Scared To Spend? (You’re Not Alone)

It’s hard to spend money in retirement.

I get it.

I’ve been there.

That paycheck has stopped, inflation is rampant, and you’re afraid your money may run out before you die.

Scary stuff, indeed.

Today, we’re asking a challenging question.  Is being “scared to spend” a valid fear?  I’m also providing 7 practical tips you can use to reduce your fear of spending in retirement.

If you’re finding it difficult to spend your money in retirement, today’s post is for you.

Are you afraid to spend your money in retirement? You’re not alone. Today, we address this common fear, with 7 practical tips to learn to enjoy your money. Share on X

Nearly half of Americans are afraid they’re being too frugal and not enjoying retirement as much as they should.  That finding from the recently published 2024 Annual Retirement Study from Allianz supports similar findings from earlier studies.  Way back in 2015, I wrote an article that included a study with the following graphic, showing “Outliving Your Money” is the #1 retirement fear: 

Bottom Line:  It’s normal to be scared to spend in retirement.

Recent developments have only aggravated that fear.  A few examples: 

• The resurgence in inflation over the past few years.
• The stock market’s long Bull run, and the risk of lower future returns.
• Election dynamics, and the fear-mongering that goes along with it.

As evidence of the third element, I had lunch with a friend shortly before the recent election.  He confided to me that he had sold all of his stocks and moved the money to cash.  Despite the wave of articles warning people to avoid taking drastic action at the time, I suspect he wasn’t alone in moving to cash.  

We’re human. 

We get scared.

Is Being Scared To Spend A Valid Fear?

While it’s normal to be scared to spend in retirement, it’s relevant to question how valid this fear is. 

Let’s use a simple example to vet out whether being scared to spend is a legitimate fear.  If you’re using a 4% Safe Withdrawal Rate, what does a “fear to spend” really represent? Assuming your fear is that you’ll run out of money before you die, your real fear is that the market will return 4% or less (inflation-adjusted) throughout your retirement.*

Is a 4% return on your portfolio over the next 20 – 30 years a realistic fear? 

Of course, it could happen, but it would be unprecedented.  A relevant article from A Wealth of Common Sense asks Are U.S. Stocks Overvalued?

The long-term average of stocks, per this Motley Fool link, is as follows.

Let’s consider the reality that you have a diversified portfolio. The data above is for stocks.  What happens when you add bonds into the mix, since we all have diversified portfolios? I’m a big fan of Ben Carlson’s work at A Wealth of Common Sense, and the data from this article was relevant – it shows the performance of a 60/40 Stock/Bond portfolio in 1940-80 (interest rates and inflation mostly rising) vs. 1981-2021 (interest rates and inflation mostly falling):

In addition, this study from Morgan Stanley shows that a 60/40 portfolio performs best in a high growth/low inflation environment.  That said, even in its “worst” environment of slow growth/high inflation, a 60/40 has averaged a 5.5% return.  Knowing that even in the worst environment a 60/40 portfolio has historically generated returns sufficient to support the 4% SWR should help you overcome your spending fears.  

* In fairness, rather than being concerned about market returns, your fear could be that a 4% SWR will be insufficient to cover your retirement spending needs.  If this is the case, you should consider whether working longer (or part-time), and waiting to retire until the 4% SWR can cover your estimated spending.

Your Net Worth Will Most Likely Increase in Retirement

On a recent podcast, I was asked how our Net Worth has performed in the 6 years since I retired (click to the 18:00 minute mark to hear it).  The host wasn’t surprised when I answered that it had gone up.

It’s simple math.

As I mentioned in Rethinking The 4% Safe Withdrawal Rate, we’re using 3.25% as our SWR in early retirement. Using this calculator, I found the stock market has returned 13% (or 9%, inflation-adjusted) since I retired in 2018.

It’s simply math to conclude that our portfolio has increased given the market’s 13% return. Our Asset Allocation is 70/30, so our actual portfolio performance is lower than the overall stock market return, but still well above our 3.25% SWR.  

Note the important assumption that you’re using a Safe Withdrawal Rate to determine your retirement spending (See Practical Tip #1 below).  If you’re NOT using a SWR, you may have a legitimate need to be scared to spend. If you’re using a 4% SWR, however, your fear represents a concern that your portfolio will return less than 4% over your retirement time horizon. It also fails to account for the reality that if we have years of below-average returns, we’d likely reduce our spending in response (see Tip #3 below – Use Guardrails)

Perhaps that feeling of being scared to spend is driven by something beyond the market realities.  I suspect that’s the case, as it represents the fear we all experience in moving from the Accumulation to the Withdrawal phase in retirement. 

The paycheck is gone, it’s normal to worry. 

The facts, however, should offer some assurance. I have many older friends, and I hear a consistent message that their portfolios are larger now than when they retired. They’ve realized, in hindsight, that their worries about spending money in early retirement were misplaced. I suspect the same will be true for the majority of my readers.

