The Retirement Underspending Risk No One Warns You About
New research shows a surprising number of retirees arrive in their mid-80s with every dollar they started with. The cost isn’t financial. It’s the trips they skipped, the experiences they postponed, and the life they left on the table.
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Every retirement article you’ve ever read probably warned you about the same thing: don’t run out of money. Save more. Spend less. Be careful.
For a large group of retirees, that advice worked too well. They saved diligently, built portfolios worth seven figures, and then couldn’t bring themselves to spend any of it. The retirement underspending risk turns out to be just as real as running out of money, and for well-prepared retirees, it’s far more likely.
Retirement underspending risk is the tendency of well-prepared retirees to withdraw far less than they can safely afford, often out of fear rather than necessity. EBRI research found roughly one-third of retirees still held 100% or more of their original savings by their mid-80s. For many, the cost is missed experiences, not a financial shortfall.
The Data Behind Retirement Underspending Risk
The EBRI study tracked household assets over 30 years. The headline finding: one in three retirees reached their mid-80s with their full nest egg intact or larger. Craig Copeland, EBRI’s Director of Wealth Benefits Research, was blunt: that many people reaching their 80s with untouched savings means they’re being far too conservative. Morningstar’s Behavioral Insights Group confirmed the pattern, finding that retirees with at least median assets consistently underspend relative to what they could safely withdraw.
About one-fifth of retirees who started with more than $500,000 had less than 20% remaining by their mid-80s. Both problems are real. But the planning industry focuses almost exclusively on one.
The savings mindset that got you to a seven-figure portfolio doesn’t shut off the day you retire. For many people, decades of “save more” conditioning becomes the biggest obstacle to actually enjoying what they’ve built.
Why Retirees Underspend (Even When They Know Better)
Morningstar found half of retirees rely on simplified withdrawal methods like spending only dividends or anchoring to required minimum distributions. EBRI’s 2024 survey found 38% of retirees described themselves as having a “savings mindset,” and only 11% identified as spenders. When frugality is your identity, spending feels like failure. And 98% of retirees in Morningstar’s study had no intention of changing their withdrawal approach, not because they’d run the numbers, but because inertia felt safe.
The Retirement Spending Smile: Your Needs Change More Than You Think
One reason people underspend is they plan for flat expenses across 30 years. Real spending follows a U-shaped curve that researcher David Blanchett of Morningstar calls the “retirement spending smile.” Michael Stein popularized the three phases.
| Phase | Typical Ages | Spending Pattern |
|---|---|---|
| Go-Go Years | 62–72 | Higher spending on travel, hobbies, dining, bucket-list activities |
| Slow-Go Years | 72–82 | Gradual decline as energy and desire to travel decrease |
| No-Go Years | 82+ | Low discretionary spending, but potential spike in healthcare costs |
Blanchett found real spending drops 1% to 2% per year through the slow-go and no-go phases, and that retirees may need as much as 20% less over a full retirement than flat-line models assume. The go-go years are when each dollar spent delivers the most value. At 85, that trip to Italy isn’t just more expensive. It may not be possible.
When the 4% Rule Works Against You
The 4% rule was designed to survive catastrophe, not to optimize spending. For 2026, Morningstar pegs the safe starting withdrawal rate at 3.9% for a 90% probability of funds lasting 30 years. But retirees willing to adjust spending based on market performance can safely start as high as 5.7%. Even the rule’s creator, William Bengen, has revised his own number to 4.7%.
On a $2 million portfolio, the gap between 3.9% and 5.7% is the difference between $78,000 and $114,000 per year. That’s several major vacations, a home renovation, or years of helping grandchildren with education costs.
| Strategy | Initial Rate | Year 1 on $2M | Flexibility Required |
|---|---|---|---|
| Morningstar fixed safe rate | 3.9% | $78,000 | None |
| Traditional 4% rule | 4.0% | $80,000 | None |
| Bengen revised rate | 4.7% | $94,000 | Moderate |
| Morningstar dynamic rate | Up to 5.7% | $114,000 | Yes, annual adjustments |
The fixed approach treats every year and every retiree the same. It ignores Social Security, pensions, and the spending smile. For well-funded retirees, following it rigidly often means leaving a large, unintended inheritance.
What a “Permission to Spend” Framework Looks Like
The fix isn’t reckless spending. It’s structured flexibility. Financial planner Marianela Collado described the cost of underspending as “a life not lived.” The goal is replacing fear with a plan that matches how retirement actually works.
Start by covering non-negotiable expenses with guaranteed income: Social Security, pensions, or annuities. Once your floor is secure, every portfolio dollar above it is genuinely available. Then adopt dynamic withdrawals, adjusting your rate year to year based on performance. Front-load your go-go years and set aside a healthcare reserve from the start. If a Monte Carlo simulation shows a 95%+ success rate, you can almost certainly spend more.
- Does our guaranteed income from Social Security, pensions, and annuities cover our essential expenses?
- What is our Monte Carlo success probability, and is it so high that we’re clearly leaving money on the table?
- Are we using RMDs as our spending guide, and have we explored what a dynamic withdrawal strategy would allow?
- What specific experiences are we postponing, and what would it cost to do them in the next two years?
- Do we have an intentional plan for giving, or are we defaulting to an accidental inheritance?
- Portfolio balance has stayed flat or grown every year since retirement, but you still feel anxious about spending
- You’re only withdrawing dividends and interest, never touching principal
- You’ve declined trips or gifts to family because of a vague “what if,” not a specific financial constraint
- Your financial plan shows a 98%+ success rate and you still say “not sure we have enough”
Who Should Rethink Their Spending
- Retirees with $1M+ whose balances have held steady or grown since retirement
- Couples where one partner resists spending out of caution, not math
- Healthy retirees in their 60s and early 70s deferring experiences to “later”
Who Should Stay Cautious
- Retirees with limited guaranteed income and portfolios under $500,000
- Anyone without a spending floor covering essential expenses
- People with long-term care risk and no insurance or reserve
The Bottom Line
Financial advisor Zach Teutsch uses a sailing analogy that captures this well. Imagine you’re steering through a narrow channel. Rocks on one side represent running out of money. Rocks on the other represent missing out on the life you worked for. Both sides can sink you.
If you saved responsibly and arrived at retirement with a seven-figure portfolio, you’ve already solved the hard problem. The remaining challenge isn’t protection. It’s permission. The research is clear: for well-prepared retirees, the most common mistake isn’t spending too much. It’s spending too little, and realizing it too late to do anything about it.
This content is for informational purposes only and does not constitute financial, tax, or legal advice. Consult a qualified fiduciary advisor before making significant financial decisions.
