After decades of disciplined saving, most retirees find they can't pivot to spending.
Research from the Employee Benefit Research Institute (EBRI) found that within the first 18 years of retirement, retirees with between $200,000 and $500,000 in pre-retirement assets spent down just 27% of those assets. About one-third of all sampled retirees had actually increased their assets over that same period.
In most cases, the reason is fear.
The Saver’s Dilemma
The habits that make someone a successful accumulator often work against them in retirement. Frugality, delayed gratification, and anxiety about future uncertainty are virtues during working years, but in retirement, the same instincts produce chronic underspending, foregone quality of life, and the kind of financial anxiety that no portfolio balance can resolve.
EBRI raises the question: are retirees determined to preserve their assets, or are these patterns the consequence of behavioral biases and lack of education about how to spend down savings? One is a preference; the other is a failure of planning infrastructure.
Without a structured income plan, every financial decision forces a retiree to choose between spending now or having enough later. Without a clear answer, most default to spending less.
The Retirement Spending Smile
Morningstar's David Blanchett documented the pattern he called the "retirement spending smile”: real spending declines slowly in early retirement, more rapidly through the middle years, then edges back up late in life as healthcare costs rise. Retirement spending declines approximately 1% per year, meaning the average retiree spends about 26% less in inflation-adjusted terms at age 84 than they did at 65.
In the early years of retirement, spending capacity is highest. Often, retirees are in good health and exercising pent-up demand for travel and other deferred activities. But many retirees never spend what they could in this phase out of fear of outliving their money.
Blanchett’s research suggests retirees may need as much as 20% less to retire than traditional planning models have assumed, yet the observed behavior is the opposite: they underspend because they’re uncertain, not as a calculated choice.
The Impact of a Structured Income Plan
A structured income plan gives clients a defined income stream, mapped to their actual spending needs, with a clear picture of how long it lasts.
When a client can see that essential expenses are funded for 20 or 25 years regardless of what the market does, spending starts to feel like using a resource that was built for that purpose, not drawing down a finite pool of savings.
The Advisor’s Role
Advisors are uniquely positioned to address this problem, but only if they have the tools and framework to do it.
When a client sits across from their advisors five years before retirement, they need a spending plan that connects their portfolio to their life. Advisors who are able to build those plans turn retirement transitions into opportunities to deepen engagement. And clients who feel confident and well-served in retirement are more likely to tell other people about it, creating a referral flywheel.
Your clients have worked for decades to build real wealth. The most valuable thing you can do as an advisor is help them use it.