Why Are Retirees Underspending?

The question for many retirees has shifted from whether they have enough money to retire to whether they have the right plans to spend down what they have, according to a new Morningstar report.

The data revealed that half of retiree respondents chose simple, hands-off strategies to allocate spending from their retirement accounts each year. Their behaviors could not be justified by more common explanations for underspending, such as lacking savings, fearing running out of money or having low financial literacy. Morningstar concluded. Rather, retirees felt comfortable sticking to the status quo.

Of all retirees who responded, 53% reported using only one strategy when making withdrawal decisions—most commonly, 26% of single-strategy respondents reported withdrawing funds based on the federal required minimum distribution that participants must begin taking at age 73.  

Another 42% of retiree respondents reported using a combination of simpler approaches. As a result of respondents selecting multiple options, basing withdrawals on expected expenses was the most-cited strategy utilized (36%), followed closely by RMD amounts (35%) and consulting with a financial adviser (33%).

Other research, conducted in 2020 by the Employee Benefits Research Institute, found survey respondents’ rationale for not spending down their assets in retirement varied. At that time, 38% reported saving assets for an unforeseen cost later in retirement; 37% cited considering the spend down of assets unnecessary; 33% said they wanted to leave as much as possible to heirs;  31% said they felt better when account balances remained high; and 27% cited a fear of running out of money, according to an EBRI report published in January 2021.

Inertia seems to carry spend-down sentiments: 98% of respondents to the Morningstar survey had no intention of changing their withdrawal approach. The report suggested retirees appear unmotivated to engage in more complex withdrawal decisions because simple strategies maintain their lifestyle without introducing perceived risk.

“Goal-setting may be the missing driver, where retirees may need new or renewed goals in retirement to motivate more engaged spending decisions,” the report concluded.

Meanwhile, as retirees underspend generally, employees may be underspending medically. According to recent data from SureCo, a California-based health benefits technology company specializing in individual coverage health reimbursement arrangements for large employers, employees underestimate their employer’s health insurance premium contribution by an average of 21.2%—an average of $1,672, annually. Overall, 39.2% of employees reported avoiding or delaying medical care due to cost, and 53.5% said they took drastic financial measures to pay for medical expenses despite having health insurance.

“Employees are surprised by the real cost of care and the extent of employer contributions,” SureCo’s report stated. “This underlines the importance of helping employees understand how much their coverage is actually worth, not just that [employees] face cost pressures.”

Morningstar collected responses from a global sample of 937 retired or semi-retired people, including 262 adults age 60 or older, from April through June 2025. EBRI surveyed 2,000 U.S. individuals ages 62 through 75 during September 2020.

On behalf of SureCo, Censuswide conducted its survey between February 20 and February 26 among 500 U.S. employees who received medical benefits from companies with between 150 and 2,500 employees.