While it is a uniquely enjoyable privilege to dally on a high mountain summit, every experienced climber knows the vast majority of mountaineering casualties occur on the descent and understands the need for precision. I suspect this lingering truth results in an unjustly short average summit stay, given the ascent’s required suffering. A similar anomaly plays out in the form of retiree underspending, in particular with those who create income by selling assets, as with a standard systematic withdrawal plan, as opposed to those who receive streams of lifetime income, as with regular payments from a pension or annuity.
Savers invest a portion of their income today, which reduces the present lifestyle, to pre-fund a desirable lifestyle after retirement, generally into a Defined Contribution Plan, such as a 401(k), SIMPLE, or 457(b) Plan. In an inflationary culture, however, and for retirees lacking a second lifetime income stream (to Social Security), a spend-down in savings is often required to maintain the habituated lifestyle in retirement, and here enters the paradox; for various reasons, retirees are generally uncomfortable watching their nest egg shrink, even to fund pre-planned retirement lifestyle goals, and so they underspend. One research project concluded that retirees with guaranteed income sources spend twice the amount of money as those with an equal amount of investment wealth!1
While strong legacy goals may justify a degree of underspending, “The Flooring Approach” may help some retirees feel more comfortable spending in retirement and may support retirement lifestyle goals.:
- To determine the percentages of your God-given wealth to be allocated towards giving, investing, and producing lifetime income, start by differentiating between fixed and discretionary retirement expenses.
- Consider whether reliable lifetime income sources may help cover a substantial portion of essential retirement expenses. Start by considering a delay in Social Security benefits to age 70, which will maximize monthly benefits, may provide additional inflation protection over time, and may help support income needs for a surviving spouse with the smaller benefit amount.
- If net Social Security benefits, coupled with other lifetime income sources, like a pension or annuity, don’t cover fixed expenses, consider your ability to buy a lifetime income annuity to make up the difference.
While the advantages of “The Flooring Approach” are notable, most lifetime income annuities don’t include a cost-of-living adjustment, which increases the importance of a delay in Social Security benefits to fight inflation long-term. Consideration should also be given to the type of dollars (Pre-tax, Taxable, or Tax-free) used to fund such an annuity, consistent to your personal tax plan.
It is a mystery to retirement economists that so few retirees spend a portion of their wealth to purchase a lifetime income, referred to as “the annuity puzzle”, especially since it is economically efficient to transfer longevity risk to an insurance company.2 Don’t enjoy the well-earned summit too briefly, and don’t be an underspending retiree for lack of due diligence on the subject! May God bless your retirement income planning efforts, Shaun.
“Plans fail for lack of counsel, but with many advisers they succeed”
~Proverbs 15:22
“Commit to the Lord whatever you do, and He will establish your plans.
~Proverbs 16:3
1,2 Ed Slott’s IRA Advisor, April, 2026, “Giving Yourself a License to Spend in Retirement”, by Michael Finke, Ph.D.
Disclosure
Old Forge Wealth Management, LLC is a registered investment adviser. Registration does not imply a certain level of skill or training. This material is provided for informational and educational purposes only and should not be construed as individualized investment, tax, legal, or insurance advice or as a recommendation to buy or sell any security or insurance product. The views and opinions expressed are those of the author as of the date of publication and are subject to change without notice.
All investments and retirement income strategies involve risk, including the possible loss of principal. Strategies discussed, including annuities, systematic withdrawals, and Social Security claiming decisions, may not be suitable for all individuals and should be evaluated based on an investor’s unique financial situation, objectives, risk tolerance, liquidity needs, and tax circumstances. Guarantees associated with annuity products are subject to the claims-paying ability and financial strength of the issuing insurance company. Individuals should consult with qualified financial, tax, and legal professionals before implementing any retirement income strategy.
Past performance and historical research are not indicative of future results.