A new report published by Morningstar examines how retirees decide how much money to withdraw from their retirement savings accounts (such as 401(k)s, IRAs, and other defined-contribution plans).
As pensions have declined and defined contribution plans have become the primary retirement savings vehicle, retirees are increasingly responsible for determining how to spend down their own savings.
Despite concerns about retirement readiness, research consistently shows that many retirees actually spend less than they safely could.
Morningstar’s findings show that most retirees rely on simple, hands-off withdrawal strategies rather than more sophisticated financial planning methods. Over half of retirees use only one strategy to determine withdrawals, and 50 percent rely exclusively on simple approaches such as:
- withdrawing the required minimum distribution (RMD)
- withdrawing based on expected expenses
- taking dividends or interest only
- consulting a financial advisor
Even among retirees working with financial advisors, many do not understand the strategies being used and remain largely disengaged from the withdrawal decision process.
Importantly, retirees are highly resistant to changing their approach, with 98 percent reporting no intention to change their withdrawal strategy.
The research explored several potential explanations for conservative withdrawal behavior—including lack of savings, longevity risk, financial literacy, and fear of running out of money—but none fully explained the pattern. Instead, the authors conclude that retirees may simply lack motivation to optimize spending, particularly when their current strategy comfortably covers basic expenses.
