Millions of Americans spend decades worrying about whether they are saving enough for retirement. Then retirement arrives, and many make an unexpected mistake: they become afraid to spend the money they spent their entire careers accumulating.
New research from Vanguard suggests fewer than 1 in 10 retirees regularly use their retirement accounts to pay everyday expenses. Instead, most either make occasional withdrawals for major expenses or leave their tax-deferred savings largely untouched until required minimum distributions force them to start taking money out.
That may feel financially responsible, but in some cases excessive caution can create an entirely different problem. Retirees may unnecessarily restrict their lifestyle during some of their healthiest years, allow large tax-deferred balances to continue growing, and eventually face larger taxable distributions later in retirement.
The lesson is surprisingly simple: How you spend your retirement savings can matter almost as much as how much you saved.
Most Retirees Aren’t Giving Themselves a Paycheck
Vanguard surveyed roughly 8,000 retirees with less than $1 million in retirement savings to understand how people actually use their nest eggs. Just 8% reported taking regular withdrawals to cover everyday expenses.
Another 53% used their retirement accounts primarily for specific needs such as medical bills, home repairs or paying down debt. The remaining 39% generally waited until required minimum distributions, or RMDs, forced them to begin taking money out.
In other words, more than 9 out of 10 were not treating their retirement savings like the paycheck those savings were designed to replace.
That behavior makes some sense. After spending 30 or 40 years being told to save, invest and avoid touching retirement accounts, suddenly reversing course can feel uncomfortable. A $500,000 IRA may look like security, and watching that balance fall can feel like becoming poorer even when the entire purpose of the account was to finance retirement.
But that psychological instinct can collide with the tax code.
The RMD Trap
Traditional IRAs and 401(k)s generally allow investors to postpone income taxes while their money grows. Eventually, the government requires retirees to begin withdrawing part of those savings.
For many retirees today, RMDs begin at age 73. Under current law, the applicable age eventually rises to 75 for people born in 1960 or later.
The critical point is that an RMD is a tax rule, not a retirement spending recommendation. Yet Vanguard found that many retirees effectively use it as one.
That can lead to an unusual retirement pattern. Someone may spend conservatively through their 60s and early 70s, living primarily on Social Security while allowing a large pretax portfolio to continue compounding. Then RMDs arrive, and taxable distributions begin increasing whether the retiree actually needs the money or not.
For someone with substantial tax-deferred savings, those withdrawals can increase taxable income, potentially cause more Social Security benefits to become taxable and even contribute to higher Medicare Part B and Part D premiums through income-related surcharges.
The strategy designed to avoid running out of money can therefore create another risk: accumulating more taxable retirement money than you ever intended to spend.
Vanguard’s $360,000 Retirement Example
Vanguard modeled several retirement-income strategies using a hypothetical 63-year-old retiree with $360,000 in a traditional 401(k) and roughly $34,000 in annual Social Security benefits.
The first strategy resembles what many retirees currently do. The retiree claims Social Security early and largely leaves the $360,000 retirement account alone until RMDs begin.
Under Vanguard’s assumptions, that strategy produces roughly $48,000 in average annual spending. Yet the retiree could finish life with approximately $398,000 remaining.
Think about what happened: the retiree began with $360,000, lived cautiously for decades, and potentially died with more money than he started with.
For someone intentionally trying to leave a large inheritance, that could be perfectly reasonable. Vanguard’s survey, however, found that leaving excess wealth at death was the stated goal of only a small percentage of respondents.
For everyone else, the outcome raises an uncomfortable question: What was all the saving for?
Delaying Social Security Changes the Math
One of the most interesting strategies Vanguard examined flips the conventional retirement sequence.
Instead of immediately claiming Social Security and protecting the retirement portfolio, a retiree can potentially use part of the portfolio as a temporary income bridge while delaying Social Security.
For people born in 1943 or later, Social Security benefits generally increase by 8% for each year benefits are delayed beyond full retirement age, up until age 70. For someone whose full retirement age is 67, waiting until 70 can produce a monthly benefit equal to roughly 124% of the amount available at full retirement age.
That higher benefit then continues for life and generally receives Social Security cost-of-living adjustments.
In Vanguard’s hypothetical example, the Social Security bridge strategy produced approximately $56,000 in average annual spending, versus about $48,000 under the strategy of claiming Social Security early and largely waiting for RMDs.
There is a tradeoff. The retiree spends more of the portfolio earlier and therefore finishes life with less remaining wealth, roughly $44,000 in Vanguard’s hypothetical model. But for someone focused primarily on maximizing lifetime spending rather than leaving a large estate, that can create a dramatically different retirement experience.
