Many retirees spend years worrying about running out of money. But financial advisors say another risk often goes unnoticed. Some retirees spend too little and fail to fully enjoy retirement.
“Overspending is risky. But underspending is risky too,” financial advisor Zach Teutsch told CNBC, arguing that some retirees become so focused on preserving their savings that they miss opportunities to enjoy the money they spent decades accumulating.
According to a recent study by the Employee Benefit Research Institute, about one-third of retirees still had 100% or more of their original retirement assets remaining by their mid-80s. Craig Copeland, the institute’s director of wealth benefits research, said the findings suggest many retirees may be overly conservative with their spending.
“When you see so many people into their 80s still at 100%, you see people who are being way too conservative,” Copeland said, according to CNBC.
However, the report also found evidence of significant asset drawdown among some retirees. According to EBRI data, about 20% of retirees who entered retirement with more than $500,000 in assets had less than 20% of their original savings remaining by their mid-80s.
Underspending Risk
Copeland said retirement spending remains one of the most difficult financial decisions because retirees do not know how long they will live or what future market returns will look like. He also noted that many people spend decades saving money and struggle to shift into a spending mindset once they retire.
Financial planner Marianela Collado said the consequences of underspending can be significant.
“It represents a life not lived, the vacations you didn’t take because you were afraid you were going to run out of money,” she told CNBC.
Teutsch compared retirement planning to sailing through a channel. One side represents the risk of running out of money, while the other represents missing out on experiences.
“Eventually, if you sail too far the other way, you end up ditching your boat on the shoals of regret,” he said.
Retirement Anxiety
The concerns come as many Americans remain worried about their financial future.
AARP found that 60% of older Americans worry about having enough money in retirement and 61% believe Social Security benefits are insufficient, while Gallup reported that a record 62% of retirees rely on Social Security as a major income source.
Among nonretirees, 69% said they were moderately or very worried about having enough money for retirement.
Retirement expectations are also becoming more expensive. A Northwestern Mutual study found Americans now believe they need about $1.46 million to retire comfortably. Nearly half of respondents said they believe they could outlive their savings, while 46% said they do not expect to be financially prepared for retirement.
Those concerns may help explain why many retirees hesitate to spend their savings even when their financial situation allows it.
Collado said the traditional 4% rule remains a useful starting point for retirement withdrawals. Under the strategy, retirees withdraw 4% of their portfolio in the first year of retirement and then adjust future withdrawals for inflation. However, she noted that the rule can be conservative and may contribute to underspending.
Teutsch favors a more flexible approach. He said retirees can increase withdrawals following strong market years and reduce spending during weaker periods. He also suggested that some retirees consider part-time work or consulting income to supplement withdrawals when necessary.
The debate reflects broader disagreements about retirement planning. Personal finance expert Suze Orman recently argued that retirement strategies should be tailored to an individual’s circumstances rather than relying solely on age-based investment approaches, saying retirees face different financial needs, market conditions and spending goals.
Disclaimer: This content was produced with the help of AI tools and was reviewed and published by Benzinga editors.
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