdrawal habits of retirees across 2 different types of people: Spenders and Savers. If you have AAI subscription and haven't had a chance to read the Grasshoppers and Ants in Retirement  - please consider taking a look.

The gist of the article is that, those who have developed a life-long habit of thrift and made spending sacrifices during their work years in order to live better in retirement, find it hard to break the habit of frugality, and are likely to spend much less than what they can afford to in their retirement. This is especially puzzling for people who do not have a desire to leave a bequest. On the other hand, people who have lived a relatively lavish life during their working years do a better job in smoothing down their spending pattern from working-life to retired-life, and exhibit better "economically rational" consumption pattern. The article suggests that the habitual savers should feel relived that they are unlikely to outlive their asset, and have saved enough to dial-up their consumption pattern to a level of the typical "spenders".


Note that the article uses the terms Ants and Grasshoppers (to imply thriftier vs spenders) to draw parallel from the Aesop's fable. I personally find the analogy misleading, because unlike the Grasshoppers in the fable, the "spenders" being discussed in the article are not necessarily irresponsible spenders who make no future plans. I think "Habitual Savers" and "Responsible Spenders" are more appropriate names for the purpose of the article.


The article is based on a survey from Health and Retirement Study, using a sample of 20000 households over several years. The comparisons are done across similar asset/income categories. A Grasshopper is identified as a household who demonstrated significantly higher spending than the financial model suggests. A few interesting observations:


  1. Amongst the entire sample, 15% were identified as Grasshoppers (based on their consumption pattern before and after retirement)

  2. On average, Grasshoppers spend 10K/year more than Ants in retirement. The difference in spending between working years and retirement years falls much faster for Grasshoppers.

  3. Wealthiest 20% Grasshoppers spend up to 140K in retirement, compared to about 80K for wealthiest Ants.

  4. Grasshopper tend to spend more on non-durable consumptions (vacation, auto, hobbies, etc.).

  5. When a windfall (e.g. inheritance) is received in retirement, Grasshoppers tend to spend about quarter of the windfall amount each year, and end up consuming it in 4 years. Ants on the other hand consumes only 0.5% of the windfall amount per year - almost a negligible increase.

  6. When additional "guaranteed income" (annuitized income) is available, Grasshoppers spend 40% of the additional guaranteed income, compared to 17% for Ants.

Old habits die hard!

So, if you are already retired, are you an Ant or a Grasshopper in your retirement? If you are still working, are you an Ant or a Grasshopper now, and do you think you will transition to the other camp at retirement?
Definite ant here. I tend to spend less than I safely could; my idea of a good retirement isn't to spend down retirement funds but to have a retirement fund that is growing such that I can not only live just off the gains in any particular year, but that the fund principal itself grows year by year; thus "raises" in spending are built-in. Thus while financial advisors say you can probably safely spend down retirement funds at 4% per year, my target is more like -4%.
But I think any binary descriptors such as ant-grasshopper or spendthrift-tightwad fail to capture many more meaningful nuances. One is the concept of "champagne on a beer budget." Living well within one's means is a fine art. I've known some retirees who don't ever want to spend a nickel though they can afford it. That's simply sad. But I also find it sad when I see retirees blowing their social security checks at casinos in a mad dash to spend it all before they die; it doesn't even look like they're enjoying themselves. I wonder sometimes if they're driven by spite, wanting for instance to make sure their estranged kids don't inherit anything? I'd think they'd be happier if they at least found a good charity to name in their wills.

The champagne on a beer budget approach means you go to a restaurant for the great food you enjoy, but you go at lunch time when it's half the price of dinner time. And you scout for the best airfares for that dream vacation. It's focusing on a good quality of life but within a budget that works.
Love the -4% withdrawal target . Great point about binary attribution. While there can be extreme cases, most people tend to be a mix of both on different context, and generally gravitate towards one of the aspects (Saver or Spender) more often than not.
I'm personally on the Ant side - the habit of "save first" is deeply ingrained from my school-days. At the same time, I never hesitated to get something that I really wanted to. I think people with this nature tend to adopt your "champagne on beer budget" philosophy often.
The reason this study resonated with me is that, I'm realizing that I may of set very conservative targets to spend down my assets - I probably can loosen up a bit, without undertaking much additional risk of outliving assets.
I'm also interested in learning the behavioral/psychological reasons underneath the "saving inertia" effect. I suppose for many, the security of a handsome nest-egg gives a higher permanent mental comfort than the somewhat-temporary joy of consumption. Also, it probably much easier said than done to see the net worth declining, especially after spending a good part of the life in watching it grow.
PS:  Most people in my family (both mom and dad's family) built their life with no dependency or expectation about inheritance. I think it's rather unfortunate if kids are unable to stand on their own feet and instead have to depend on inheritance or other support.

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