by Nicholas A. Hamner
Investment Advisor Representative & Director of Marketing
[email protected]
Before we get started… I know at least two of you out there reading this own Corvettes. This article is not about you! This article is about hobbyists who “hypermile”. A hypermiler’s goal is to maximize the fuel efficiency of their cars and make a tank of gas last as long as possible. They’re the ones still driving 55 MPH down the highway, engine doing the lowest revs possible while the transmission is in the highest gear possible. They’re coasting down hills, braking slowly, and accelerating even more slowly. At stop lights, they’re cutting the engine and, no matter the weather, they will have their windows up and the A/C off.
Think about how that works in practice. Imagine a road trip to Disney World in July, and hypermiling the whole way. From our offices to the entry gate of the Magic Kingdom, it’s 1,013.6 miles. That’s filling up in Horsham and driving 20+ hours in the right lane, making no stops, with no breeze or A/C. Sure you get there on a single tank, but… that is the most miserable trip I can think of. And I once went from Alabama to Iowa in a bus.
That said, a lot of folks out there still plan for retirement like they’re going to “hypermile” their savings. They’re going to retire with as much money as they can (start the road trip with a full tank of gas) and see just how far they can get while spending as little as possible. Where they’re going matters less than making sure gas doesn’t disappear from the tank.
A study from two New York Life VPs titled “The Decumulation Paradox” came out in the end of 2023 and got ignored through most of 2024. The research these VPs did studied retirees’ spending habits, and their analysis showed that 34% of retirees aged 65-74 and 45% of retirees aged 75 and up were not spending as much as they brought in (read: were not touching their savings). That same study showed that those retirees were twice as likely to cut items from their budget than they were to dip into their savings. This rings true even for retirees who were and are high-income earners.
So why do people do it? Well, the number one thing we hear from folks coming into the office is that they’re scared of running out of money. The gas parallel works here. They parked on a hill, they filled up their tank with savings, and they’re planning to coast as far as they can on that one tank, but they don’t know if they’ll make it the whole way. That speaks to a lack of a cohesive plan, which we’ll get to in a minute.
But others aren’t worried about running out of money. People with millions of dollars in savings still aren’t touching that money. Why? Some of the reasons offered in the study were:
• Loss Aversion – A trick of the human mind, we ascribe more weight to bad outcomes than to good ones and, as such, fear the bad outcomes a lot more. Alternatively, we all remember 2009 when poor investments kneecapped the market for a long time.
• Mental Accounting – Otherwise known as compartmentalizing. We break things up to deal with them better, so they don’t become overwhelming. Folks tend to compartmentalize money in three ways-current income, current assets, and future wealth. Savings gets packed into “future wealth” and we never think of it again. The future is perennially a few years away.
• Familiarity Bias – Sticking with what you know and are comfortable with. Retirees get comfortable living on less than they earn, and continue to do so in retirement.
• Endowment Effect – Giving the things you personally own an inflated sense of value. We work so hard to reach a specific goal (e.g. “I want to be a multi-millionaire!”) that we value that goal more than we value the options achieving that goal provides. The endowment effect makes it where we’d rather die saying we’re a multi-millionaire than enjoy the bump in comfort that that money could provide.
But back to hypermiling retirement. It’s a miserable way to travel; why would anyone want to retire that way? People hypermiling their retirement because they are scared of running out of money are people that haven’t planned their retirement years. For road trips, isn’t it better knowing where you can stop for gas and knowing that you can afford to stop for gas… travel at the speed you want, in the comfort you want, and actually enjoy the trip? Your retirement should be plotted out the same way.
A written, comprehensive plan—one that accounts for emergencies, accounts for inflation (even crazy-egg-price inflation), and provides a clear view of what your finances look like today, tomorrow, and ten years from now—is your roadmap.
And while no one is saying you need to go out and become a riverboat gambler and be foolish with your money once you retire, living like a miser in your done-with-work years means you’re putting the interests of your heirs, the nursing home, and Uncle Sam before your own. And that’s not good at all!