These Retirees Have a Good Problem. They Aren’t Spending Enough.

A 14-day safari in Kenya in 2020. A trip to visit all five of Utah’s national parks in 2022. Italy in 2023. An Alaskan cruise this September. Home renovation projects that will cost about $30,000. 

These are just some of the things Heather Hawkins and Betsy McDowell—both 65—have “splurged” on since the Maine couple retired in their late 50s. But if you ask Peter Disch, their financial advisor, if they are overdoing it, the answer is a definitive no. In fact, he encourages them to buy first-class tickets when they fly. 

“Some people are afraid to spend money for all the what-ifs out there, particularly unexpected healthcare needs,” says Disch, founder of Great Point Wealth Advisors in Boston. “They need encouragement to go ahead and spend their money.” 

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Many surveys focusing on Americans’ retirement readiness come to alarming conclusions. Only about two-thirds of workers are confident in having enough money to live comfortably in retirement, a significant decrease compared with 2022, according to the 2023 Retirement Confidence Survey by the Employee Benefits Research Institute. A quarter of the population 65 or older live in households that rely on Social Security benefits for at least 90% of their family income, found a 2017 report from the Social Security Administration.  

But there’s another group of retirees with a much better problem to have: They have accumulated more than they are able to spend in retirement. 

Complexities of spending down 

Among retirees who have accumulated savings, few are systematically drawing it down to support retirement spending. A recent paper, titled “Understanding Underspending in Retirement,” surveyed preretirees and retirees, asking them what they thought a safe withdrawal rate was. 

“Most people didn’t know,” says Todd Taylor, head of New York Life’s retail annuities business and co-author of the report. They weren’t spending down anything close to 4%, he adds. Taylor was referring to the 4% withdrawal rule, which states that a retiree can safely withdraw that amount annually, adjusted for inflation, from a portfolio of stocks and bonds for 30 years.

Taylor’s research cites a study from New York Life/Morning Consult that finds that only 16% of retirees withdraw from their portfolios on a regular, systematic basis, and 30% don’t withdraw any money at all from savings accounts and investment portfolios. The more affluent retirees are, the more likely they are to underspend.

As Taylor explains it, the primary driver behind underspending is uncertainty. When people are saving for retirement, it’s a fairly simple problem: Buy a reasonable mix of stocks and bonds, keep fees low, and save at least 15% of their salary annually between their contributions and employer contributions. But the spend-down phase comes with added complexities, including the possibility of spending shocks and an uncertain time horizon. Then there is sequence-of-returns risk—the chance a sharp market decline early in their retirement will decimate their investment portfolio and it will never recover. 

“Many Americans are responding to all that uncertainty with conservatism,” Taylor says. “They are self-insuring by holding on to their assets.” 

Reaching their goals 

For some wealthier retirees in this category, once they reach their financial goals, the rest is icing on the cake. Take Roland and Elsa Neaves, 66 and 67, respectively, who both retired in 2019. The San Antonio couple is about to embark on the third renovation project in the house they have lived in for about 35 years, and it is mortgage-free. They have made several road trips—to the East Coast and California—that have lasted up to 30 days, as well as a golfing vacation in Scotland. 

Their financial advisor at Frost Bank “tells us all the time, you’re underspending, but we still enjoy so many things,” says Elsa, who spent much of her career at AT&T and then as a teacher. “We’re not sacrificing.” 

The couple figures their financial plan budgets about $250,000 annually for all their spending needs. Yet their investment portfolio has been outgrowing that amount, says Roland, who worked for technology companies, most recently in enterprise sales for Microsoft, before he retired. “I think we’re pretty conservative in what we spend. We’re very fortunate to be able to do all the things we want to do,” he says. 

Hawkins and McDowell, the Maine couple, who both have long-term care insurance, are well aware that there is a time limit on the kinds of active travel they enjoy. “Maybe the next 15 years will be the prime of our life. This is what we’ve been working for our whole careers,” says Hawkins. The safari “was on my bucket list. I want to be able to do this when I can still get in and out of a jeep…In 20 years we won’t be able to travel as much.”

The couple, who don’t have children, plan to leave money to several charities related to the environment, animals and shelter, and to McDowell’s nieces and nephew. 

“Getting used to this new pattern of spending—I kind of need permission. You spend 35 years saving and now you shift focus—it’s weird,” says Hawkins. “Peter [Disch, our financial advisor] calls it my allowance—what he puts in my bank account. It’s my money, but he’s distributing it to us.”

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