I spend a lot of time talking to retirees about their spending plans. Many of them proudly tell me that they’re spending far less than the 3 percent to 4 percent initial withdrawal amounts that are often bandied about in the context of safe spending rates. They tell me they’ve been good savers, they’re frugal, they don’t need more. Underspending seems to be part of their identities.
Those are all laudable things. But they make me think of the interplay between underspending and the potential for leftover amounts at the end of life. The fact that underspending tends to lead to big residual balances jumps out when you look at our retirement income research.
