Retirees Fear Spending Their Savings More Than Running Out of Money

Many retirees face a paradox: they have enough money but are too afraid to spend it. This "Fear of Running Out" (FORO) traps them in a cycle of over-saving, preventing them from enjoying the retirement they worked for.

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part of the spending reduction may indeed be because people don't have enough money and have to cut back; however, the research shows that even people who have the ability to spend a lot more don't.

Research challenges traditional financial models by showing that retirees' spending, adjusted for inflation, generally declines with age. David Blanchett, head of retirement research at Prudential Financial, describes this as a "smirk" curve – high spending early in retirement, then a gradual decrease. Even those who could afford to spend more often don't.

This reluctance stems from uncertainty. A Corebridge Financial study found about half of retirees don't know how to use their savings, and less than a third of those nearing retirement have a plan for withdrawing assets. Jean Chatzky, founder of HerMoney, notes that decades of focus on saving, especially for generations without robust pensions, left many unprepared for the spending phase.

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if you don't have a plan for how you're going to use that money, you can end up with a lot of money and a lot of uncertainty.

Concerns about healthcare costs are a major factor, though Blanchett points out that increased medical expenses are often offset by reduced spending on travel and leisure. To combat FORO, financial planners suggest strategies like working with advisors, segmenting retirement funds into "buckets" for travel, daily living, and medical needs, or using Social Security for fixed monthly expenses. These approaches aim to reduce psychological stress and enable retirees to spend more confidently.

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Fear of running out of money often leads retirees to save too much, limiting what they can do in the latter half of their lives. Establishing a robust withdrawal strategy beforehand can make facing financial decisions with more confidence.