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It takes decades to build a comfortable nest egg — a commitment to sacrifice and saving. Often, it’s the places they plan to visit and the hobbies they hope to pursue when they leave the workforce behind that motivates future retirees to keep funding their 401(k).
When retirement day finally dawns, however, many struggle to make the shift from saver to spender. Forged by years of financial discipline, retirees often experience anxiety about spending down the wealth they worked so hard to accumulate, forcing themselves to live below their means despite having adequate funds available.
A 2024 report by the Alliance for Lifetime Income found that nearly half of America’s retirees (46 percent) said spending their retirement savings creates anxiety, enough to extract an emotional toll.1
The Employee Benefit Research Institute also found that one-third (33 percent) of the retirees it surveyed planned to spend only a small portion of their assets during retirement, while 8 percent planned to either maintain or grow their assets as they age, further evidence that many may be spending less than they can appropriately withdraw.2
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Why? Some have an aversion to financial uncertainty, specifically the big unknowns of how long they may live and how much their investments may return. Others have simply adopted an identity of frugality over the years and restrict themselves to living off their retirement income alone. And then there are those who put limits on their spending to maximize the financial legacy they leave behind. (Learn more: How to live off investment income alone in retirement)
Permission to spend responsibly
It is prudent to be budget-conscious when you’re on a fixed income, to be sure, but research shows that it is also important to prioritize your physical and emotional well-being.
“That’s where purpose-driven spending comes in,” said Nan Ives, co-founder of The Future of You, which helps retirees restore balance when job titles disappear. “Using your money in ways that bring joy, connection, or fulfillment — that’s not indulgent. Because the point of saving all those years wasn’t just to not run out. It was to live well.” (Learn more: 10 ways to find meaning and purpose in retirement)
Studies show that those who socialize and stay active during retirement:
- Enjoy greater independence and mobility as they age.3
- Reduce their risk of depression and anxiety, a common by-product of the isolation that some retirees experience.
“The truth is, retirement isn’t just a financial transition. It’s a whole life transition,” said Ives. “I’ve got friends who are really embracing this phase of life — traveling the world, spending their savings, and not losing sleep over their retirement accounts. And honestly, it’s refreshing to see. They’ve realized that at this stage, it’s not just about preserving a balance sheet. It’s about making the most of your time.”
Steps to help retirees enjoy their savings
If financial fear is hampering your ability to embrace retirement or you find yourself living on less than you can afford, there are some simple steps you can take today to potentially convert more of your savings into income without increasing your risk of outliving your savings. (Related: How money affects your mental health)
You can:
- Work with a financial professional to create a detailed spending plan that maximizes your sustainable withdrawal rate. It may surprise you.
- Transfer longevity risk to an insurance company by purchasing an annuity with guaranteed lifetime income.4
- Consider a whole life insurance policy to facilitate your wealth transfer goals, so you can spend down your remaining assets worry-free.
Work with a financial professional to determine a safe withdrawal rate
It can be unnerving to watch your retirement account balance shrink in size with every withdrawal, especially when there’s no new money coming in. In many cases, a financial professional can put your mind at ease.
By working closely with a trusted professional, you can discuss your lifestyle goals and create a comprehensive spending plan that outlines how much you can safely withdraw from your principal and earnings every month. (Learn more: The ideal retirement withdrawal rate)
Indeed, while many retirees start by withdrawing 4 percent of their retirement savings during their first year of retirement (adjusting for inflation every year thereafter), you may be able to safely take out more — or less — depending on your:
- Financial goals
- Portfolio balance
- Investment returns
- Living expenses
- Life expectancy
- Guaranteed income sources from Social Security or pensions
Martin Battock, a life coach and financial professional with GoldBook Financial in Scottsdale, Arizona, said many of his clients struggle with a scarcity mindset until they see their long-term spending strategy plotted out on a chart. Being able to visualize how their withdrawal rate affects their retirement account balance over the long term, he said, gives them permission to take that cruise they’ve been putting off.
“Having a solid financial plan can make all the difference,” said Battock. “If you take two couples who have identical financial circumstances, the one with a comprehensive financial plan has more confidence in their ability to convert some of their savings to income every year, versus the couple who used a software program to spit out a financial plan in three or four minutes. The couple with the holistic plan can see line by line where their income is and how much they still have.”
Annuities can help supplement your guaranteed income
Faced with the uncertainty of how long they will live, retirees understandably express a preference for living off their income and leaving their principal largely untouched, especially during the first decade of retirement to preserve savings for later years.
