Optimizing Retirement Spending: Strategies for 2026

After years of saving for a secure future, retirees can often struggle to recognize their future has arrived. Spending those hard-earned funds is a daunting mental shift for clients to make.

Many rely on overly simple spending strategies like withdrawing only the minimum or living off dividends. In our sample, we found that these hesitations don’t stem from a lack of funds but rather may be the result of a lack of motivation to pursue more complex spending strategies.

This is where financial advisors become essential. Explore these actionable ways to guide clients through better spending strategies and overcome the barriers of underspending. Re-engage retirees by aligning their withdrawals with meaningful, values-based goals, and you will empower clients to make better spending decisions.

For a complete look at the frameworks you need to unlock your clients’ spending potential, download our latest report.

The retirement income landscape has evolved dramatically over the past few decades, making it so that pension plans are no longer what retirees rely on most. Instead, defined-contribution plans are now integral.

Where traditional pension plans provide a steady stream of income, defined-contribution accounts require clients to decide how much to withdraw. With the onus placed on clients to decide how much to withdraw annually, several concerns arise that can lead to underspending.

You might assume a lack of savings is what drives retirees to be overly cautious about their retirement spending, but researchers suggest otherwise. Some commonly proposed concerns include:

• Longevity: Retirees must contend with not knowing how long they will live to continue spending their income.
• Future medical costs: Clients may hoard away income for unforseen medical expenses or long-term care expenses.
• Bequest motives: The desire to pass down a sizeable inheritance to family members could keep retiree spending low.

While these concerns are valid, they still don’t fully explain why even retirees in higher wealth brackets tend to underspend their savings. Research shows even when clients do have enough savings to cover these unknown variables, the strategies they follow remain suboptimal.

Our study asked retirees what spending strategies they actually use, providing them with a list of options sourced from existing literature. Overall, 50% of retirees in the study use simple, hands-off approaches in determining their retirement spending.

The most used strategies included withdrawing funds based on the required minimum distribution, withdrawing based on a retiree’s current expenses, and consulting with a financial advisor.

Around 42% of retirees used only a combination of those strategies, all of which are hands-off, not requiring the retiree to consider factors like their life expectancy or life goals.

Even when clients rely on financial advisors, the strategy can vary in terms of complexity and engagement. Some might completely hand over withdrawal decisions to an advisor, while others might more actively engage in the financial-planning process with their advisor.

Complex strategies require clients to grapple with variables like their wealth, goals, and unknown factors like market volatility and inflation. While it’s difficult to pinpoint exactly why retirees rely on simple strategies, we can provide some insight into their decision-making.

Some possible reasons for clients’ hesitation toward more nuanced approaches include:

• Complexity: More advanced strategies require that the retiree incorporate many moving parts.
• Perceived risk: Although wealthy retirees clearly have enough funds to support their retirement, spending more feels inherently dangerous to those who fear running out of money.
• Lack of motivation: If simple strategies cover basic needs, clients simply don’t see the need to optimize their spending.

This hesitation is exactly where your guidance becomes invaluable.

Balancing present-day enjoyment with long-term financial security is not easy, and the fear of outliving their savings tends to push retirees toward overly conservative spending decisions.

Even retirees who work with financial advisors often remain disconnected from their own withdrawal plans, still relying on simple strategies. Clients often do not fully understand the more advanced, dynamic strategies advisors build for them behind the scenes.

This lack of understanding may breed hesitation. If clients do not grasp how their safe spending rate is calculated, they may lack the confidence to spend that money.

To help build confidence, advisors can actively guide clients through the mechanics of their withdrawal strategies. This means breaking down advanced economic models into clear, straightforward concepts, using tailored data to show clients exactly how their plan accounts for longevity and market volatility, and involving them in the ongoing review of their spending.

By clarifying the process, you remove the mystery from retirement income and help retirees shift focus away from hoarding assets.

Retirees need to be motivated to define a withdrawal rate based on more than what is required. In other words, retirees need goals.

Before their retirement, clients’ goals were meant to motivate them to save, but in retirement, goals need to motivate them to spend. Engaging in goal-setting in retirement encourages retirees to ask what else is possible with their retirement income after accounting for their basic lifestyle needs.

A framework retirees might benefit from when goal-setting is the PERMA-V model. This model encourages clients to dig deeper into how their money can align with what they value most.

The model posits that a person’s wellbeing consists of: positive emotion, engagement, relationships, meaning, accomplishment, and vitality. The PERMA-V model can be used as a framework to determine how new or existing goals satisfy these components.

This framework could motivate retirees to engage more in defining their withdrawal rate and enjoy their income because the decisions are rooted in their own values.

Advisors have a vital opportunity to change how clients experience their post-work years. Moving retirees away from rigid, hands-off habits and chronic underspending requires active, ongoing engagement.

When you help clients truly understand their withdrawal strategies, you give them the confidence to use their wealth.

Empowering clients to spend their hard-earned money transforms retirement from a time of financial anxiety into a period of genuine fulfilment. Download our full report to explore these insights and start motivating better withdrawal decisions.