• The Psychology of Decumulation by Daniel Crosby
• EBRI Study: Why Do People Spend the Way They Do In Retirement?

Welcome to another episode of the Stay Wealthy Retirement Show. I’m your host, Taylor Schulte, and every week, I tackle the most important financial topics to help you stay wealthy in retirement. And now, on to the episode.

Your Plan Says Spend — Your Gut Says No (5 Questions to Ask Instead)

Many of you are familiar with my good friend Daniel Crosby. He’s a behavioral finance expert, he holds a PhD in clinical psychology, and he’s made a handful of appearances on this show. 

I’m a huge fan of his writing and thinking, and he recently published a fantastic new piece that I felt compelled to break down for our listeners.

At its core, the article is about decumulation, which is just a technical word for the spending-down phase of retirement. And his central argument is one I’ve been circling on this show for years, which is that standard financial planning treats retirement as a single event. The paychecks stop, the withdrawals start, and that’s the transition.

But Crosby wisely points out that anyone crossing into retirement is actually managing three transitions at the same time.

The first transition is economic. Your retirement savings become retirement income, and you begin spending the money you worked so hard to save. This is what traditional financial planning is built to handle: withdrawal strategies, Social Security, taxes, insurance, estate planning, and investments.

It can still be complex and challenging to navigate, but compared with the other two transitions, it’s more measurable and easier to plan for. You can run the numbers, make decisions, and build a system for how your money will work.

The second transition is psychological. And this one is much harder to model. Your identity changes. Your sense of control changes. Your purpose changes. Even your relationship with risk can change, often in ways you or your family didn’t expect.

For many people, whether they realize it or not, work provides a kind of second paycheck that has nothing to do with money. It gives you structure, relationships, status, and a reason to get up in the morning. Replacing those things is far less straightforward than building a retirement income plan.

The third is behavioral. And unless you’re a regular listener of this show, it’s the one almost nobody talks about. You have to reverse decades of training that told you to save, protect, and accumulate your money instead of spending it.

And that’s where these three transitions come together. We spend a lot of time planning for the financial shift, much less on the psychological one, and almost none on the behavioral one. 

But retirement asks you to switch between two very different ways of thinking. Accumulation rewards delaying gratification, saving more, protecting what you have, and thinking about someday. Retirement asks you to start using that money today.

You spend an entire career learning how not to spend. Then one Monday morning, you’re expected to relearn how, with no practice, using the largest sum of money you’ve ever been responsible for.

This Isn’t Just a Feeling — the Data Backs It Up

And this isn’t just a theory about how retirement feels. You can see these psychological and behavioral transitions show up in what retirees actually do with their money.

As one of many examples, the Employee Benefit Research Institute, or EBRI, recently asked retirees how much of their savings they actually planned to spend.

Only about 44% said they expected to spend all or a meaningful portion of their assets. Another 33% planned to spend only a small portion. And 22% planned to spend none of it, or even planned to continue growing it.

Said differently, more than half of retirees plan to spend little or none of the money they spent decades building.

When EBRI took it a step further and asked why, fear of running out of money was NOT the top answer. 27% of respondents gave that answer, but the most common answer, at roughly 38%, was saving for some unexpected cost later in retirement.

And that difference is something to zoom in on. Running out of money is a risk you can estimate and plan around. Saving for an expense you can’t name, can’t measure, and aren’t sure will ever happen is much harder to solve.

And retirees don’t just say this – their behavior backs it up. Among middle- and high-asset retired households, roughly 48% and 42%, respectively, still had at least 80% of their starting assets more than 20 years into retirement. This may remind you of the Federal Reserve study I mentioned last week concluding that retirees, on average, die with nearly twice as much savings as they had when they retired.

Now, some of this is completely reasonable. A well-known study using the University of Michigan’s long-running Health and Retirement Study found that medical costs and uncertainty about how long you’ll live explain part of why retirees hold onto their money. 

Those are real risks, and they deserve real planning – I’ve devoted entire episodes to both. But they don’t explain everything, and they don’t explain the person in Crosby’s article at all.

The Retiree Who Had Everything and Spent Almost Nothing

In his article, he opens with the story of an engineer who retires with an $8 million portfolio. Every projection says he can safely spend about $320,000 a year, but he only spends around $90,000. 

His kids ask him to travel. He does, but he flies economy and cuts the trips short. His wife wants to remodel the kitchen, but he can’t bring himself to say yes. He picks up a new hobby, which is comparing the best coupon apps. And he checks his diversified portfolio several times a day, the way he used to check a risky stock he was nervous about. 

Many years later, he dies having spent less in retirement than he spent while he was working. Was he financially successful? By almost any measure, yes. Was he prepared to actually live in retirement? Not really. 