If the market returns aren’t sufficient to let you sleep soundly at night, consider the following tips:

7 Practical Tips To Reduce Your Fear To Spend

Knowing the reality of longer-term market returns is helpful, but not sufficient, to overcome a fear of spending. If you’re still struggling, consider implementing the following tips.  I’m using every one of them in our retirement (except #7, which I’m considering), and I’m sleeping like a baby at night.

1. Determine A Safe Withdrawal Rate

The most important step is to have a methodology behind your spending.  In our case, we’ve chosen a conservative 3.25%. The 4% Safe Withdrawal Rule is based on the “Trinity Study,” which appeared in this original article by William Bergen in the February 1998 issue of the Journal of the American Association of Individual Investors.  For further background, here’s an article that Wade Pfau published on the study.  A relevant quote from that article is below:

“We can also see how sensitive results are to withdrawal rates, as for instance with 30-year horizons and a 50/50 portfolio, the success rate is 100% with a 4% initial withdrawal rate, and it falls to 68% with a 5% withdrawal rate, and only 43% with a 6% withdrawal rate.”

If you do nothing else, understand and implement a SWR that you’re comfortable with, then spend whatever money kicks out of the equation without fear.

2. Automate Your “Retirement Paycheck” 

I’ve written extensively about our bucket approach in my 4-part series on The Bucket Strategy.  For today’s post, the important part is that we’ve made it easy to automate our spending.  Every month, a pre-determined amount of money is transferred from our CapitalOne Money Market Fund into our checking account.  If we have money in our checking account, we’re free to spend it.  it doesn’t get much easier than that.  In addition, by simply looking at our Jan 1 vs. Dec 31 balance in our CapitalOne account, we can quickly determine how much of our portfolio we spent in the previous year.

3. Use Annual Spending Guardrails  

In my post How Much Can You Safely Spend In Retirement, I shared a strategy that has been determined to be the most effective spending strategy (Stanford analyzed 292 retirement income strategies, and came up with “the best,” which is the focus of that article).  You can read the article for details, but in summary, the “Spend Safely Strategy” uses the Required Minimum Distribution formula X your year-end portfolio to determine your spending for the following year.

What does that mean in practice?  If your portfolio goes down in Year 1, your spending will be reduced in Year 2.  In short, it’s a “guardrail” that keeps you spending in the center lane based on how your portfolio is performing.  A simple example will help.  Assume you have a $1 Million portfolio.  For year 1, assuming the RMD calls for a 3.5% spend rate, you’d have $35,000 to spend. At the end of the year, the market either decreased or increased, and you’d adjust as follows:

• Bear Market:  $900k Portfolio…Paycheck reduces to $31,500  ($900k X 3.5%)
• Bull Market:  $1.1 M Portfolio…Paycheck increases to $38,500  ($1.1 M x 3.5%)

The downside of this approach is that your spending will need to be adjusted downward following a bear market, but I suspect that would be a normal reaction for most folks, anyway.  The upside? It’s been proven to be the most successful spending strategy to ensure your money lasts a lifetime. 

4. Hedge Inflation 

Back in 2019, I wrote an article titled “Inflation: The Silent Killer of Retirement.”  No one was thinking about inflation back then (I may have been a bit ahead of my time), and I doubt anyone read it since inflation wasn’t a concern. What a difference a few years makes…as demonstrated by this chart I found using this calculator:

In that 2019 article, I shared the following graphic to demonstrate the devastating impact inflation can have on retirement spending (assumes $50k of spending at age 60):

(I suspect this chart will get a bit more attention in 2024 than it did in 2019)

The Bottom Line:  Inflation has reared its ugly head, and it WILL drive up your cost of retirement over time.  To help ease your fear of spending, review your Asset Allocation to ensure you have some inflation protection in the mix.  Since I’ve already written about it, I’ll simply give you a link.  Check out my article Investment Options to Protect Against Inflation. 

5. Optimize Social Security

Your greatest “longevity hedge” is Social Security.  It increases for inflation every year and will (hopefully, wink) payout every year until you die.  I had to put that wink in there, since everyone asks, “Yeah, but what if SS goes away?”  Fear not, SS won’t go away.  Sure, they may make some tweaks (my guess, for what it’s worth: an earnings test will reduce benefits for the wealthiest recipients?), but let’s be honest.  Lifetime income? Inflation-adjusted?  Political third rail?  

