Is your cautious retirement spending doing more harm than good?

By Danielle Lebotka of Morningstar

When we were children, it was common to be afraid of the boogeyman. As we age, a new fear replaces the boogeyman:running out of money in retirement.

This concern is understandable, because now not only many Americans are responsible for building their retirement savingsBut they are also deciding how much they should pay themselves annually after retirement.This is a problem that many people do not feel adequately prepared to solve. Especially when failure means lack of money at the end of life.

Limit your spending, limit your lifestyle

Recent research from Morningstar’s Behavioral Insights Group found that half of retirees choose overly simplistic approaches to determining their retirement spending, such as calculating their current expenses, spending only dividends, or anchoring on required minimum distributions.

The set-it-and-forget-it approach may seem like a prudent solution to a common fear, but these simplistic methods don’t account for factors like your total wealth, life goals, or economic phenomena like inflation. The resulting numbers are inflexible and highly conservative.

In fact, contrary to our fears, retirees who have less than average wealth tend to spend lessRelative to how much they can safely spend. Indeed, beyond retirement, many retirees See their wealth increaseInstead of decreasing. These findings hold true even when accounting for retirees who are planning to leave a bequest or who expect to live a long time after retirement.

This problem persists even among retirees who are using more complex spending strategies such as safe withdrawal rates.“Even retired peopleThose who spend in line with our ‘base case’, which in 2025 meant taking 3.9% initially and inflation-adjusted withdrawals every year thereafter, will have a significant balance after 30 years of withdrawals,” says christine benzMorningstar’s director of personal finance and retirement planning.

Then again, what is at stake for these retirees is not destitute, but Are not able to fully enjoy the fruits of their hard work.

How do you know if you’re spending enough of your retirement savings?

If you’re retired, you may be spending less than you can afford if:

1. Rely on simple, practical strategies like withdrawing only dividends and interest, making calculations based on your current lifestyle, or withdrawing only your RMDs.

2. Find out if your retirement savings portfolio barely declines or even grows from year to year.

3. Postpone essential or discretionary expenses that are reasonably affordable.

If this describes you, you’re not alone. It’s natural to think, “The worst thing that can happen is run out of money, and I know that won’t happen if I use this simple spending rule.” However, by creating a more personalized plan to determine your retirement income, you can avoid overspending and potentially generate a more comfortable and meaningful retirement lifestyle for yourself.

Goal-setting can make spending affordable

Our research shows that to engage in more complex ways of determining their retirement income, many retirees may need the motivation of personal goals. When you’re working, goals help motivate you to save. In Retirement, Your Goals Can Helpinspire you to spend .

To define your retirement goals, we recommend first examining what values ​​you want to live by during your retirement. a structure likePerma-V ModelCan help you clarify what matters to you. From there, you can create financial goals that reflect the life you want to live.