A big part of the puzzle is something economists call the consumption gap. This gap is the difference between how much retirees could spend and how much they actually do spend. For many people, that gap is huge. After decades of disciplined saving, it’s hard to suddenly flip a switch and start spending freely. Habits formed over 30 or 40 years don’t disappear overnight. On top of that, retirees are often cautious because the future feels uncertain nobody wants to outlive their savings, especially when markets are unpredictable and healthcare costs can spike.

Loss aversion plays a major role too. Behavioral finance shows that people feel losses twice as intensely as gains. That fear leads many retirees to withdraw conservatively, even when their portfolios are more than capable of supporting higher spending. In practice, this means retirees often live below their means simply because spending feels scary.

This is where the 4% rule enters the conversation. Financial planner Bill Bengen created it based on historical data, showing that withdrawing 4% of your portfolio in your first year of retirement then adjusting that amount for inflation was overwhelmingly safe. What most people don’t realize is this: Bengen found that over 90% of retirees using the 4% rule ended retirement with more money than they started. In many cases, significantly more.

Michael Kitces expanded on this with even deeper simulations. His research showed that the vast majority of historical market periods produced returns far above 4% annually. So if a retiree is withdrawing 4% while the market is growing at, say, 7% or 8%, the portfolio keeps expanding. Instead of shrinking over time, it snowballs.

But here’s the real kicker: most retirees don’t even withdraw 4%. According to JP Morgan’s retirement research, the average withdrawal rate is just 2% half of what the 4% rule allows. Why? Fear. Fear of running out of money. Fear of market declines. Fear of unexpected medical bills. Social Security also plays a major role, covering such a large portion of basic expenses that retirees don’t need to touch their investments as often as they expected.

Many retirees treat their investments not as income-generating tools but as emergency reserves. They spend their Social Security, hold onto their portfolio “just in case,” and draw from it sparingly. Over time, this conservative approach leads to substantial account balances well into their eighties and nineties.

This isn’t necessarily a bad thing but it does raise an important question: Are you living the retirement you planned, or are you living a smaller version of it out of fear? The goal of retirement planning isn’t just to avoid running out of money. It’s to help you confidently enjoy the lifestyle you worked for. Understanding why retirees underspend—and how market growth interacts with safe withdrawal rates can give you more clarity, more freedom, and more peace of mind.

A well-built plan should help you balance security and enjoyment. When you know how much you can safely withdraw, when you understand how Social Security supports you, and when your portfolio is aligned with your goals, you make better decisions. You spend more confidently. You live with less fear. And if you end up leaving a legacy, you do it by choice not because you were too afraid to enjoy your own savings.

If you want to find out whether you’re on track or if your current withdrawal rate is far too conservative a personalized financial assessment can help you understand exactly where you stand and how to get the most out of your retirement savings.

All writings are for educational and entertainment purposes only and does not provide investment or financial advice of any kind.

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