The Retirement Risk Nobody Warns You About: Spending Too Little

The Iran deal held, the Fed held, and markets had the best week since January.

The quick scan: Friday capped a strong week. The interim US-Iran peace agreement – signed earlier in the week and including the reopening of the Strait of Hormuz – continued to support equities, with oil staying below $90 and inflation expectations easing. The Fed kept rates steady at Thursday's meeting, though half of officials signalled at least one hike may still be warranted this year. Intel surged after Trump announced it would produce chips for Apple in the US. All three indices finished the week meaningfully higher.

S&P 500: +1.08%, 7,500.58 – Reclaimed the 7,500 level; the week's gain of approximately 3% is the strongest since January, with technology leading across the week
Dow Jones: +0.14%, 51,564.70 – A modest Friday gain that masked a strong week overall; Caterpillar, Walt Disney and Nvidia were the week's standouts
NASDAQ: +1.91%, 26,517.93 – Intel's surge drove the index to its best weekly performance since February; the AI and semiconductor trade resumed after two weeks of turbulence.

What's driving it: The Strait of Hormuz reopening is the structural shift markets have been waiting for since February. Oil below $90 directly reduces inflation pressure, which reduces the urgency of Fed rate hikes, which improves the outlook for growth assets. The Fed's decision to hold rates on Thursday – while flagging the possibility of future hikes – was taken as confirmation that the worst-case rate scenario has been averted for now. Intel's 10.6% Thursday surge carried into Friday, anchoring chip stocks after weeks of underperformance.

Bottom line: The week that ended June 19 may be the turning point the market has been building toward since the Iran war began in February. For L-Plate Retirees, the practical implication of lower oil, a steady Fed, and a reopened Strait is straightforward: inflation should ease, purchasing power stabilises, and the rate environment becomes less hostile to income-generating assets. The plan that held through the volatility is now the plan that's participating in the recovery.

You Saved Hard Your Whole Life. Now the Problem Is You Won't Spend It

The scoop: You spend thirty years being told not to run out of money. Save more. Spend less. Don't touch the principal. The 4% rule. The nest egg that must last a lifetime.

So imagine reaching your mid-80s with every dollar of your original savings intact.

That sounds like success. According to a growing number of financial planners – and a significant body of EBRI research – it's actually a failure mode.

About one in three retirees reaches their mid-80s with all of their original savings untouched or even grown, according to 30 years of data from the Employee Benefit Research Institute tracking how households actually spend in retirement. In every wealth group, a meaningful chunk of retirees preserved their entire nest egg across two decades of retirement – money that sat there doing nothing, because its owner was too nervous to spend it.

"It represents a life not lived," said Marianela Collado, a certified financial planner and certified public accountant. "The vacations you didn't take because you were afraid you were going to run out of money."

Craig Copeland, director of wealth benefits research at EBRI, is equally direct: "When you see so many people into their 80s still at 100%, you see people who are being way too conservative with their spending."

Why the 4% rule creates this problem

The 4% rule was introduced by financial planner William Bengen in 1994, based on research into historical portfolio survival rates. The idea: withdraw 4% of your savings in year one, then increase that dollar amount with inflation each year, and a 50/50 stock-bond portfolio should survive 30 years even in the worst historical scenario – someone who retired in 1968 and spent the next decade fighting brutal inflation.

The problem with designing a rule around the worst historical scenario is what happens when the worst doesn't occur. You reach the end with a large pile of money you were too cautious to spend. Bengen himself has since revised his number upward – his current view is that 4.7% is the more accurate safe maximum for a first-year withdrawal. Morningstar's research, using flexible spending strategies, puts the number as high as 5.7% for retirees willing to adjust year to year.

The deeper issue, as Copeland puts it, is psychological rather than mathematical: "Some people spent all their life saving money, and it's very hard to switch then to spending their assets down. It's not a comfortable feeling."

Decades of financial conditioning to accumulate and protect don't reverse overnight. The habit of not spending the savings becomes, in retirement, a habit that quietly costs people the experiences and choices the savings were supposed to fund.

What dynamic spending actually looks like

The alternative isn't simply spending more. It's spending intelligently – adjusting withdrawals to track actual portfolio performance rather than a fixed inflation-adjusted rule.

"Overspending is risky. But underspending is risky too," said Zach Teutsch, founder of Values Added Financial. "In a good year, you might take out 7%. In a bad one, you pull back to 2.5%. You ease off the portfolio right when it's down, and you can take a little more when it's up."

