How to Overcome Spending Anxiety in Retirement

When you have spent decades diligently accumulating your nest egg, the mental shift to tapping it can feel unsettling—even when you've amassed ample wealth.

According to a recent survey by the Employee Benefit Research Institute (EBRI),¹ more than 3 in 4 retirees agree they can afford to spend freely—but nearly half say they still underspend out of fear they'll run out of money, with rising health care costs top of mind.

"We tend to underestimate how disruptive it is to retire," says Mark Riepe, CFA^®, head of the Schwab Center for Financial Research. "Yes, we know it affects our finances, but it also affects our routine, our identity, and even our relationships. And this occurs no matter what kind of wealth you have."

In a recent unpaid survey, Schwab asked clients and prospective clients about their sentiments and habits related to retirement saving and spending.² One respondent said, "I know in my heart that now is the time to 'treat myself,' but my frugal upbringing and worry about not having enough stop me from spending."

Another said it required a deliberate shift in thinking: "After years of saving, it takes conscious effort to remind myself that retirement is meant to be enjoyed."

"Obviously, not everyone has the same retirement situation," Mark says. "The good news is there are several ways to address these concerns," Mark says. Namely:

• Increase your cushion: Building up your short-term reserves—cash, money market funds, and short-term bonds—for everyday expenses over the next two to four years can remove some of the stress of daily market performance that might otherwise influence your spending decisions.
• Create a guaranteed income stream: Another approach is to turn a portion of your savings into a steady income stream—such as through a single-premium immediate annuity, whereby you pay a lump sum in exchange for regular, guaranteed income. Such guarantees are dependent upon the insurer's claims-paying ability, but an annuity that covers essential expenses can give you a greater sense of security when it comes to spending elsewhere.
• Plan for long-term care: Health costs are a major concern for retirees—especially those related to long-term care, which are not typically covered by Medicare. "Look into long-term care insurance or set aside a pool of money just for future care to help allay concerns about running out of funds," Mark says.

"Here are two more strategies," Mark adds. "First, create some emotional space to work through your feelings as you make this transition. Second, take advantage of your advisor: Use their experience to get practical guidance and support to help you enjoy what you've worked so hard to achieve."