The childhood fear of monsters under the bed eventually fades, but for many adults, it’s replaced by a different kind of anxiety: the worry about having enough money to last through retirement.
This anxiety makes sense considering that today’s Americans must not only accumulate retirement funds but also figure out how much they can safely withdraw each year. Many people feel unprepared for this challenge, particularly since miscalculating could mean financial hardship later in life.
New research from Morningstar’s Behavioral Insights Group reveals that half of all retirees choose very basic methods for determining their annual spending, including calculating current living costs, withdrawing only dividend payments, or basing decisions on required minimum distributions.
While a simple, hands-off strategy might seem like a wise response to financial uncertainty, these basic methods fail to consider important factors like total assets, personal objectives, or economic changes such as rising prices. The result is typically an inflexible and excessively cautious spending plan.
Surprisingly, despite widespread concerns about running out of money, retirees with at least average asset levels typically spend less than they safely could. Many actually watch their wealth grow rather than shrink throughout retirement. This pattern remains consistent even when considering retirees who plan to leave inheritances or expect lengthy retirement periods.
The problem affects even those using more sophisticated approaches like safe withdrawal rates. “Even the retirees who spend in line with our ‘base case,’ which in 2025 meant taking 3.9% initially and inflation-adjusting withdrawals each year thereafter, will tend to have significant remaining balances after 30 years of withdrawals,” says Christine Benz, Morningstar’s director of personal finance and retirement planning.
For these retirees, the real risk isn’t poverty, but rather failing to fully enjoy the rewards of their lifetime of work.
You might be spending less than you could afford if you:
1. Use basic, passive approaches like withdrawing only dividends and interest, calculating based on current lifestyle needs, or taking only required minimum distributions.
2. Notice your retirement account balance stays flat or continues growing each year.
3. Put off necessary or desired purchases that you can reasonably afford.
If this sounds familiar, you’re not alone. It’s understandable to think, “The worst outcome would be depleting my savings, and I can prevent that by sticking to this basic spending approach.” But developing a more customized strategy for retirement income could help you avoid underspending and create a more fulfilling retirement experience.
The research indicates that many retirees need personal motivation to embrace more sophisticated income planning methods. Just as goals helped drive your saving habits during your working years, retirement goals can encourage appropriate spending.
To establish your retirement objectives, start by identifying the values you want to honor throughout this life stage. A framework like the PERMA-V model can help you clarify what’s most important to you. Then, create financial targets that support the lifestyle you envision.
For instance, you might discover that you value time outdoors because hiking makes you feel joyful and connected to your surroundings. You could then create a list of the top 10 national parks you’d like to explore and aim to visit them all within the next decade. This goal gives you an exciting reason to use your retirement savings in a way that aligns with your values.
With this new motivation, reconsider your retirement spending approach. Do your current basic strategies support these new objectives? If not, you might explore other slightly more complex guidelines for retirement spending, such as a safe withdrawal rate.
If tackling more sophisticated strategies alone feels overwhelming, working with a financial adviser can help you determine how to access your retirement funds while achieving your goals.
Taking a more active role in planning your retirement spending might seem intimidating, but don’t let that fear prevent you from living the retirement you’ve envisioned.
