For many retirees, the biggest financial risk is not running out of money but being too afraid to spend it.
Even retirees with seven-figure portfolios often hesitate to draw down what they safely could. It’s not always about frugality or discipline. More often, it’s fear: fear of living too long, fear of market crashes, fear of making the wrong decision. The result is a retirement that feels more like a balancing act than the reward it was meant to be.
To understand how guaranteed income can ease that fear, we need to look at the psychology behind retirement spending and how annuities can restore a sense of safety and freedom.
The Underspending Paradox
The numbers tell a clear story. Retirees routinely leave money on the table.
A 2020 Society of Actuaries survey found that over half of retirees aimed to preserve or grow their assets rather than spend them down.
Research from the Employee Benefit Research Institute (EBRI) shows that retirees with over $500,000 in assets often withdraw less than 1 percent annually, which is well below the commonly recommended 4 percent rule.
Why? Because the switch from receiving a paycheck to living off savings flips our mindset. Every withdrawal feels permanent. The portfolio becomes a lifeline, not a tool. Market volatility, news headlines, and uncertainty around how long retirement will last only deepen the hesitation.
Why Retirees Hold Back: Five Behavioral Traps
Loss Aversion: Psychologically, the pain of losing money feels far worse than the pleasure of spending it. This keeps many retirees in a cautious holding pattern, even when the math says it is okay to spend.
Longevity Anxiety: No one knows how long they’ll live, so many plan for the extreme. The fear of outliving assets leads to conservative drawdowns, even when life expectancy and spending needs suggest otherwise.
Market Sensitivity: Retirees are especially exposed to the risk of a market downturn early in retirement. A rough year or two can scar spending habits for the next decade, regardless of portfolio recovery.
Mental Fatigue: As retirees age, the burden of managing withdrawals, rebalancing investments, and planning for taxes can become overwhelming, often leading to avoidance rather than action.
Hardwired Frugality: After decades of saving diligently, the act of spending, especially on non-essentials, can feel uncomfortable or even irresponsible, even when the finances clearly allow for it.
The outcome? Many retirees reach their later years with significant unspent savings, not by design but because fear got in the way.
The Role of Annuities: Not Just Math, But Mindset
Annuities are often misunderstood as dry insurance products or expensive investments. Retirees who lack confidence often find that annuities provide something more meaningful than income. They offer a sense of permission to spend.
By transforming part of a savings balance into guaranteed income, annuities can reduce the emotional burden of financial decision-making in retirement. Here’s what that looks like in practice:
Restoring the Paycheck: The transition from steady income to self-managed withdrawals is one of retirement’s hardest shifts. Annuities bring back that rhythm. Knowing a check arrives every month, even if markets crash, can give retirees the green light to spend.
Insulating Against Market Shocks: With a portion of income fixed, retirees don’t have to liquidate assets at the wrong time. This reduces stress during downturns and provides room for the rest of the portfolio to recover.
Removing the Longevity Guesswork: Lifetime income annuities take one of the biggest unknowns, how long you will live, and turn it into a non-issue. The income continues no matter what.
Simplifying the Equation: Instead of managing complex withdrawal strategies or second-guessing every decision, annuities offer clarity: here’s what you get, every month, no spreadsheets required.
Unlocking the Rest of the Portfolio: Once basic living costs are covered by guaranteed income, retirees are more likely to use their remaining assets for what they were meant for, such as travel, experiences, family, and generosity, without that nagging sense of risk.
A Practical Example
Take a couple retiring at 65 with $1 million in savings, a paid-off home, and $40,000 in combined Social Security income. Their financial plan calls for withdrawing 4 percent of their portfolio each year, which adds another $40,000 to support their lifestyle.
On paper, they can comfortably spend $80,000 annually. But in practice, they are only drawing $25,000 from their investments, keeping total spending at $65,000. Why the gap? Like many retirees, they are worried about market downturns, living too long, and the possibility of outliving their money. So they hold back, just in case.
Now, imagine they take $300,000 of their portfolio and use it to purchase a joint lifetime annuity that pays $18,000 per year. That raises their guaranteed annual income from $40,000 to $58,000 before touching their remaining investments.
With that higher income floor, they no longer need to rely as heavily on their portfolio for basic spending. More importantly, the added security helps ease the fear that has been holding them back. Suddenly, the extra $15,000 they have been hesitant to spend each year no longer feels like a risk. It feels safe.
And nothing else has changed. They have not increased their exposure to the market or dipped into principal. They have simply turned a portion of their savings into something more predictable. That shift alone can give retirees the confidence to enjoy what they have worked so hard to build.
Income Floors and the Confidence Framework
Many advisors now advocate for an “income floor” approach: lock in reliable income to cover essential costs (housing, food, insurance) using sources like Social Security, pensions, and annuities. Then use the rest of the portfolio for flexibility, such as discretionary spending, travel, or other lifestyle goals.
It’s not about replacing your entire portfolio with annuities. It’s about structuring retirement in a way that reduces stress, clarifies decisions, and helps people enjoy the freedom they’ve earned.
Final Thoughts: From Surviving to Living
Retirement shouldn’t feel like a crisis; you need to budget your way through. Yet for many, it does, even when they have more than enough. That’s a failure not of financial planning, but of emotional comfort and confidence.
Annuities aren’t for everyone. But for those who struggle with the shift from saving to spending, they offer something powerful in the form of peace of mind. By providing predictable, lifelong income, they allow retirees to stop worrying and start living. Because the goal of retirement isn’t just to make your money last. It’s to enjoy it while you can.