The difficulty of spending in retirement is, at least in part, psychological. People who have spent the past 30-40 years working so hard to accumulate their nest egg (living like a resident for the first few years out of training, utilizing a high savings rate, spending intentionally, etc.) can’t just flip a switch when it comes to the decumulation phase.
The paycheck that replenishes your checking account every two weeks suddenly disappears, and the phrase, “Don’t worry; we can always make more money,” begins to ring hollow. Your spending rate becomes even more important, and you have to mathematically figure out how much you can withdraw from your portfolio so you don’t run out of money before you leave this earth for good.
A lifelong accumulator doesn't flip a switch and magically become a decumulator. It’s psychologically recalibrating your entire money life.
The Toughest Problem for a Retiree
How could that paradigm shift not be difficult? Christine Benz, the director of personal finance and retirement planning for Morningstar, who delivered a keynote address at WCICON26, called it a retiree's toughest problem.
“My guess is that for a lot of you, you’ve been good savers, you’ve taken in a lot of wisdom on how to invest wisely,” Benz told the WCICON audience (which you can now watch on the Continuing Financial Education 2026 course (Use code CFE100 to save an additional $100 until May 12.)). “The issue is that when it comes to turning on spending in retirement, people truly struggle with this. Especially affluent older adults who have maybe more than enough, they struggle with spending in line with what they could actually spend.”
People love to watch their net worth increase year after year. When that net worth starts to decrease and the millions start to slip away, it could be a cause for panic even if, as Benz said, they have more than enough.
As various surveys have noted, 3/4 of retirees reported that their assets remained the same or actually grew in retirement, and 55% of financial professionals said that many of their clients spend “much less” than they can afford in retirement.
Said Benz, “They say, ‘I can’t get my clients to spend.’ I have to cut checks to them and say, ‘You’re spending it.’”
One of the problems is the unknowable nature of retirement. You don’t necessarily know when retirement will start. You don’t know how long it will last. You don’t know how healthy you’ll be, how long you can travel and take part in the so-called go-go years, or if you’ll need to spend large chunks on long-term care. You don’t know what the market returns will be. You don’t know how high inflation will get. You probably don’t know what you don’t know.
Psychologically, what made you a good saver could make you a bad spender, and not having a clear crystal ball can make retirement a difficult mental exercise.
“There are,” Benz said, “a lot of wild cards figuring into this safe spending rate discussion.”
What About the 4% Rule?
Many people cite the 4% rule—where you can be about 90% sure that your retirement money will last 30 years if you withdraw 4% of your portfolio per year (increasing with inflation)—as their guiding light in retirement spending. But not even the creator of the 4% rule, Bill Bengen, believes that’s a true measure of how much you can spend in retirement.
The 4% rule is more of a minimum, Bengen says now, and he actually spends something like 4.9% per year. As Benz said during her keynote, the 4% is a great starting point for determining how much to spend in retirement. But that number is anchored in history, and it doesn’t account for the future to come (it’s yet another unknowable).
Here are some limitations of the 4% rule:
- Humans don’t spend that way in reality. As Benz said, they tend to spend more in the go-go years of early retirement with all the pent-up demand of travel and after their adult kids have reached independence. Retirement spending isn’t linear. It’s more of a smile, where you spend more during your go-go years, less during your slow-go years, and perhaps even more during your no-go years.
- It assumes a worst-case scenario. The economy probably isn’t going to crater for 5-10 years during the early part of your retirement.
- Static spending systems contribute to big leftover balances. The 4% rule assumes the worst-case scenario over a 30-year period. But most 30-year periods aren’t going to be a worst-case scenario, so you’ll likely have plenty left over (studies show that, on average, a retiree who uses the 4% rule ends up with 2.7x more than what they started with at the end of 30 years). “Who cares?” you might ask. “That just means my heirs will have more to spend.” True, Benz said, but that also means you’ve short-changed your own quality of life and short-changed the ability for you to give with warm hands when that money could have had a greater impact (instead of just giving after you’ve died).
- It doesn’t take current conditions into account (and they do matter). What does inflation look like now? What do bond yields look like? How are equities doing? As Benz noted, using 4% is too backward-looking.
How to Spend More in Retirement
Benz said retirees shouldn’t settle for a hard spending rule of 4.9% or 4% or 3.5%. Instead, you should employ a more flexible system where you can either use a guardrails strategy, an RMD strategy, or another kind of variable spending strategy.
