After decades of saving, spending feels wrong — even when the plan clearly says it’s safe. The reason isn’t financial; it’s psychological. Most retirees, according to research by David Blanchett, spend only around half of what their plan could safely support. This is known as the retirement consumption puzzle, and understanding it is the single most useful thing a lifelong saver can do in the years before and after retirement.
What does it mean to save?
For most of a working life, the answer is nearly automatic. Saving is the act of deferring, of moving money from a self who could use it today toward a self who will need it more. Every contribution is a small vote of confidence in the future person who will one day be grateful for it. For thirty or forty years, the logic holds. And for thirty or forty years, it is rewarded.
The strange thing is what happens when that future person finally arrives.
You would expect relief. In practice, what arrives more often is hesitation. Not the kind that looks like anxiety, the kind that looks like prudence, or reasonableness, or a quite sensible question asked in a quite sensible voice at an annual review: are you sure we can?
And if you sit in enough of those rooms, you start to notice the question isn’t really a question about the plan. The plan has been answering it for years, calmly, in six different directions. The cashflow has said yes. The stress tests have said yes. The Monte Carlo has said yes. The question underneath the question is something else entirely.
It is: am I allowed to?
That question is not financial, and a cashflow model isn’t the instrument to answer it.
The retirement consumption puzzle: why most retirees underspend
The evidence, when you go looking for it, confirms what the meetings suggest.
Research by David Blanchett, head of retirement research at PGIM DC Solutions, shows the average retired couple draws down around 2.1% of their savings a year. The figure that would have safely sustained every thirty-year retirement since the Great Depression is closer to 4%. Most retirees are spending roughly half of what their plan could support — and the wealthier they are, the wider the gap grows. The people best placed to enjoy what they built are, with striking consistency, the ones enjoying the least of it.
This pattern is known in the literature as the retirement consumption puzzle: the persistent, well-documented finding that retirees underspend relative to what their financial assets could sustain. It applies across income levels, holds up across decades of household data, and, unlike many findings in behavioural finance, has grown clearer over time rather than weaker.
Why the switch from saving to spending is so hard
Morgan Housel describes the mechanism well. Frugality, practiced long enough, stops being a strategy and becomes an identity. After four decades of disciplined saving, spending doesn’t feel like spending. It feels like a small departure from the self that made the whole thing possible. The discipline that got you here is, quietly, the same discipline refusing to let you enjoy it.
There is a generational layer worth naming too. The idea of a 20 or 30-year retirement is not an ancient one. It is, broadly, two generations old as a mainstream expectation. Nobody’s parents handed down a set of instructions for how to draw down a lifetime of pension savings, because nobody’s parents had a lifetime of pension savings to draw down. Everyone doing this is, in a real sense, doing it for the first time. The people we sit across from have spent their careers being told, rightly, to save. Almost none of them have been told, by anyone they trust, how to stop.
The mind does not help. Loss aversion: the well-documented finding that losses register roughly twice as strongly as equivalent gains, means that a falling portfolio balance feels much the same whether the fall is a market correction or a planned withdrawal. The brain is bad at distinguishing money taken by the world from money chosen by the self. Both arrive as less than there was. A cashflow model does not dissolve that feeling. Usually, nothing does, except time and repetition.
There is a smaller observation, too, that turns out to matter more than it looks. People spend income differently to how they spend capital. A state pension payment, or an annuity, or a defined-benefit cheque, gets spent without much thought, it is treated as a wage. The same amount drawn from an ISA or a portfolio produces guilt. It is the same money. The story attached to it is different. And stories, as it turns out, run most of the decisions people make about what is and isn’t theirs to enjoy.
Why most plans model a retirement that doesn’t exist
This might be a place where the profession has been looking at the wrong problem.
Most of our industry writes, speaks, and markets as if clients needed to be persuaded to save. That may be true for the population at large. For the planned-for, people who already sit across from an adviser at an annual review, the problem was solved a decade ago. The problem they have now is a different one, and it is one the profession doesn’t much like to name: a retirement carefully underfunded against a fear that doesn’t apply, shaped by plans that assume a spending pattern no one actually lives.
There is one more thing the numbers tell us, and it is perhaps the most useful of all.
Real spending in retirement is not a flat line. It is a shape, a retirement spending smile, in Blanchett’s language. Spending tends to rise in the early years of retirement, when travel, family, and long-deferred plans take centre stage. It eases through the middle years, not because people can’t continue to spend, but because they don’t want to. And it rises again late in life, as health-related costs arrive. The trough sits somewhere around age 84, often a quarter below the starting level in real terms.
Most plans model a straight line. Most lives follow a curve. Plans built on the line systematically overfund the middle years and, quite reliably, produce retirees rationing the early years against a fear that belongs to a later life they are likely to spend less in, not more.
What a good financial plan actually does at this stage of life
So what is a plan actually for, at this point in a lifelong saver’s life?
Perhaps something narrower than the profession usually claims. A good plan does three things:
It makes the numbers visible, repeatedly, until felt permission can catch up with analytical permission. Seeing the plan hold its shape across year after year of reviews is how confidence quietly becomes comfort.
It reflects the real shape of a retired life, the smile, not the straight line, rather than the convenient fiction of a level trajectory. This alone tends to reveal more room in the early years than most clients realise they have.
And, more than anything, it provides a voice outside the relationship you have with your own money. Patient, unhurried, unpressured. Able to say, year after year, that yes: the plan is doing what it was built to do, and this is what all of it was for.
That voice is not advice, in the strictest sense of the word. It is something closer to permission.
And permission, for most lifelong savers approaching or already in retirement, is what has been missing because the part of them most qualified to grant it has spent forty years learning to withhold it.
The risk most retirees face isn’t running out
The risk is not running out of money.
It is arriving at the end of a life they could have afforded to live, and finding they lived a smaller version of it by mistake.
The question, in the end, is not whether you can afford the life you saved for.
The question is whether you will give yourself permission to live it.
That is the question a good plan is built to help answer.
Start your retirement conversation
If you’re approaching retirement, or recently retired, and some of this sounds familiar — we’d be glad to talk. No pressure, no pitch. Just a conversation about what your plan is actually for.
Frequently asked questions
What is the retirement consumption puzzle? The retirement consumption puzzle is a consistent finding in retirement research: retirees spend significantly less in retirement than their financial assets and standard withdrawal rules would support. Research by David Blanchett shows the median retired couple spends roughly half of what their plan could sustain. The effect is strongest among wealthier households.
Why do most retirees underspend? Most retirees underspend for psychological, not financial, reasons. After decades of saving, spending feels like a departure from identity rather than a choice. Loss aversion makes portfolio withdrawals feel like losses even when they are planned. And retirees are often working from plans that assume flat real spending for life — an assumption the evidence doesn’t support.
What is the retirement spending smile? The retirement spending smile, first described by David Blanchett in 2014, is the observed pattern that real spending in retirement is not flat. It tends to rise in the early “go-go” years, fall through the middle years by as much as a quarter in real terms, then rise again late in life as health costs increase. Most financial projections assume flat spending, which systematically overstates the retirement savings needed.
How can a financial planner help with the switch from saving to spending? A good financial planner helps in three ways: by making the cashflow numbers visible repeatedly so confidence can catch up with evidence; by modelling the real shape of retirement spending rather than a flat line; and by providing an external, impartial voice that can calmly confirm the plan is working. The value at this stage of life is less about selecting products and more about giving lifelong savers the permission to enjoy what they built.
