May 14, 2026 · 23 min · 7 segments
Join Michael Finke, PhD, CFP®, and Sudipto Banerjee, PhD, at Horizons, an epic retirement planning experience, as they analyze crucial topics relating to retirement spending including the latest…
Michael FinkeHost
Yeah, I feel that the risk of being overly conservative is that you leave a lot of joy on the table during the years when you can get the most out of your money.
And what I very often see is that people, they kind of have this attitude that they're going to be healthy forever.
right and so you know you have to be conscious and i think there's a lot of disincentives for financial advisors to encourage clients to spend a lot early on in retirement
reduces aum it also makes them at greater risk puts them at greater risk of sequence of returns so if they get poor investment returns their lifestyle later on in retirement the legacy value that they're going to be able to leave is going to be much less.
So, you know, it's one of those areas that I think we don't really talk about enough about, and that is the risk of leaving Joyality.
Yeah, and one thing I would point out that, you know, on the work that I did on the volatility of spending, one thing I found, so I was looking at what's the source, where is this coming from? Is it coming from more like the non-discretionary spending and whether it's coming from the discretionary spending, right? And what I found is, and what, you know, you would expect intuitively is on the higher income, higher asset side, you know, people who had annual income 100k plus, most of the volatility is coming from their discretionary spending.
For everyone else, it's mostly coming from their non-discretionary spending, right? So, you know, something happened to the home or you need to fix a car or whatever, but at the higher end, it's almost always coming from, you know, your discretionary spending.
So, if you have a good year, so to your point that, you know, advisors are sort of hesitant to, you know, recommend early spend down.
If you're in early stage in your retirement, that would probably help you to maximize your savings.
I think where it gets really tough is, especially in this era when equity return expectations are pretty modest over the next decade, A lot of retirees might have to spend down their savings in order to live well early on in retirement.
And if they think that they can only spend their earnings and they become very uncomfortable with the idea of that nested getting smaller, then we could have a lot of retirees who are not really enjoying the money that they saved as well as they could.
And I think that's a pretty strong trend that we see in the data, because I have done some work, you know, looking at like the asset drawdown as well, like over the first two decades of retirement.
And the general conclusion was that a lot of people, you know, they're trying to preserve their assets.
They're spending in a way so that they don't have to, you know, sort of spend their principal, so to speak.
But also, there are behavioral biases that you you know, you have a loss aversion kind of mentality that, you know, you have seen your entire life, your balances go up, up, up, and then suddenly to become comfortable with the idea that, you know, your balance is going down, it's hard.
But then others have done research that, you know, this, you know, spend down sort of, it's not always a matter of, you know, you don't, you're not having enough savings.
On what are you spending less and what are you spending more? And one thing they found is that on everything else, people are spending less as they age, but they're spending more on charitable donations and gifts.
So you would not expect that if, you know, they're really constrained financially.
Yeah, I feel that the risk of being overly conservative is that you leave a lot of joy on the table during the years when you can get the most out of your money.
And what I very often see is that people, they kind of have this attitude that they're going to be healthy forever.
right and so you know you have to be conscious and i think there's a lot of disincentives for financial advisors to encourage clients to spend a lot early on in retirement
reduces aum it also makes them at greater risk puts them at greater risk of sequence of returns so if they get poor investment returns their lifestyle later on in retirement the legacy value that they're going to be able to leave is going to be much less.
So, you know, it's one of those areas that I think we don't really talk about enough about, and that is the risk of leaving Joyality.
Yeah, and one thing I would point out that, you know, on the work that I did on the volatility of spending, one thing I found, so I was looking at what's the source, where is this coming from? Is it coming from more like the non-discretionary spending and whether it's coming from the discretionary spending, right? And what I found is, and what, you know, you would expect intuitively is on the higher income, higher asset side, you know, people who had annual income 100k plus, most of the volatility is coming from their discretionary spending.
For everyone else, it's mostly coming from their non-discretionary spending, right? So, you know, something happened to the home or you need to fix a car or whatever, but at the higher end, it's almost always coming from, you know, your discretionary spending.
So, if you have a good year, so to your point that, you know, advisors are sort of hesitant to, you know, recommend early spend down.
If you're in early stage in your retirement, that would probably help you to maximize your savings.
I think where it gets really tough is, especially in this era when equity return expectations are pretty modest over the next decade, A lot of retirees might have to spend down their savings in order to live well early on in retirement.
And if they think that they can only spend their earnings and they become very uncomfortable with the idea of that nested getting smaller, then we could have a lot of retirees who are not really enjoying the money that they saved as well as they could.
And I think that's a pretty strong trend that we see in the data, because I have done some work, you know, looking at like the asset drawdown as well, like over the first two decades of retirement.
And the general conclusion was that a lot of people, you know, they're trying to preserve their assets.
They're spending in a way so that they don't have to, you know, sort of spend their principal, so to speak.
But also, there are behavioral biases that you you know, you have a loss aversion kind of mentality that, you know, you have seen your entire life, your balances go up, up, up, and then suddenly to become comfortable with the idea that, you know, your balance is going down, it's hard.
But then others have done research that, you know, this, you know, spend down sort of, it's not always a matter of, you know, you don't, you're not having enough savings.
On what are you spending less and what are you spending more? And one thing they found is that on everything else, people are spending less as they age, but they're spending more on charitable donations and gifts.
So you would not expect that if, you know, they're really constrained financially.
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