The Decumulation That Mostly Does Not Happen

Every section above assumes you will actually draw the money down. The evidence says you probably will not. Tracking retirees through the Health and Retirement Study, the Employee Benefit Research Institute found that the median retiree who entered retirement with $500,000 or more spent just 11.8% of their non-housing assets over the following twenty years.¹⁵¹ The $200,000–$500,000 group spent 27.2% over eighteen. Roughly a third of retirees finished the period with more money than they started with. The median ratio of household spending to household income sat at about one: retirees consumed their income and left the portfolio essentially untouched, decade after decade.

The most useful finding in that data is the split between pensioners and everyone else. Retirees with a pension drew their non-housing assets down 4% at the median over eighteen years; retirees without one drew down 34%. Same fear of running out, same longevity, wildly different behavior. People spend income. They do not spend balances. A number on a statement reads as capital to be protected; the same dollars arriving monthly read as money to be used, and the distinction survives any amount of arithmetic proving the two are identical.

Manufacture a paycheck. The fix follows directly from the mechanism. Convert the portion of the portfolio you intend to consume into something shaped like income before you try to spend it: an automatic monthly transfer from the brokerage account to checking, on the first of the month, in a fixed amount you reset once a year. If that is not enough, annuitize a floor — a single-premium immediate annuity covering essential spending (section “Annuities”) converts longevity risk into someone else’s problem and, more importantly here, converts a balance you will not touch into a deposit you will. The behavioral effect is the point; the actuarial pricing is secondary.

Name the reserve instead of letting it name itself. Under-spending is not irrational. The unspent balance is doing real work: it insures a 100-year lifespan, an uninsured long-term-care episode, and a bad sequence of returns. The failure is leaving that reserve unquantified, because an unnamed fear has no upper bound and suppresses all discretionary spending rather than the right amount. Size the long-term-care and longevity reserve explicitly, ring-fence it, and treat everything above it as spendable. A reserve you can point to is one you can also stop growing.

Not spending is not tax-neutral. The under-spender’s pre-tax balance keeps compounding into the RMD wall (section “The RMD Wall and How to Deflate It”), then into IRMAA tiers, then into the survivor’s single brackets (section “The Widow’s Penalty”), and finally into a ten-year drain taxed at your children’s peak earning years. Money you decline to spend at 22% does not stay at 22%. Dying with a large untouched pre-tax account is not thrift — it is a deferred tax bill with someone else’s name on it, and the choreography in this chapter cannot fix a plan whose real defect is that nothing was ever withdrawn.