The Retirement Risk Few People Discuss: Saving Too Much and Spending Too Little

Dana Dunkelberger, CEO & Founder of Reliance Financial Partners, a Registered Investment Adviser focused on retirement tax strategy.

The question I hear most often from people who retire with plenty is not how to make their money grow. It is more like asking for permission to use it.

These are families who did everything they were supposed to do. They saved for decades, raised children, paid for college, and entered retirement with more than enough. Yet when they sit down to plan a trip or another meaningful expense, they still hesitate. It is not greed. It is the result of never learning how to stop saving.

Most people assume the danger in retirement is spending too much. In my experience, the more common problem is the opposite, and it can be far costlier than it appears because the real price is not measured in dollars. It is measured in the years a family never gets to enjoy.

Why Careful Savers Hesitate

For decades, the routine was straightforward: put money away, let it grow, and avoid touching it. The habits that helped someone become a disciplined saver are often the same habits that make spending feel wrong.

Then retirement arrives and the rules change almost overnight, but no one hands out a new playbook. To make matters harder, the money is often sitting in accounts that change in value every day. When each withdrawal comes from a balance that rises and falls on its own, spending can feel like taking a loss. After a weak market month, even a planned vacation can start to feel questionable. If your lifestyle depends on a fluctuating account balance, you have effectively given the market control over your calendar.

What It Really Costs

I often say it plainly: if you keep flying coach on every vacation because that feels more responsible, ask yourself where your children will be sitting when they inherit that money.

The money does not disappear. It will be spent one way or another. The only real question is whether it is spent by the person who earned it or by someone else later, usually with less hesitation. Most parents I have spoken with would rather be at the table for the trip than fund it from afar.

Four Things That Help Unlock Spending

Separate your floor from everything else. There is a major difference between a household that knows a fixed amount will arrive in checking every month no matter what happens in the market and one that is drawing from a balance and hoping it lasts. A couple I worked with needed about $8,000 a month to live the way they wanted. Social Security covered about $4,500. Once we defined the portfolio’s role as covering the remaining $3,500, the discussion shifted away from performance and toward their actual life.

Identify the number that makes you feel secure, and build around it. One client tells me he never wants to see less than $10,000 in his bank account. Another prefers to keep $250,000 there simply because he likes seeing it. Neither approach is wrong. What matters is saying it clearly and planning around it, because anxiety that is never named is often paid for in years of unspent money.

Give every dollar a job. Cash sitting in one undifferentiated pile is hard to spend. The same dollars, labeled for travel before a certain age or for grandchildren’s tuition, are much easier to use because the spending becomes part of the plan instead of a violation of it.

Use part of the legacy while you are still here to enjoy it. Many people say they do not want to leave a large lump sum that creates complications for their family. What they really want, though, is to be present for the benefits themselves: the rented house filled with everyone, the tuition paid while they can see the impact.

What It Looks Like When It Works

I met one couple in late 2019. They retired shortly after, and only weeks later the pandemic arrived. Because their income was not tied to the market, they did not have to panic, and they did not have to change how they lived.

They did not make it to Italy until several years later. Instead, they took trips by car to Denver, then Orlando, then Denver again. The big trip they had imagined waited. The years did not wait, and they did not lose them.

The Main Lesson

If you have saved well, the biggest danger in retirement may not be running out of money. It may be arriving at very old age with a larger balance than you started with and a long list of things you kept postponing.

The question to ask anyone helping you with your money is not simply how the portfolio is doing. It is what you can spend, with confidence, each month no matter what the market does. If no one has ever given you that number, that is the right place to begin.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?