Even with ample retirement savings, many retirees are hesitant to spend from their nest eggs, choosing instead to rely on guaranteed sources of income such as Social Security, pensions, and annuities. That’s the central finding of a new study exploring the behavioral patterns behind retirement spending.

The research, titled “Retirees Spend Lifetime Income, Not Savings,” reveals that retirees tend to spend significantly more from their sources of lifetime income than from savings in 401(k)s, IRAs, and other retirement accounts. Despite having the financial means, many are reluctant to dip into their accumulated assets to enhance their lifestyle.

According to the analysis, retirees spend about 80% of their lifetime income but only a fraction of their accessible savings. Couples age 65, for example, were found to be withdrawing just 2% of their savings—half the widely recommended 4% withdrawal guideline and even lower than recent estimates suggesting 5% may be more appropriate.

The study suggests this spending restraint stems from how retirees perceive different types of financial resources. Income from guaranteed sources is viewed as safe to spend, while investment savings are seen as finite and uncertain. This behavior may lead retirees to under-consume and miss opportunities to enjoy a more fulfilling retirement.

Interestingly, spending patterns shift when retirees begin receiving Required Minimum Distributions (RMDs) from qualified accounts. These mandatory withdrawals are often treated as income, and retirees tend to spend them at higher rates than voluntary withdrawals, further reinforcing the idea that how money is framed affects how it’s used.

The research underscores a growing challenge in retirement planning: defined contribution (DC) plans—now the dominant retirement funding mechanism—are designed to accumulate assets, not necessarily to help retirees draw down those assets confidently and efficiently. As a result, many retirees struggle to convert savings into a sustainable and psychologically comfortable income stream.

The authors point to solutions that could help bridge this gap. Framing wealth as income can shift retiree behavior, making it easier to spend. Tools like managed payout funds or systems that automatically convert a portion of assets into regular income payments may help retirees treat their savings more like a paycheck.

Underlying this reluctance to spend is the complexity of the retirement decumulation phase. Unlike receiving a pension or Social Security check, figuring out how much to withdraw from savings each year involves juggling multiple unknowns—lifespan, market performance, healthcare costs, and more. Many retirees also report feeling anxious about running out of money, leading them to spend far less than they safely could.

To reach their conclusions, the researchers analyzed data from the nationally representative Health and Retirement Study, focusing on Americans age 65 and older. Financial resources were divided into two categories: income (including lifetime income, wages, and capital income) and savings (both qualified and non-qualified). The study found that while retirees spend roughly 80% of their guaranteed income, they spend less than half of what they could from other income sources, and far less from savings.

The findings have significant implications for retirement planning strategies. Without interventions to reframe how savings are perceived and used, retirees may continue to under-spend and miss out on the lifestyle their savings could support. Encouraging the use of lifetime income products and reframing withdrawals as income streams could provide retirees with the “license to spend” they need to make the most of their retirement years.

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