"The underspending paradox means that a meaningful share of retirees with substantial portfolios spend far less than their assets can support, often leaving wealth almost entirely intact across retirement."
"Roughly 25% of retirees with $1 million or more will spend less than 3% annually, which is well below the threshold that any financial planners would find to be conservative."
"If this couple is spending $58,000, they are leaving $38,000 per year on the table, representing roughly $880,000 in foregone experiences, travel, family support, and personal enjoyment."
"Loss aversion makes drawing down a portfolio feel threatening even when the math says otherwise, and longevity uncertainty amplifies this fear of running out."
A couple in their sixties with $2.4 million in savings exemplifies the underspending paradox, where retirees spend far less than their assets allow. Research indicates that about 25% of retirees with over $1 million spend less than 3% annually, which is below conservative thresholds. This couple's spending of $58,000 leaves $38,000 annually unspent, leading to an estimated $880,000 in lost experiences over a 22-year retirement. Psychological factors like loss aversion and longevity uncertainty contribute to this behavior, compounded by concerns over healthcare costs.
Read at 24/7 Wall St.
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