Why retirees underspend - and how to fix it

When most people think about retirement, their biggest fear is running out of money. But for many retirees, the opposite happens: they don’t spend enough.

Multiple studies — from J.P. Morgan, BlackRock, and the Employee Benefit Research Institute — show that retirees, even those with strong portfolios, often live far below their means. They’ve saved diligently for decades, but when the time comes to enjoy what they’ve built, they hesitate.

Here’s why that happens — and how to overcome it.

1. Why we struggle to spend

After 30 or 40 years of saving, it’s hard to “flip the switch.” Saving feels safe. Spending after those paychecks stop can feel risky. Retirees worry about markets, health-care costs, and longevity — the constant “what ifs.”

There’s also a framing problem: earning a paycheck always felt predictable, while withdrawing from a portfolio can feel like depletion, even though it’s just another way to pay for spending.

Add in the natural desire some have to leave a legacy, and it’s no wonder many retirees keep living as if they’re still in accumulation mode. Unfortunately, underspending often happens during the healthiest, most active years of retirement — the time best suited for travel, family, and new experiences.

2. Reframing Your Mindset

The key to spending confidently isn’t about being careless; it’s about creating structure.

At Brown Family Wealth Advisors, we help clients shift their focus from account balances to the income their portfolios produce — particularly the rising stream of dividends that result from owning a diversified portfolio of high-quality companies with long records of increasing payouts.

Rising investment income offers retirees comfort and clarity. Instead of asking, “Can I afford to sell shares this month?” you start thinking, “What’s my dividend paycheck this quarter?” It feels more natural — and it keeps spending aligned with a portfolio designed for income and growth.

Another strategy that might help you overcome your hesitation to spend is to build your Reserve, a concept described in my book, Your Way to True Wealth. The Reserve is a goals-based buffer we use in our planning process — five to ten years’ worth of expected withdrawals held in high-quality, shorter-maturity fixed-income investments.

The Reserve acts as a portfolio stabilizer. If markets drop or your spending temporarily exceeds your portfolio’s dividend yield, the Reserve can help bridge the gap. You’re not forced to sell equities at the wrong time, and you gain the confidence that your spending needs are covered for years to come.

3. Applying It in Real Life

Understanding the psychology is one thing. Living it is another.

A couple we worked with had built a nest egg of more than $2.5 million, and it was generating ample dividend income. But they were living on $50,000 a year, afraid to spend more.

Once we showed them that their dividends were covering their essentials and that their Reserve could fund nearly a decade of future withdrawals, their mindset changed. They booked the trip they’d been postponing — then another. Their savings didn’t change, but their frame of reference did, and so did their confidence.

The Bottom Line

Retirement shouldn’t feel like walking a financial tightrope. And your portfolio shouldn’t feel like riding a roller-coaster. By adjusting your focus from volatile stock prices to rising dividend income, you can replace that roller-coaster with an escalator. And keeping the next five to 10 years of planned spending in the Reserve can transform uncertainty into structure – and fear into financial freedom.

You’ve already mastered the art of saving. Now it’s time to master the art of spending well. Because True Wealth isn’t about preserving every dollar — it’s about using your money to create a life you love.

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Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Mike Brown and Brown Family Wealth Advisors and not necessarily those of Raymond James.

You should discuss any tax or legal matters with the appropriate professional.