Retirement Income Beyond the nest egg: The psychology of spending in retirement

Exploring the gap between retirement spending expectations and reality, along with the three big financial risks that shape retirement security — housing, food and health care, show that understanding what retirees spend is only part of the equation. The next challenge is making the psychological shift from a lifetime of saving to spending confidently in retirement.

Our surveys of investors across all retirement stages reveal that many retirees struggle with letting go of a lifelong savings mindset. Their spending behaviors are deeply tied to mental time horizons, financial confidence and evolving priorities. While some retirees adapt easily, others face anxiety, identity loss or changes in roles.

The emotional landscape of retirement

Many retirees find the transition from saving to spending emotionally challenging because it disrupts a mindset built over decades. Saving is often seen as a measure of discipline, security and success — so spending can feel like loss, even when it’s planned and sustainable.

This resistance is reinforced by a lifetime focused on accumulation, where drawing down assets feels counterintuitive and creates anxiety about running out of money. Without support, this mindset can lead to hesitation and underspending, limiting a retiree’s ability to enjoy the lifestyle they worked hard to afford.

“I'm starting to feel somewhat more comfortable giving up that paycheck, but it was a little daunting in the beginning. But I'm starting to feel okay about it now.” (Pre-retiree quote from research.)

Planning tip: Acknowledge the transition and normalize the client’s experience: “It’s common to feel uncertain when moving from saving to spending in retirement. It’s a big change, and it’s normal for it to take time to adjust.”  

Retirees who identify meaningful uses for their time and money may feel more confident about spending. Purpose fuels confidence. 

Helping clients overcome retirement spending biases

Behavioral biases further complicate the shift. Financial professionals can add value by helping clients recognize and navigate these biases — reframing spending as a positive outcome, focusing on income rather than balances, and creating purpose-based strategies that align with clients’ values and goals.
 

Loss aversion: Retirees often fear the pain of losing money more than they value the benefit of spending it, even on meaningful experiences. This can lead to under-spending, even when income sources are secure.

• Visual tools like our Portfolio Reliance Calculator show how protected lifetime income sources and/or systematic withdrawals can help provide some predictability.
  
• Frame spending around life goals — travel, family, freedom — not just balances.
  
  

Anchoring: Retirees may fixate on one (often initial) piece of information when making choices. For example, they may focus on their pre-retirement account balances, using them as mental benchmarks. Watching it decline, even sustainably, can create stress.

• Shift the benchmarks from total account value to monthly income and spending goals.
• Redefine success as whether or not the money supports a fulfilling life.
• Introduce guardrails through flexible withdrawal strategies and protected lifetime income solutions to show clients their plan is adaptable, not static.
   

Mental accounting: Retirees often separate their money into “buckets” (e.g., account principal vs. interest income) and may only spend perceived “earnings.”

• Create purpose-driven spending plans by assigning meaning to each account, such as essential expenses, lifestyle spending and/or legacy.

Use segmentation visuals to show how assets support different retirement phases or spending categories.

Clients aren’t the only ones prone to behavioral biases. According to research by authors John Anderson and J. Womack published in 2020 by Investments & Wealth Institute, even financial professionals themselves are prone to cognitive biases. To address these patterns, consider adopting a strategy that aligns spending with clearly defined goals. This approach can help financial professionals and clients work together to set and prioritize goals, which can foster greater engagement, emotional investment and ownership in financial decisions.

Planning tip: Ask non-financial questions, such as:

“What does a good day in retirement look like for you?” “How do you want to use your time now that you are not working?”

Involving clients directly in retirement planning strengthens their commitment and clarity. By tying spending to specific goals and prioritizing with a “wants versus needs” framework, clients can make purposeful withdrawals and stay focused. Redefining risk as the possibility of not meeting personal goals — rather than market volatility — helps clients remain grounded during uncertain times. Retirement is an ongoing process, so encouraging clients to test different activities or spending patterns allows them to find what truly fits their lifestyle.

Tools to support the transition

Our investor-facing workbook, My Best Retirement, can help start the conversation with pre-retirees. It’s based on four crucial aspects of planning: Life planning; health and wellness planning; values and legacy planning; and financial planning.

When dealing with couples, encourage both members to complete the workbook individually and then review it together. Doing so fosters shared understanding and alignment, helping them enter retirement with a plan that supports both sets of goals and mindsets.

Successfully transitioning from saving to spending in retirement requires more than financial planning — it demands a shift in mindset. Financial professionals play a vital role in this process by helping retirees recognize behavioral biases, align spending with personal goals and build confidence in their plans.

Read important disclosures