Here’s how some US retirees with $1 million in savings can end up with $2 million or more — and why that’s a bad thing

Outliving your money is the biggest nightmare for most retirees. In fact, 64% of U.S. adults surveyed by Allianz Life said they were more afraid of running out of money in retirement than dying [1].

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But for some retirees, this fear is so crippling that it compels them to chronically underspend and end up with more money than they started with. In fact, an ultra-frugal retiree with $1 million can actually end up with $2 million or more by the end of their life.

Underspending

As a general rule-of-thumb, retirees are encouraged to withdraw no more than 4% of their assets per year in retirement.

However, many retirees actually end up undershooting this 4% rule, according to a 2024 study by Prudential Financial [2]. Married 65-year-olds with at least $100,000 in financial assets withdrew an average of 2.1%, according to this research. That’s roughly half the recommended rate of withdrawals.

One of the reasons for this underspending could be the difficulty of transitioning away from decades of frugal spending habits and delayed gratification in retirement. Old habits die hard.

In fact, longevity and inflation risks could make some retirees even more conservative with their spending habits in their golden years. A Transamerica Center retirement survey conducted in 2024 found that 50% of retirees said their spending had decreased in retirement, while 39% said it remained the same and only 11% said it increased [3].

These frugal spending habits could leave some retirees with more money at the end of their lives than what they started retirement with. For instance, someone who retires with $1 million and only withdraws 2% while their assets grow at 6% per year could experience 4% capital appreciation annually.

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At that rate, $1 million could turn into more than $2 million within 18 years. That’s only slightly longer than the typical 16-year gap between average life expectancy (78) and average retirement (62) age in America, according to Guardian Life [4] and the CDC.

Story Continues

Accumulating more wealth in retirement may sound like a dream scenario, but it could be holding you back from fully enjoying your golden years.

Why this is a bad thing

Although some frugality is necessary in retirement, too much could actually be a bad thing. Extreme saving habits may have helped you accumulate wealth for your retirement, but continuing these habits could put a strain on some of your relationships and even your health.

And by avoiding that dream vacation or luxury home renovation you and your partner have always wanted, you’re forgoing the simple pleasures of life that you have worked so hard for.

Former hedge fund manager Bill Perkins says, “Your biggest fear ought to be wasting your life and time, not ‘Am I going to have x number of dollars when I'm 80?’” in his book “Die with Zero: Getting All You Can from Your Money and Your Life.”

If you believe you may be underspending in retirement, consider raising your withdrawal rate and setting aside some cash as ‘fun-money’ or for guilt-free spending [5]. You could also consider being more generous with gifts to family and friends, helping your grandkids with their future education, or even supporting some charitable causes that align with your values — even if you don’t want to spend this money on yourself.

So in many ways, you may consider this a good problem to have.

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[1]. Allianz. “Americans Are More Worried About Running Out of Money Than Death”

[2]. Prudential. “Americans Are More Worried About Running Out of Money Than Death”

[3]. Transamerica Center. “Retiree Life in the Post-Pandemic Economy 24th Annual Transamerica Retirement Survey November 2024”

[4]. Guardian Life. “The average retirement age in the US”

[5]. Ramsey Solutions. “Why You Need Some Fun Money in Your Budget”

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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