A new study highlights the continued gap in a retiree’s thinking between what they have saved for retirement, and what they can spend in retirement.
Health and Retirement Study: Guaranteed Income vs. 401k and IRA Withdrawals
Analysis of data from the Health and Retirement Study, by researchers David Blanchett and Michael Finke found that seniors rely heavily on guaranteed sources of income like Social Security and pensions, and tend to shy away from withdrawing from their 401ks and IRAs.
Over the course of their retirement, they spend nearly 80% of the guaranteed income they receive, but only half of available savings.
Retirement Withdrawal Rates: Why Retirees Are Underspending
In fact, a married 65-year-old couple withdraws, on average, just 2.1% of their retirement balances annually. A single retiree is more like 1.9%. Those withdrawal rates are significantly lower than they need to be.
The 2026 Retirement Study from the Allianz Center for the Future of Retirement, found 71% of working Americans said they would be reluctant to withdraw from their savings in retirement.
The “Just in Case” Retirement Mindset
Too many Americans are living a Just in Case retirement, living on as little as possible and viewing their retirement savings as money that is there, just in case.
Reason One: The Psychology of Shifting from Saving to Spending
There are two big reasons for this. One is psychological. After spending decades in savings mode, it is very difficult to flip the switch to spending mode. It is way more comforting to watch our account balances continue to go up, as opposed to potentially going down.
Study after study has found that a retiree’s worst fear is running out of money. They fear it more than they fear death. That paralyzes potential spending.
Reason Two: The Missing Written Retirement Income Plan
The second reason is associated with the first. Only about 1 in 5 retirees and near-term retirees have a formal written retirement income plan, showing them what they can spend on a monthly basis, how much they can withdraw from their assets over the rest of their lives, and how those assets can be invested to optimize their income without taking on too much risk.
A written plan gives retirees a license to spend. It’s not because they are given the go ahead to raid the piggy bank. It’s because they now have guard rails, that if they stay in between them, they have a clear path forward.
Setting Retirement Goals: Monthly Income Number vs. Asset Level
Too often workers set retirement goals around the asset level. They think if they hit $1M, $2M, or even $3M they have achieved their goals and are ready to retire. That is the wrong number to be focused on. They should instead set retirement goals around a monthly income number, which comes from Social Security, pension, AND retirement assets. Building a written retirement income plan with a financial advisor can help you find that number.
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