But psychologically, how do you make yourself spend the money when you’ve been a saver and not a spender your entire adult life? Here are some tips from Benz:
- Get your financial advisor to give you an allowance. Yes, this might sound like you’re a kid holding out your hand to a parent fumbling through their wallet or purse, but if you can’t bring yourself to withdraw money from your portfolio to spend, get your advisor to do the dirty work for you and send you what basically amounts to a paycheck.
- Buy a SPIA, one of the “good” annuities that's basically like purchasing a pension.
- Take care of the big-ticket items before you retire. If you have to buy a new car or install a new roof, do it while you’re still working. “[Near-retirees] feel fine when they’re earning income,” Benz said. “They’ll feel worse about it after they’ve already retired.”
- Create separate “buckets,” like you might when you were accumulating—a bucket for long-term care expenses, a bucket for legacy goals, a bucket for charitable giving, etc.
- Spend the stable income. As Benz said, retirement income isn’t created equal in a retiree’s mind. They might be more comfortable spending Social Security checks, annuity payments, dividends, RMDs, and advisor-generated paychecks. That way, they probably won’t see their net worth falling (though they’ll also still end up with more money than they expected).
As for how Benz and her husband will spend in retirement, she noted that pre-retirement research is key.
“A super elegant system is to spend some time looking at your household budget and look at all your fixed expenditures and get your fixed income to align with your fixed expenditures,” she said. “My husband and I will have equivalent levels of Social Security. We may buy some type of very simple income annuity, just to get those two things to line up, where our fixed outflows will align with a fixed income. Then, I’ll gravitate to some sort of dynamic spending system along the lines of a guardrail approach or probability-based guardrails.”
Benz also has a financial planner, who is already helping her and her husband spend more money on what they care about.
“Retirees say they struggle with this, that their assets stayed the same or even grew in retirement,” Benz said. “This is something financial professionals have recently begun to talk about really candidly. ‘I can’t get my clients to spend … You’ve told me it’s not your wish to leave your nest egg behind. Let’s get moving.’ The psychology is enormous. What made us a good saver is going to make spending difficult.”
More information here:
Helping Natural Savers to Spend During Retirement
Money Song of the Week
While we were in Las Vegas for WCICON26 in late March, at least a few of the attendees headed to the Sphere one night to watch the Eagles play what apparently was an incredible show. The next day, as one attendee showed me videos of the performance on his phone, we tried to determine which of the classic rock band’s tunes would make for a good Money Song of the Week.
Take It to the Limit is a good choice, because the 1975 song discusses life as a road musician and how you just have to keep on going, no matter the cost. Fifty years later, when we talk so much these days about mental wellness and burnout prevention, this probably isn't a sustainable way to live and be happy over a long period of time. Taking it to the limit these days is probably a recipe for a flameout.
As Randy Meisner sings,
“You can spend all your time making money/You can spend all your love making time/If it all fell to pieces tomorrow, would you still be mine?
“And when you're looking for your freedom (Nobody seems to care)/And you can't find the door (Can't find it anywhere)/When there's nothing to believe in/Still you're coming back, you're running back, you're coming back for more.”
Here’s how the Eagles performed it at the Sphere with Vince Gill taking the lead vocals.
Interestingly, the song helped lead to the end of Meisner’s time in the band. As American Songwriter explains:
“Though the recorded version of this track sees Meisner flawlessly hit a soaring high note, it wasn’t always easy for him to replicate. It caused him an immense amount of anxiety while on tour. As the story goes, Meisner was set to perform the track as an encore at an Eagles show but ultimately refused to do so. The decision didn’t sit right with [guitarist/singer Glenn] Frey, causing a fight to break out between the two band members. Meisner left the group soon after, finding himself at odds with the band.”
Ultimately, his decision to depart the band he helped create probably cost Meisner tens of millions of dollars of future earnings. Although Meisner fought through plenty of trouble in his life before he died in 2023, his decision to take it easy and leave what was probably a toxic situation was likely what was best for his mental health.
“When it got to the point of sanity or money,” he told People, via Music Times, in 1981, “I thought I'd rather have sanity.”
More information here:
Every Money Song of the Week Ever Published
YouTube Short of the Week
Here’s Warren Buffett kinda sorta comparing wealth-building to an older generation of fast food enthusiasts who could earn a free foot-long sub after previously buying six of them.
How do you plan to spend in retirement? Will it be psychologically difficult for you to spend after you're done working? What are some solutions for you?