Why So Many Retirees Struggle to Spend Their Money

February 26, 2024

When most people think about retirement issues, they assume overspending is the problem. But in reality, one of the most common challenges I see with new retirees is actually the opposite: under spending.

After a lifetime of saving, it can be surprisingly difficult to give yourself permission to enjoy your money.

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Why Spending Feels So Hard

You spend decades working, building your savings, and watching your accounts grow. Then, almost overnight, you are asked to reverse course and start drawing down your nest egg.

For many, this shift from accumulation to decumulation is emotionally uncomfortable. Seeing account balances shrink, even if it is part of a smart plan, can feel like you are losing control. Some retirees never fully get over this feeling and continue living frugally, even when they don’t need to.

There is no quick fix. But sometimes it helps to change your perspective.

What Would Your Younger Self Say?

Let’s say you worked an average of 40 years and earned about $50,000 per year throughout your career. That’s a lifetime income of around $2 million. Now imagine you pass away with a million dollars still sitting in your portfolio.

That means you effectively worked 20 of those years for free.

If you could go back in time and tell your younger self that story, what do you think they would say? Would they tell you to enjoy more of what you earned while you could?

I’d bet the answer is yes.

The Real Fear: Running Out of Money

The fear of outliving your savings is valid. Nobody wants to spend down their accounts only to be forced back to work later in life. But that fear can often be managed by creating a clear retirement income plan.

A good retirement plan will help you visualize what you can safely spend. For example, you might see that spending $5,000 a month leaves a million-dollar estate, while spending $6,000 leaves $750,000. Either way, you don’t run out of money, but now you can make that extra spending decision with confidence.

What About the Kids?

Another reason many retirees hold back on spending is concern for their children and grandchildren. They feel like every dollar spent is a dollar less left behind.

There are a few ways to reframe that:

Decide on a number you would be proud to leave behind, set it aside, and give yourself permission to spend the rest.
Consider giving part of your legacy now. Your kids might prefer help today when it makes the most difference in their lives.
If you don’t have the money set aside, life insurance can be a useful tool to secure your legacy while freeing up income to enjoy your retirement.