The Retirement Mistake Most High-Net-Worth People Make

We spend a lot of time warning people about spending too much in retirement, and those concerns are valid. Running out of money, outliving your savings, and withdrawing too aggressively are all real risks worth planning around.

But after working with retirees for years, the more common mistake among high-net-worth individuals is the exact opposite. They do not spend enough, and it costs them in ways that money cannot fix later.

The saver's dilemma

The people who arrive at retirement with $2 million, $3 million, or $5 million did not get there by accident. They got there by being disciplined, saving consistently, spending carefully, and saying no to things they could not justify financially.

Those habits are powerful, and they are also incredibly hard to turn off. Retirement arrives and the mindset does not shift with it. The retiree who could comfortably take $150,000 a year keeps taking $80,000 because it feels safer. The trip to Europe gets pushed to next year. The lake house stays on the list. The experiences they worked 35 years to afford stay hypothetical. Meanwhile, the portfolio keeps growing, and time, the one resource that cannot be replaced, keeps moving.

The problem with the 4% rule

The 4% rule has been the standard retirement withdrawal guideline for decades. The idea is straightforward: withdraw 4% in year one, adjust for inflation annually, and your money should last 30 years. It is a useful starting point, but it comes with an important caveat. It was designed for the worst-case scenario.

The original research modeled the worst historical periods for retirees. The 4% figure was designed as a floor, a minimum safe withdrawal rate that would hold up even under historically difficult conditions. Most retirees are not in the worst-case scenario. Even Bill Bengen, the rule's creator, has updated his own research to 4.7% withdrawal rate. Many planners today consider 4.5% to 5.5% to be a reasonable range, depending on age, asset allocation, and other income sources.

Therefore, the 4% rule should be viewed as a floor, not a ceiling. Treating it like one can mean leaving a significant amount of life on the table.

The years you cannot get back

In the beginning of retirement, most people are healthy and have the time and freedom to do almost anything. That window does not stay open forever, and the version of retirement that was possible at 67 may not be possible at 77.

Most retirees who underspend are not careless. They are cautious. They fear running out of money, not being to afford a large long-term care expense down the road or are not being able to leave anything behind for family or charity. Those are legitimate concerns, but fear should not be the default setting for your best years.

Being able to live fully and leaving something behind should not be opposite. A thoughtful retirement plan can provide for both. The goal is to make sure that caution does not quietly become the reason you missed what you worked so hard to enjoy.

Spending with intention

None of this means spending without a plan. It means the plan should reflect what is possible, not just what feels safe based on a rule of thumb built for worst-case scenarios. A good retirement spending plan considers several important factors.

• Your actual return assumptions. If your portfolio has historically returned 6 to 7%, a 4% withdrawal rate may be far more conservative than you need.

• Your other income sources. Social Security, a pension, rental income, or part-time work all reduce pressure on your portfolio and create more flexibility.

• The go-go, slow-go, no-go phases of retirement. Retirees naturally spend more in active early years and less later. Planning for higher spending from age 65 to 75 is often more realistic than applying a flat rate for 30 years.

• Tax-efficient withdrawals. Knowing which accounts to draw from and when can stretch your portfolio further without unnecessary tax drag eating into it.

• Built-in flexibility. Spending a bit more in good years and pulling back slightly in bad ones gives you room to adapt. You do not need to lock yourself into a rigid number forever.

Final thoughts

You spent decades building wealth so that retirement could be different. More time, more freedom, and more of what matters most. For most high-net-worth retirees, the biggest threat to that vision is not a market crash or an unexpected expense. It is the inability to shift from saving mode to living mode.

 - Steve Balch, CFP®

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