Picture a client who’s worked for 40 years, saved diligently, and accumulated a seven-figure portfolio. On paper, she should be set for life. But when it comes time to actually tap into her retirement savings, she hesitates. She lives frugally, holding back on trips to visit grandkids and long-awaited home renovation projects. It’s not that she can’t afford the lifestyle she worked so hard for. She’s afraid of running out of money.
Traditional spending models assume retirees will decumulate their portfolios in a predictable way, often using the “4% rule” to guide withdrawals. But in reality, many retirees are doing the opposite: spending less than they could safely afford to.
Financial advisors may be familiar with the 2024 paper by David Blanchett and Michael S. Finke, Retirees Spend Lifetime Income, Not Savings, which explores the behavioral economics behind this underspending. But becoming familiar with behavioral economic theories and applying them to your advisory practice requires different levels of understanding.
My experience guiding clients to save for retirement echoes Blanchett and Finke’s observation: participants’ fears are often rooted in behavioral biases that traditional spend-down models don’t fully address. That raises a question for financial advisors: how might we help retirees better convert their savings into income they feel comfortable spending?
In this article, I’ll outline how reframing withdrawals as income can influence spending decisions and propose practical considerations for incorporating the discussed behavioral economic theories into plan design and client conversations.
The Blanchett and Finke paper found that retirees consistently spend a higher share of lifetime income—about 80%—but only about half of wage and capital income sources, even when economic theory suggests they should treat both types of assets as fungible.
Their analysis of the Health and Retirement Study data points to retirees spending their savings at suboptimal efficiency levels. Notably, Blanchett and Finke observe that retirees draw down non-annuitized wealth at much lower rates than standard models predict. For instance, the average withdrawal rate for a 65-year-old couple was just over 2%, roughly half of the commonly cited 4% rule.
The study suggests mental accounting – the behavioral economics theory that describes how the source of wealth affects its use – may explain this underspending. Retirees may be treating annuity or Social Security income as “safe to spend” while viewing portfolio assets as emergency reserves or bequest assets.
Blanchett and Finke reference several behavioral and practical factors as to why retirees may be underutilizing their savings:
Mental accounting dictates that the way money is labeled changes how people use it. If retirees are hesitant to draw down their savings, it stands to reason that perhaps this wealth source can be relabeled. Research suggests it may be possible.
Blanchett and Finke present evidence that required minimum distributions (RMDs) may increase spending because retirees interpret them as “income,” not “withdrawals.” Mental accounting offers an explanation here, too: people tend to view money in their savings accounts differently from money held as income. In other words, RMDs may increase spending because people tend to be more comfortable tapping into a paycheck than dipping into savings.
Data from the JPMorgan Guide to Retirement 2025 supports the theory that retirees with a greater share of their wealth in guaranteed income may be more confident spending down their portfolios. Specifically, those with 60–80% of their wealth in guaranteed income spend 42% more than those with less than 20% in guaranteed income.
Reframing withdrawals as predictable income streams rather than portfolio reductions may nudge clients to spend in better alignment with their lifestyle goals. Some advisors may find it appropriate to increase the share of wealth allocated to annuitized income. That may take the form of delaying Social Security, working in a role with a pension, or purchasing an income annuity.
To put this research into practice, financial advisors should evaluate how they might structure communications and retirement plans to align with how people naturally categorize and use their money.
There’s no single strategy to resolve underspending, but advisors may find it valuable to remember these principles when designing decumulation plans:
Clients may respond better to conversations about “monthly income” than “portfolio withdrawals.” A simple reframing can make the plan easier to understand and implement.
Products like managed payout funds may give clients a clearer picture of what safe spending looks like for them by automating withdrawals and presenting them as predictable payments. Even if these funds don’t guarantee income, providing well-modeled, scenario-based projections may simplify their spending experience. Similarly, adding income illustrations to statements may help clients visualize what sustainable withdrawals look like over time.
Firms like BlackRock and Nuveen are increasingly exploring ways to combine target-date funds (TDFs) and annuities. These strategies typically pair base withdrawals, such as Social Security, annuities, or guaranteed minimum withdrawal benefits (GMWB), with a variable withdrawal stream from invested assets. For clients concerned about locking up capital, this model may offer the psychological comfort of guaranteed income while maintaining access to market growth.
Presenting clients with an overabundance of options – too many annuity riders, distribution methods, or product types to choose from – can lead to analysis paralysis. Advisors can add value by curating options and guiding clients toward a small set of easily digestible strategies.
While advisors will have to evaluate their value for every plan or participant, managed account services may offer a future pathway to customize decumulation strategies based on an individual’s debt levels, assets, and retirement goals.
Helping people spend during retirement is just as important as helping them save for it.
If our objective is to help clients enjoy the lifestyles they’ve saved for, advisors should not assume the traditional withdrawal models will work for every retiree. By simplifying decumulation strategies and reframing retirement savings as a stream of income, we can encourage clients to develop more confidence in their spend-down decisions.
Ronnie Cox is the Investment Director for Human Interest Advisors (HIA), an SEC-Registered Investment Adviser that helps 401(k) plan customers provide their employees with diversified and affordable investment options. Ronnie is responsible for the investment manager search, selection, and monitoring process, market and economic commentary, developing analytical tools and reports, and other research projects.
This content has been prepared for informational purposes only, and should not be construed as tax, legal, or individualized investment advice. Neither Human Interest Inc. nor Human Interest Advisors LLC provides tax or legal advice. Consult an appropriate professional regarding your situation. The views expressed are subject to change. In the event third-party data and/or statistics are used, they have been obtained from sources believed to be reliable; however, we cannot guarantee their accuracy or completeness. Investing involves risk, including risk of loss. Past performance does not guarantee future results.
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