And I want to be careful here, because $8 million is not a typical nest egg. But this pattern has very little to do with the size of the portfolio. I’ve said many times before that someone with $2 million can struggle with this just as much as someone with $15 million. 

Crosby makes the same point. In fact, he points specifically at the mass affluent — people who became millionaires through a 401(k) and a paid-off house — as the group where he sees this most.

The Invisible Curriculum

Dr. Crosby’s explanation for that behavior starts with a simple observation. Nobody arrives at retirement with only a balance sheet. You arrive with forty or fifty years of training.

Every paycheck you ever earned, from the first summer job to the last executive role, reinforced the same instructions. Save more. Spend less. Delay the reward. Avoid unnecessary risk. And don’t waste money.

Your parents may have reinforced it, especially if they lived through the Depression or the high inflation of the 1970s. Financial media reinforced it. Your employer reinforced it through 401(k) matches and automatic savings.

And after decades of hearing the same message, saving stops feeling like something you do – it starts feeling like part of who you are.

Crosby describes the shift in one brilliant line: “I save money”… becomes “I am a saver.”

That sounds like a small change, but it’s an important one. Because you can revise a behavior. You change a habit. But changing how you actually see yourself is much harder.

And we can actually see this in how retirees spend different types of money. Research from David Blanchett and Michael Finke, which I covered back in episode 274, found that retirees spend about 80% of the income they receive from guaranteed sources like Social Security and pensions.

But when the money comes from their investment portfolio, they spend less than half of what they could. Same money. Same spending power. Completely different feeling of permission.

Four Reasons Spending Your Own Money Feels Like a Mistake

Which brings us to the question at the center of Crosby’s article. If the money is genuinely there, why does spending it feel wrong?

The usual answer is loss aversion, which is the well-documented finding that losses feel roughly twice as painful as equivalent gains feel good. And that explains part of it.

But as Daniel notes, loss aversion simply tells us why you hate seeing your account balance fall – it doesn’t fully explain why a retiree with more than enough money can still treat every withdrawal like a threat.

He points to four deeper reasons.

The first is identity. A lifelong saver is protecting more than money – they’re protecting the person they believe themselves to be. Yes, spending lowers the account balance, but can also feel like breaking a rule you’ve followed your entire adult life. 

The second reason is competence. For decades, watching your portfolio grow felt like proof that you were doing things right. You saved, invested, and watched the number climb higher and higher. Then retirement begins, and the number may flatten or even fall. 

Even when that spending down of the account is exactly what the plan calls for, it can still feel like failure. Your brain spent thirty years treating your balance like a scoreboard – retirement doesn’t automatically turn the scoreboard off. 

The third reason is optionality. More money means more choices later, and spending some of it can feel like giving up those choices. For example, a $20,000 trip to Europe may feel more like one less trip you can afford to take in the future, even when the portfolio can easily support it. Said another way, taking a bucket list trip can feel like you’re trading away possibilities. 

Lastly, the fourth reason retirement withdrawals can feel like a threat is mortality. And this one is more uncomfortable. Spending from a fixed pool of money can be a reminder that the years ahead are limited as well. 

Research going back to the late 1980s has consistently found that reminders of mortality change how people think about money, safety, and control. Put simply, for some people, the act of spending stops being a transaction and starts to feel like a reminder – a reminder that both money and time are being used up. 

Why This Extends Beyond the Money

Once you understand that spending is as much of an identity question as it is a math question, the rest of the retirement transition starts to make much more sense. 

There’s a well-known framework in retirement psychology called continuity theory. In simple terms, people tend to adjust better to retirement when important parts of their old life continue into the new one – when their values, activities, and relationships carry forward, rather than disappearing in retirement. 

Later research on “role transitions” found something related. It found that people who built most of their identity around their career often have a harder time adjusting than people who saw themselves in several different roles: spouse, parent, friend, volunteer, neighbor, or member of a community. 

That same idea applies to money and spending. If much of your confidence came from being good at saving and growing money, retirement suddenly asks you to do the opposite. 

You’re being asked to use a skill you may have never practiced, and that doesn’t mean you’re bad at retirement, it just means spending is a muscle you haven’t trained yet.

The Permission Gap

All of this leads to an idea from Crosby’s article that I keep coming back to: having the financial ability to spend and feeling comfortable spending are two different things. 

And his analysis, at a very basic level, really comes down to two separate questions:

The first is, “Can you afford to spend the money?”

The second is, “Do you feel comfortable spending it?” 

As you can imagine, those answers don’t always match. You may have more than enough money to support the life you want, yet still feel uneasy every time you spend more than usual. 

