Experts Warn of This 'Smart' Mistake Many Retirees Are Making With Their Savings - And How It Could Cost Them

Most retirement advice goes something like this: save more, spend less, and don't run out of money. This type of advice can actually turn into a surprising retirement mistake if followed too closely, so it's something to be aware of as you go about your saving strategy.

Here is the hidden smart money mistake that many retirees are making, and how it costs them over time.

What is underspending in retirement, and how common is it?

Underspending is what it sounds like: drawing down far less of your savings than you could safely afford, usually out of a fear of running out. It turns out to be more common than you'd think.

In fact, a report from the Employee Benefit Research Institute (EBRI) found that about a third of retirees still had 100% or more of their initial retirement assets by their mid-80s. EBRI defines it as "unnecessary underspending." This is money that sat untouched, simply because spending it felt too risky.

Overspending can leave you broke at 85, but underspending leaves you with a full account and a thinner, less enjoyable life than you could have had.

Why the 4% rule usually leaves a huge amount unspent

The 4% rule is what most people try to follow. Withdraw 4% of your portfolio in year one, adjust for inflation, and repeat for as long as you live. What gets lost is why that number is so low in the first place. The rule was created to survive the worst retirement environments in market history. It is designed for catastrophe, not for a normal retirement.

Financial planner Michael Kitces ran the rule across roughly 140 years of market history, and the math came out tilted in the saver's favor. A retiree drawing 4% drops below their starting balance only about 10% of the time. Those same slim odds turn up at the opposite extreme, where the portfolio ends at more than six times its original size. A typical retiree wraps up the three decades holding roughly 2.8 times the principal they began with, inflation already baked in. That is the median for someone who ran the playbook exactly as written.

So, if you follow the rule built for the worst case and the worst case never shows up, you reach your 80s sitting on money you could have spent on years you can't get back.

Why is it so hard to spend the money you saved for decades?

Going from saving to spending is one of the toughest mental switches in personal finance because it asks you to break a habit you spent 40 years building. For your entire working life, a growing balance meant you were doing it right. In retirement, that same instinct works against you.

Craig Copeland, who runs wealth benefits research at EBRI, summed it up well: "When you see so many people into their 80s still at 100%, you see people who are being way too conservative," he told CNBC.

According to Corebridge Financial, 29% of workers 55 and older have figured out how they will tap their retirement savings for income, leaving more than two-thirds without a plan at all. With no plan telling you it is safe to spend, the default is to spend less and keep spending less year after year, no matter what the portfolio is actually doing. Do this for long enough, and you never end up taking that trip you always dreamed about.

How to plan your spending so you actually enjoy retirement

The goal of retirement planning was never to die with a big balance. It was to pay for the life you wanted, to do all the things that make life interesting for you.

The plan for drawing down your savings matters as much as the plan for building it up. Most people are able to save more than enough, but they struggle to spend any of it, instead turning into penny pinchers.

Rather than locking in one inflation-adjusted number forever, advisors suggest taking more in strong market years and pulling back in weak ones. Retirement spending tends to be U-shaped. That means it runs heaviest in the active early years, dips during the quieter middle phase, then climbs again late in life as health and care costs mount.

A simple spending method involves slowly ratcheting up the spending over the course of years. Start at a conservative rate, then give yourself a 10% raise whenever your portfolio climbs 50% above its starting level. In a bad market, the trigger never fires, and your caution protects you. In a good one, you spend more while you can still enjoy it.

Bottom line

Running out of money is a real risk, and any solid retirement plan needs to be structured in a way that leaves you with a bit more than you were expecting. However, for careful savers, the more common outcome is the opposite problem: reaching your 80s with most of your savings intact and a list of things you skipped. The fix is a written, flexible spending plan and the permission to actually use it.

Also, if you're saving money under the assumption that it will serve as a meaningful legacy to the next generation, it often backfires because of timing. The average age of someone receiving an inheritance is now 51, with more than one-fourth of heirs being over age 61. At that stage of life, the next generation's financial trajectory is already established, meaning the unspent funds are far less impactful than they would have been if given as gifts decades earlier.

You May Also Like

$200 Bonus + Up to 5% Cash Back

Earn a $200 bonus after spending $500 on purchases in your first 3 months from account opening. Member FDIC

SPONSORED

Almost 80% of Americans Fear a Retirement Age Increase — Here’s the Real Reason Why

By FinanceBuzz Editors

10 Smart Money Moves to Retire

By FinanceBuzz Editors

The Easiest Way to Diversify Your Investment Portfolio With Fine Art

By FinanceBuzz Editors

7 Brilliant Ways to Build Wealth After 40

By FinanceBuzz Editors

5 Ways Seniors Are Throwing Away Money

By FinanceBuzz Editors

Earn Up to 4.10% APY With The Best High-Yield Savings Accounts of July 2026

By FinanceBuzz Editors

Have $150K+ in Assets? See If You Can Retire Early

Zoe Financial Benefits

• Get matched with vetted and fiduciary-certified financial advisors
• Take the mystery out of retirement planning
• Their matching tool is free

Find an advisor

Paid Non-Client Promotion

FinanceBuzz doesn’t invest its money with this provider, but they are our referral partner. We get paid by them only if you click to them from our website and take a qualifying action (for example, opening an account.)

---

Subscribe Today

Unlock the Best Banking Deals and Bonuses

From high-yield savings accounts to cashback checking and sign-up bonuses, we bring you the best banking offers to grow your money smarter.

or

SEE TOP BANKING OFFERS →

By submitting this form you agree to receive emails from FinanceBuzz and to the privacy policy and terms

Author Details

Chris Lewis, CEPF

Chris Lewis has spent his career turning data into answers. As Director of Digital PR at FinanceBuzz and a Certified Educator in Personal Finance, he oversees the data journalism and media relations teams, digging into the personal finance topics that shape Americans' lives at every stage, from Social Security and retirement income to 401(k) strategies, jobs, and real estate.