But for those who dutifully saved and kept their expenses in check, that may be too conservative.
One way for retirees to counter longevity risk, or the odds of outliving their assets, is to boost their guaranteed income stream.
“Retirees who are behaviorally resistant to spending down savings may better achieve their lifestyle goals by increasing the share of their wealth allocated to annuitized income,” the Retirement Income Institute wrote in a recent report.5
That can potentially be achieved, the report suggests, by waiting to claim their Social Security retirement benefits until after their full retirement age, which yields a permanently higher benefit check, choosing a job with an employer pension during your working years, or purchasing an income annuity from an insurer.
“A rational, risk-averse retiree who does not transfer longevity risk will spend less each year than if they had purchased a fairly priced income annuity,” the Retirement Income Institute wrote in its report.5
Battock agrees, noting that annuities sold by insurance companies can potentially help close the gap between a retiree’s monthly living expenses and their other guaranteed sources of income from pensions and Social Security. Doing so can provide assurance that their bills will get paid regardless of how their investment portfolio performs.
“That transition to retirement is difficult,” said Battock. “As a financial professional, I often have to guide my clients to help them determine what retirement means to them — what their personal goals and values are. They’re now at their destination — retirement — but they can’t forget to live.”
Consider a whole life insurance policy
Whole life insurance is another possible solution for retirees who restrict their spending because they wish to leave a financial legacy. Yes, it may be expensive, given the typical age and health of those entering retirement years. But some of the benefits may make the cost worthwhile.
The guaranteed death benefit from a whole life insurance policy is generally paid out income-tax-free to the policyowner’s beneficiaries, as long as the policy remains in force.
As such, it can potentially be used as an estate planning tool, ensuring that each of the named beneficiaries eventually receives an inheritance when the policyowner passes away. That, in turn, gives the policyowner/retiree license to spend down their remaining savings on things they value most — like trips to visit grandchildren, donations to a favorite charity, or home improvements that may help them age in place. (Learn more: 6 ways life insurance can be used for estate planning)
Beyond the death benefit, a whole life insurance policy, which falls under the category of permanent life insurance, also builds cash value, which the policyowner can borrow against during their lifetime without penalty to pay for unexpected expenses or supplement their retirement savings. Note that borrowing from cash value will reduce the policy's cash value and death benefit, increase the chance the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured.
If you have a partner, whole life insurance can also be acquired to cover two people. (Related: What is a survivorship life insurance policy?)
Conclusion
There’s more to retirement than financial security alone.
By working with a financial professional to safely maximize their retirement account withdrawal rate and taking advantage of financial products that may help supplement their income stream and/or safeguard their financial legacy, retirees can potentially position themselves to better enjoy their golden years without worrying about outliving their savings. “Because, in the end, your greatest legacy isn’t just what you leave behind — it’s the life you live while you’re here,” said Ives.
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Frequently asked questions about retirement spending
Q: Why do so many retirees struggle to spend their savings?
A: After years of disciplined saving, the psychological shift from accumulator to spender can feel deeply counterintuitive. Many retirees carry an internalized identity of frugality, and that mindset doesn't simply switch off at retirement. Others hold back because of genuine uncertainty: they don't know how long they'll live or how their investments will perform. And some keep a tight grip on their wallets specifically to preserve a financial legacy for the people they love.
Q: Is it actually okay to spend your retirement savings? Yes — that's precisely what they're for. While budget-consciousness on a fixed income is prudent, consistently living below your means when you have adequate resources isn't protecting you; it's shortchanging the retirement you spent decades building. A thoughtful spending plan — rather than a fear-based one — helps you enjoy retirement to its fullest.
Q: How can an annuity ease retirement spending anxiety?
A: An annuity provides a guaranteed stream of income you cannot outlive, which directly addresses one of the biggest fears driving underspending: longevity risk. When a portion of your essential expenses is covered by guaranteed income, you may be free to spend your remaining assets without worry, knowing your financial floor is secured.
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1 Alliance for Lifetime Income, “2024 Protected Retirement Income and Planning Study.”
2 Employee Benefit Research Institute, “2022 Spending in Retirement Survey: Understanding the Pandemic’s Impact,” Oct. 6, 2022.
3 Center for Retirement Research at Boston College, “Socializing Improves Retirees’ Physical, Mental Health,” May 4, 2023.
4 Guarantees are contingent upon the claims-paying ability of the issuing company.
5 Retirement Income Institute, “Guaranteed Income Gives You A License to Spend,” June 2024.