The Real Retirement Equation Has Three Parts
Retirement planning is often reduced to one question: How much money have you saved?
A better framework may be what we’ll call the Retirement Income Triangle.
1. Portfolio Longevity
Your money still needs to last. Withdrawal rates, investment returns, inflation, healthcare expenses and lifespan all matter, and spending too aggressively early in retirement can create serious problems later.
2. Lifetime Taxes
The location and timing of withdrawals can materially change what you ultimately keep. Someone with money spread across taxable accounts, traditional retirement accounts and Roth accounts potentially has more flexibility to manage taxable income than someone drawing everything from one bucket.
Large tax-deferred balances can become particularly important once RMDs begin.
3. Lifetime Enjoyment
This part receives far less attention. A dollar available at age 66 may have a different practical value than a dollar available at age 91.
Early retirement is often when people are healthiest and most capable of traveling, pursuing hobbies, visiting family and enjoying activities they delayed during their careers. Being overly conservative during those years can leave retirees financially wealthy later while sacrificing experiences that cannot be recovered.
A successful retirement plan therefore needs to balance all three.
Why “Never Touch the Principal” Can Backfire
For generations, retirees have been taught that preserving principal is financially prudent. That remains valuable in many situations, especially when retirees have limited assets, uncertain healthcare costs or a strong desire to leave money to children.
But preserving principal at all costs can become its own form of risk.
Consider someone who retires with $800,000 in an IRA. If markets perform reasonably well and that retiree spends very little from the account during their 60s, the balance could potentially grow considerably before RMDs begin.
The retiree has successfully protected the account, but the government eventually wants its share. Large mandatory withdrawals can then arrive during years when the retiree needs less money than before, potentially increasing taxes precisely when spending naturally begins to decline.
The account balance alone therefore does not tell you whether the strategy succeeded. The better question is how much after-tax lifetime income and flexibility the savings produced.
There Is No Universal Answer
The Social Security bridge approach will not work equally well for everyone. Someone retiring with very limited savings may need Social Security immediately, while a person with significant health concerns may place greater value on claiming benefits sooner. Married couples also face additional considerations involving spousal and survivor benefits.
Other retirees specifically want to leave substantial assets to children or charities. Investment returns matter as well, since drawing heavily from a portfolio during a major bear market early in retirement can increase sequence-of-returns risk and reduce the portfolio’s ability to recover.
That is why the most important takeaway from Vanguard’s research isn’t that every retiree should delay Social Security until age 70. The bigger point is that automatically claiming Social Security early while refusing to touch retirement savings may deserve a second look.
Four Numbers Retirees Should Watch
Rather than focusing exclusively on an IRA or 401(k) balance, retirees may want to understand four numbers that determine how efficiently their retirement savings are working.
Projected annual spending. How much can the retirement plan reasonably support?
Future RMDs. How large could mandatory taxable withdrawals become later?
Social Security at different claiming ages. What would benefits look like at 62, full retirement age and 70?
Projected remaining wealth. How much money is likely to remain later in life, and is leaving that amount actually part of the plan?
Those four numbers can reveal whether a retiree is responsibly protecting savings or simply postponing spending without a clear reason.
The Retirement Risk Nobody Talks About
Most retirement advice is built around one fear: running out of money. That risk is real, but Vanguard’s findings highlight the opposite problem.
Some Americans may spend decades building retirement wealth only to become so afraid of losing it that they never fully use it. If a retiree intentionally wants to leave a large inheritance, preserving wealth makes sense. If the primary purpose of the savings was to finance retirement, finishing life with a larger portfolio after decades of unnecessary spending restrictions may represent a very different outcome.
Retirement planning therefore requires a psychological transition as much as a financial one. During your career, success means accumulating assets. In retirement, success increasingly means converting those assets into sustainable income.
The Takeaway
Vanguard’s research exposes an overlooked retirement problem: Americans have become much better at saving money than spending it intelligently.
Only about 8% of the retirees Vanguard surveyed regularly withdrew retirement savings for everyday expenses. Many waited for RMDs, potentially sacrificing spending earlier in retirement while increasing taxable income later.
For some retirees, carefully drawing from tax-deferred savings earlier, coordinating withdrawals across different accounts and evaluating whether delaying Social Security makes sense could create a smoother income stream and potentially improve lifetime spending.
The goal of retirement planning shouldn’t simply be reaching the finish line with the biggest account balance possible. For many people, the better measure is whether the money they spent decades saving actually allowed them to live the retirement they saved for.
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