Social Security should be a bedrock that reduces your fear to spend.  You can spend that SS check every month, knowing there will be another one next month to take its place. Make sure you get your claiming strategy right.  I’ve written several articles about it and would encourage you to read the following for details.  TLDR; 1) Delay, and 2) Optimize Spousal Benefits. Here’s the link: How To Determine When To Claim Social Security

6. Defend Against Sequence of Return Risk

While most people worry about their money running out before they die, their biggest fear should be a Bear Market in the first few years of retirement.  That’s called Sequence of Return Risk, and it matters (a LOT).  The Investopedia article “Sequence Risk: Meaning, Retirement, and Protection” offers a better explanation and examples than anything I’ve written, I encourage you to read it.  In our case, I use the previously mentioned Bucket Strategy, with 3 years of cash and a Bond Ladder to provide additional support in the case of an extended Bear.

Protect yourself, diversify, and (most importantly) avoid selling stocks after a market downturn.

7. Consider An Annuity, Bond Ladder, or Longevity Income ETF

It’s been proven that folks with a known income stream (annuities, pension) have less spending anxiety than those who must withdraw from their portfolio every year.  To quote the first line from that article: “Retirees with assets that annuitize income spend twice as much as retirees with an equal amount of non-annuitized savings…”

Annuities can provide a known income stream for life in return for an upfront lump sum payment. That spending anxiety you have about outliving your money?  Gone with an annuity.  Sure, there are some downsides (handing over a big chunk to an insurance company, with the risk you won’t get it back if you die early or the insurance company goes bankrupt), but people often overlook Annuities due to the bad press they’ve earned over the years.  They’re a useful tool that all retirees should be familiar with, and justify serious consideration for anyone who doesn’t have a “baseline” income stream (e.g., no pension).  To get a sense of how much income you can generate at various lump sums, check out this Income Annuity Calculator.

Bond Ladders can also be used to create a known income stream for any required range of years. This video from Rob Berger gives an excellent example of how they can be used.  He links to this TipsLadder tool, which is helpful if you’d like to construct a bond ladder.  I’ve been migrating portions of my bond mutual fund holdings into a ladder, as I outlined in How To Build A Bond Ladder.  

Another option that I’ve recently become aware of are Longevity Income ETF’s from LIFEX, which essentially build a bond ladder for the duration of your planning horizon. By entering your birth year, planning horizon, and distribution type (Fixed or Inflation-Adjusted), in the table on this page, you’ll find a relevant ETF and associated distribution rate (the fund draws down both the principal and bond yields). In my case (1963, 95 years), the fixed payout is a 6% Distribution rate via the 2058 Longevity ETF (LFAU), or a  4.3% Distribution rate for the 2058 inflation-protected fund (LIAQ).  I’ve not yet researched these funds, but find them intriguing. Unlike an annuity, I suspect you’d be able to sell the ETF if you change your mind in future years

(If you are familiar with LIFEX funds, I’d love your thoughts in the comments.)

Bonus Tip:  Just Do It!

A final bonus for those who are scared to spend.  Once you’ve followed the tips outlined above, “Just Do It.”  Force yourself to spend whatever money is coming into your checking account, knowing that value was determined by your new and rigorous approach and is within your safe spending limit. 

One other tip:  set a dollar amount that you can spend up to without thought.  We’ve set ours at $100.  If something interests me (or my wife) and costs less than $100, we can buy it without much thought or guilt.

In our case, we’re forcing ourselves to spend the money.  I’ve shared how difficult it was initially in my article “Why Is It So Hard To Spend Money,” where I decided to buy the “expensive” mountain bike shown above (a decision I’ve never regretted).  In the 18 months since I wrote that article, it’s gotten easier to spend. 

Our best example is the decision my wife and I made to “Go Big” on a 2025 cruise to Greenland and the Northwest Passage (15 days above the Arctic Circle), and we’re considering adding a week of DIY travel through Iceland on our way to the ship’s departure.  We’ve also increased our charitable giving, and have essentially eliminated our anxiety about spending money in the process. 

There’s hope, my friends.

I’m living proof.

Conclusion

Are you scared to spend in retirement?  If so, you’re not alone.

Rather than dwell on the fear, implement as many of the 7 tips as possible to ensure your money will last longer than you do.  In summary:

7 Tips To Reduce Your Fear To Spend

1. Determine A Safe Withdrawal Rate
2. Automate Your Retirement Paycheck
3. Use Annual Spending Guardrails
4. Hedge Inflation
5. Optimize Social Security
6. Defend Against Sequence of Return Risk
7. Consider an Annuity, Bond Ladder, or Longevity Income ETF

Once you’ve implemented those steps, “Just Do It.”  Force yourself to spend the money you know you can safely spend.  If you have money left over in your checking account at the end of the year, give it to charity, help a child, or splurge on a big trip next year.

Speaking from experience, it gets easier with time.

Stop worrying about your money.

Start Living Your Dream Life.

Your Turn:  Are you scared to spend in retirement?  What do you think drives those fears?  How many of the 7 Tips have you implemented, or are you considering implementing?  Do you think they’ll help overcome your fear of spending?  Let’s chat in the comments…