Crosby calls that the permission gap. And I’m a big fan of that term because it identifies the real issue. If your financial plan is healthy but spending still feels wrong, the problem may not be your finances at all. The gap is between what your money can safely support and what you can emotionally give yourself permission to do.

Now, some of you may be thinking, “But Taylor, I don’t think I’m being irrational. What about a bad market right after I retire? What about a catastrophic long-term care event later in life?” 

Those are fair concerns. The risks are real, and as I’ve discussed many times before, they should be estimated, planned for, and funded. That’s part of a good retirement planning process. But once a risk has been named, sized, and planned for, continuing to underspend against it doesn’t make your plan better. At that point, the issue is no longer the math – it’s the permission gap. 

And this is where I think Crosby’s most useful observation lands: a 95 percent probability of success does nothing to close that gap. Neither will another projection, a cheaper investment, or one more Roth conversion analysis.

I’ve watched this play out in real life for nearly 20 years as a retirement planner. The projection says yes, but the person says “I know, but…” And usually, more math doesn’t solve the “but.”

Five Questions That Work Better Than “Can I Afford It?”

What solves it, according to Dr. Crosby, is a better set of questions. 

His point is that “can I afford it?” is the wrong question, because for most people the honest answer is already yes — and the yes has never once changed the behavior.

So here are the five questions he suggests, and the questions I’d encourage you to sit down and answer, ideally in writing and with your spouse or partner. 

Number one is: What experience are you putting off right now? Think of the trip you keep delaying, the project you haven’t started, or the person you keep saying you’ll visit next year. Name it, describe it, write it down. 

Number two: What are you protecting this money from? Be specific. If it’s long-term care, we can estimate that cost and plan for it. If it’s just a general fear of spending, that’s important to recognize too. 

Number three: If your portfolio never grew another dollar for the rest of your life, what would you change about how you’re living? For many well-funded retirees, the honest answer is: not much, which reveals how little the growth was ever really for.

Number four: What would your younger self hope you did with this money? The version of you who worked late, saved carefully, and gave things up along the way probably had a reason for doing it. Are you using the money in a way that honors that reason? 

And finally, number five: What does “enough” look like now, at this stage of your life — rather than at the stage when you first picked that number? Most people set their number twenty, thirty, or forty years ago, under completely different circumstances. Your life has changed. Your goals may have changed too. And your definition of enough should be allowed to change with them. 

Crosby’s argument is that questions like these are diagnostic. They bypass the calculation you’ve already run in your head and go straight at the permission gap. And they tend to stick with people in a way a risk-tolerance questionnaire never does.

Lastly, I’d add one more thing here before we move on. Closing that gap can be hard to do by yourself, because you’re asking the same brain that spent decades learning to save to suddenly become comfortable spending. Daniel describes the process as five distinct jobs: interpreting the numbers into a real decision, granting explicit permission your own head won’t generate, coaching an identity shift from saver to thoughtful spender, designing your defaults so the easy choice points toward the life you actually want, and connecting a specific expense to a specific value you hold.

Not one of those five involves picking the next best stock or trying to predict where interest rates go from here. And whether that second set of eyes is an advisor, a CPA, a spouse, or a friend who genuinely understands the moving parts, the point stands: very few people talk themselves out of the permission gap in isolation.

The Bottom Line

Once you’ve clearly answered those five questions, what tends to come into focus isn’t a completely different plan, it’s simply a different way of living within the plan you already have.

At the end of his article, Crosby returns to that engineer and imagines a second version of the same retirement. He takes the trip his kids asked for. He approves the kitchen remodel. He helps fund a grandchild’s education with a warm hand instead of leaving it as an inheritance. He hosts the family at Christmas without doing the arithmetic beforehand.

Nothing about his finances had to change to make any of that possible – the $320,000 was always safely available for him to spend. What changed was his relationship with the money, and to me, that’s the most important takeaway.

Yes, retirement is certainly a math problem, and the numbers do matter. But it’s also a transition in who you are once you’re no longer earning, and in what your money is for once its job begins shifting from securing the future to supporting the life you’re living now.

So if you’ve saved diligently and still find yourself hesitant to spend, remember this: the research, the market history, and the math all suggest that many disciplined savers can afford to spend more than they think, especially when a flexible, well-built plan is helping guide those decisions.

But I’d also gently suggest that reading one more study probably isn’t what will change your behavior. If the numbers already say yes and something inside you still says no, the more useful work may be sitting down with those five questions and being honest about the answers.

You spent three, four, maybe five decades getting very good at one skill – there’s no shame in admitting the second one takes some practice too.

Thank you, as always, for listening. And to view Daniel Crosby’s article, the EBRI research, and the other resources referenced in today’s episode, just head over to youstaywealthy.com/300.

Disclaimer

This podcast is for informational and entertainment purposes only, and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services.