Retirees are far more likely to spend income from Social Security, pensions, and annuities than to draw from their personal savings, according to a new study that highlights the psychological and financial barriers to spending in retirement.
The research, conducted by David Blanchett and Michael Finke of the Retirement Income Institute, found that retirees spend about 80% of their lifetime income, compared to only 2% of their savings annually—well below the commonly cited 4% withdrawal rule.
“Unless people purposefully want to leave behind a large bequest when they die, many retirees are denying themselves the opportunity to enjoy life by spending more of their savings,” said Blanchett, who heads retirement research at PGIM DC Solutions.
Emotional toll tied to savings withdrawal
The study, titled Retirees Spend Lifetime Income, Not Savings, builds on prior research showing that guaranteed income increases both spending and enjoyment in retirement. The new analysis found that retirees are not only hesitant to tap into their savings, but many feel anxiety when doing so. Nearly half (46%) of respondents in a separate 2024 survey said spending their savings takes an emotional toll.
That reluctance persists even among retirees who are financially well-positioned.
“I don’t think people purposefully want to hoard their savings,” said Finke, professor at the American College of Financial Services. “They are just finding it difficult to view savings as a potential form of retirement income.”
Government-mandated withdrawals shift perception
Spending tends to increase when retirees are required to take distributions, such as Required Minimum Distributions (RMDs) from IRAs and employer-sponsored retirement accounts. According to the study, retirees treat these mandatory withdrawals more like income, and are more comfortable spending them.
The study analyzed data from the Health and Retirement Study, a national survey of Americans over age 50, and examined how different types of financial resources are used. It categorized assets into income sources (such as Social Security and annuities) and savings (qualified and non-qualified investment accounts).
The findings suggest that retirees view income as more accessible and dependable than assets held in savings or investment portfolios.
Implications for defined contribution plans
As defined contribution plans like 401(k)s have overtaken traditional pensions, the study raises questions about how well current retirement systems support spending in later life.
“Defined contribution plans are principally focused on growing assets and typically are not explicitly focused on generating income,” the study noted. Without strategies to help retirees convert savings into income, under-spending could worsen.
Financial institutions could help shift this behavior by reframing how retirees see their assets—turning lump sums into steady income through tools like managed payout funds or annuities.
Behavioral and practical challenges
Part of the problem lies in the complexity of retirement finances. “Estimating how much income can be withdrawn from investments in retirement is far more complex than receiving a monthly pension payment,” the authors wrote.
Factors such as uncertainty about lifespan, varying sources of income, and limited financial literacy make it difficult for retirees to feel confident in their spending decisions.
The new study follows Blanchett and Finke’s earlier work, which found that every dollar converted into guaranteed income can yield twice the spending impact compared to non-annuitized savings—supporting the idea that both emotional and practical factors influence retirees’ financial choices.
Jean Statler, CEO of the Alliance for Lifetime Income, said the research reinforces the value of income security.
“A paycheck from work may stop, but having protected income ensures peace of mind for essential expenses like housing and food,” said Statler.