This approach – sometimes called dynamic or guardrail spending – matches how people actually spend in retirement, which research consistently shows is U-shaped. Spending tends to be higher in the early, active years when health allows for travel and activity. It shrinks during the quieter middle years. It rises again at the end when healthcare and long-term care costs arrive.

A fixed 4% withdrawal adjusted upward for inflation each year maps poorly onto that actual spending curve. Dynamic spending lets the withdrawal adapt to both portfolio performance and actual needs.

The practical implementation doesn't need to be complicated. Keep a conservative floor – say, 3.5% to 4% – as your minimum. When the portfolio performs well and moves significantly ahead of projections, give yourself a modest raise. When it falls below a set threshold, trim. The guardrails are the point: they prevent both the panic selling of bad years and the complacency of never revisiting the withdrawal rate at all.

The guaranteed income advantage

One consistent finding from the EBRI research: retirees with guaranteed income – a pension, CPF Life payouts, Social Security, or an annuity – drew down their investment savings more slowly and handled late-life surprises better.

The mechanism is straightforward. When basic expenses are covered by a guaranteed income stream, the investment portfolio doesn't need to carry every dollar of retirement spending. That insulation makes it psychologically easier to hold through market volatility without panic-selling, and it makes it financially safer to spend more from the discretionary portion of the portfolio.

For this newsletter's Singapore and Malaysia readership, CPF Life and EPF payouts serve exactly this function. They cover a meaningful portion of essential expenses and reduce the pressure on personal investment savings to do everything. That floor is worth understanding and maximising – the difference between claiming CPF Life early versus deferring to age 70 can be substantial, and that higher guaranteed income can free up discretionary savings for the life you actually want to live.

The reframe worth making

Most financial planning conversations orient around the risk of running out of money. That risk is real and worth managing. But underspending carries its own risk: the risk of having saved diligently for a retirement you then didn't live.

The financial planners quoted in this article don't argue for recklessness. They argue for intention. Spend on purpose. Revisit the withdrawal rate annually. Cover the essentials with guaranteed income, then give yourself real permission to use the rest.

The goal was never to die with the biggest possible balance. The goal was to fund a life worth living, for however long that life turns out to be.

Actionable Takeaways for L-Plate Retirees:

• Check whether you're underspending, not just whether you'll run out. Run a simple calculation: what percentage of your portfolio are you currently withdrawing annually? If it's below 3%, you may be living more cautiously than your savings justify. An annual portfolio review that asks "am I spending enough?" is as important as the one that asks "will this last?"

• Consider dynamic spending rather than a fixed withdrawal rule. A floor of 3.5–4% with guardrails upward in good years and downward in bad ones tracks actual portfolio performance better than a fixed inflation-adjusted number. It also matches the U-shaped reality of retirement spending – more early, less in the middle, more again at the end.

• Cover essentials with guaranteed income, spend the rest more freely. The retirees who handle late-life financial surprises best are those with a guaranteed income floor – CPF Life, EPF, Social Security, pension, or annuity – covering basic costs. With essentials secured, the discretionary savings can be used for what they were intended for.

• Revisit your withdrawal rate every year. A withdrawal rate that was appropriate at 65 may be too conservative at 72, when fewer years remain and the portfolio has likely grown. Annual recalibration keeps the rate aligned with the actual balance and the actual remaining horizon.

• Give yourself explicit permission to spend on experiences in the early active years. The U-shaped spending curve is real. The health window for travel, adventure, and active experience is finite. A plan that treats every dollar of savings as equally important regardless of when it's spent may be optimising the wrong thing.

• Talk to a financial planner who asks about spending, not just saving. Most financial planning conversations are oriented toward accumulation. Find an adviser who is equally comfortable discussing sustainable drawdown, dynamic spending strategies, and the question of whether you're actually using what you've saved.

Your Turn:
If you're honest with yourself, are you more worried about running out of money or about spending too cautiously and missing the life you saved for? Which fear is more present for you right now?
The EBRI research shows that retirees with guaranteed income – a pension, CPF Life, Social Security – spent more freely and handled late-life surprises better. Does having a guaranteed income floor change how you think about spending your other savings?
The 4% rule was built around the worst historical scenario. Knowing that a more flexible withdrawal rate of 4.7–5.7% is supported by more recent research, does that change anything about how you're currently drawing down your retirement savings?

👉 Hit reply and share your thoughts – your answers could inspire fellow readers in future issues.

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