Are You a Retirement Millionaire Too Afraid to Spend?

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Bill Van Sant has seen it many times among those he has helped with retirement planning. As a managing director at Girard, a Univest Wealth Division, Van Sant has worked with retirees who are sitting on piles of cash, but are scared to spend it.

There’s the one client who continued to pour money into an old car even though he could afford a newer one. Or the clients who planned to travel in retirement but kept putting it off out of fear they would outlive their savings, only to suffer an illness or medical condition that prevented them from realizing their dream.

Even Van Sant's father keeps delaying the purchase of a newer boat that has a bathroom, even though he has the resources to upgrade to that convenience.

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Retirement spending scaring you?

The road is paved with tales of retirees who were too frugal in retirement. Even though they have the means to splurge, they are reluctant to do so.

This frugality comes as the number of 401(k) millionaires among baby boomers is growing. As of the end of 2024, Fidelity Investments found that 41% of all 401 (k) millionaires were baby boomers. Generation X — or those between the ages of 45 and 60 — accounted for 57% of all 401(k) millionaires.

“Going from the accumulating savings part to the spending part is a hard transition,” says Van Sant. “Many retirees don’t spend enough, and it all comes down to their mindset.”

Old spending habits are hard to break

Many of Van Sant’s clients are conservative by nature. They grew up watching their parents scrimp and save, and adopted that approach as well. That’s not to say there aren’t spendthrift clients too, but those tend to be the ones who were spending during their working years and carried that into retirement.

“People who had the lifestyle creep as their income went up are the folks that tend to spend more now that they are in retirement,” says Van Sant.

Van Sant isn’t alone. A reluctance to spend in retirement is something Elizabeth Zelinka Parsons, a retirement transition expert and author of “Encore: A High Achiever's Guide to Thriving in Retirement,” sees with her clients.

Even though they know they can afford to spend more money, they won’t. “There needs to be a recognition that you saved all this money so you can be able to use it,” says Parsons. “Dying with it is not that rewarding."

How to overcome being too frugal in retirement

Having a lot of money that you are reluctant to spend isn’t a bad thing in and of itself, but if it prevents you from enjoying your retirement, it can be.

That’s why financial advisers say part of their job is getting clients to overcome that reluctance. Here are six ways to get more comfortable with an appropriate retirement spending level.

1. Shift your mindset

Shifting your mindset from saver to spender can go a long way in getting out of a frugal mode.

“The whole point of saving is so you can draw down to supplement or completely take care of your expenses when you are no longer working,” says Parsons. “There has to be a mind shift. A recognition that you are saving all this money so you will be able to use it.”

One way to shift that mindset, says Parsons, is to find purpose in the money being spent in retirement. Just like saving during your working years has a purpose— to support you in retirement—so too can spending.

“Money in the bank doesn’t have a lot of meaning beyond security,” says Parsons. “Did you save so you can travel? Did you save it to help your kids buy their first home? Connecting the money to purpose is very helpful.”

2. Be intentional about how much you want to spend

The thought of running out of money in retirement can be scary, especially since it can easily last thirty years.

To overcome those concerns, Eric Herzog, a financial adviser at Prime Capital Financial, says it’s important for people to look at retirement as climbing a mountain.

You invest money, your account grows while you’re working, you get to the very top, where you have enough money to retire and then it’s time to start spending the assets and go down the mountain.

While the trek down can be challenging, he says, showing clients it's OK permits them to spend.

“We do a lot of educating on the front end to help them understand the probability of the financial plan working out and what the success rate looks like,” says Herzog. “The best advice I give them is to be clear about the amount of money they are willing to draw down and to identify the amount of money they want to leave to family, charity or whoever it may be at death.”

It may be uncomfortable to think about, but Herzog says it gives a lot of people peace of mind to spend what’s left over on living the lifestyle they envisioned in retirement.

3. Create a retirement withdrawal strategy

Savings, done. Now you have to determine how you'll withdraw your money in retirement. After all, there are taxes and Required Minimum Distributions to worry about.

Plus, you may have multiple accounts—an IRA, 401(k), brokerage account and/or a Roth—which means you have to figure out which one to withdraw from first.

The good news is there are several strategies you can employ to help. The "guardrails rule" of retirement spending is one example. Unlike the 4% rule, in which you spend a fixed amount each year, adjusted for inflation, this approach is more dynamic. It helps people spend more, but also keeps it in check.

The "Me-First" or flooring rule of retirement spending is another strategy. The goal of this retirement spending method is to give you peace of mind knowing your essentials are always covered, freeing you up for some guilt-free spending. The "Permission-to-Spend," "Pay Yourself," and "The 'Die With Zero'" rules are other withdrawal strategies you can use.

4. Test out the scenarios

Fear can be paralyzing. A few tough months in the stock market can have retirees hunkering down and reigning in their spending. But fear shouldn’t be a reason to stop traveling, pursuing hobbies or otherwise enjoying your golden years.

To overcome that fear, Parsons says it's prudent to test out your retirement plan to ensure it can withstand all the what-ifs. Where are you if the markets tank, where are you if the markets are choppy, where are you if returns are much lower?

If you are still ok, Parsons says you can continue to spend as you planned. “You’ve already built that risk into the portfolio,” she says.

If you are not ok, it's time to rework your financial plan. A sound financial plan should withstand the short-term moves in the market.

5. Create a "permission to spend" budget

To overcome any guilt or worries about spending too much money in retirement Parsons says to create what she likes to call a "permission budget."

If your goal is to travel the world in retirement or help your adult child purchase a house, add that to your budget. By creating a line item for those expenditures, you are permitting yourself to spend it.

After all, you wouldn't beat yourself up for paying your monthly mortgage bill or purchasing groceries; the same should go for your retirement goals.

“You don’t have to agonize over it. You’ve already built it into the game plan. Otherwise, you may find yourself holding back and not taking that trip or doing what you want to,” she says.

6. Remember, retirement is a journey

During our working years, we are told we need to save X amount to maintain our lifestyle in retirement, but people forget that our lifestyle tends to change over the course of retirement.

During the early years, known as the "go-go phase," people are healthy and still young enough to pursue hobbies and travel, which requires money.

As we age, we move into the "slow-go phase," where our activities and spending slow down. In the no-go years, retirees are typically the least active; barring any unplanned illness or injury that requires long-term care, they spend the least money.

You don’t want to miss the go-go days by trying to save money and not be able to enjoy your retirement when you are ready to spend. That can result in regrets you can’t take back.

“As we get older, the thing that is scarcest for us is time, not money,” says Parsons. “Assuming people have enough money, it's better to use your resources to do things you want to do.”

Take baby steps

Shifting from a saver to a spender won't happen overnight, nor should it. You spent decades amassing your retirement nest egg; nobody expects you to start spending it with abandon.

To get started, take baby steps. Splurge on an extra dinner out this month and see how it feels. Upgrade to a luxury suite or extend your trip the next time you travel. Once you spend a little more and see that your finances are OK, you’ll feel more confident doing it again.

You worked hard, saved and planned. Now it’s your time to put those dollars to work—so go ahead and spend.

Donna Fuscaldo is the retirement writer at Kiplinger.com. A writer and editor focused on retirement savings, planning, travel and lifestyle, Donna brings over two decades of experience working with publications including AARP, The Wall Street Journal, Forbes, Investopedia and HerMoney.