When frugality is a problem, not a virtue
For many retirees, spending less than expected looks like good news.
A client who consistently comes in under budget may appear disciplined and financially conservative. Their portfolio may be ahead of projections, their withdrawal rate comfortably sustainable, and their retirement plan apparently working exactly as intended.
But what if they're spending less not because they want to, but because they remain anxious about the future?
2026 research¹ by David Blanchett, creator of the retirement spending smile concept, compared actual retiree spending against a "funded ratio" - a measure of what retirees could safely afford to spend given their assets and expected income. A ratio above 1.0 means a retiree already has enough to sustain their current spending indefinitely without cutting back.
Blanchett found that retirees with funded ratios between 1.0 and 1.49 still reduced real spending by 3.1% per year, while those with ratios between 1.5 and 1.99 reduced spending by 1.2% annually.
In other words, retirees with no financial need for caution often continue behaving cautiously anyway.
For advisers, this raises an important question during client reviews: is spending below plan evidence of prudent frugality, or is it signalling something else?
Anchoring: when the minimum becomes the target
One explanation may lie in the way retirees decide how much to draw from their super.
The legislated minimum pension drawdown is intended as a prudential floor. It is not a recommendation about how much retirees should spend, nor is it tailored to an individual's circumstances.
Yet for many retirees it may become an unintended anchor.
Research from the Grattan Institute² found around half of retirees with account-based pensions withdraw only the legislated minimum, while around one in five incorrectly believe it represents the amount the government recommends.
Behaviourally, this is understandable. Retirement asks people to answer a difficult question:
"How much can I spend today without compromising an uncertain future?"
Faced with that uncertainty, an official percentage can provide a convenient reference point. What was designed as a minimum can gradually become perceived as the "right" amount to withdraw.
Mental accounting may reinforce this behaviour. Research discussed in our previous article, *Smile or smirk?*³, found retirees spend around 80% of available lifetime income each year but are considerably more reluctant to spend from accumulated savings.
In practice, income is often viewed as money to use, while capital is viewed as something to preserve. For clients already uncomfortable drawing down assets, the minimum pension payment can become an especially powerful behavioural anchor.
A useful metric to add to retiree reviews
Adviser reviews routinely assess portfolio performance, asset allocation, income sustainability and withdrawal rates.
For retiree clients, another measure may be worth adding to the discussion:
The spending confidence gap
This is the difference between planned spending and actual spending.
Consider a client whose retirement plan supports annual expenditure of $80,000, but who consistently spends only $65,000.
At first glance, the $15,000 underspend appears positive. However, before treating it as a success, it is worth understanding why the gap exists.
The explanation may be entirely benign. The client may simply need less than anticipated. Their priorities may have changed, travel may have become less attractive, or the original spending assumptions may have been too high.
But the gap may also indicate something deeper. Perhaps they cancelled a holiday after a market downturn. Perhaps they're informally reserving funds for future aged-care costs. Perhaps they dislike seeing their account balance decline. Or perhaps they simply don't believe the spending level projected in the plan is genuinely safe.
A portfolio can be performing exactly as planned while the retirement itself is underperforming.
The capacity to spend and the comfort to spend are not the same thing. Even a technically sustainable spending level can feel unsafe to someone watching their capital fall over time.
The gap could signal something deeper
None of this suggests advisers should regard underspending as inherently undesirable.
Some clients derive satisfaction from preserving wealth. Others have strong bequest objectives. Spending patterns also change naturally throughout retirement.
The spending confidence gap should therefore be treated as a conversation starter rather than a performance measure.
A client who consistently underspends their plan may be revealing a confidence issue rather than a financial preparedness issue, and the two require different responses.
A structured conversation can help identify what is driving the behaviour:
- "Are you spending roughly what you expected to at this stage of retirement?"
- "Is there anything you wanted to do over the past year but decided you couldn't afford?"
- "Why have you chosen this particular level of pension drawdown?"
- "Is aged care something you're already setting money aside for, even informally?"
- "What worries you most about spending more: markets, longevity, future health costs, leaving an inheritance, or something else?"
- "What would need to be true for you to feel comfortable spending more freely?"
The final question is particularly valuable because it doesn't assume the client should spend more. Instead, it helps define the conditions that would make them feel more secure about doing so.
Giving clients a more useful reference point
Once the source of the spending gap is understood, advisers can address the underlying cause rather than the behaviour itself.
If the legislated minimum has become the client's anchor, provide a more relevant one. Shift the focus from the minimum withdrawal requirement to the sustainable income their plan was designed to support and the lifestyle it was intended to fund.
If future uncertainty is driving caution, separating essential and discretionary expenditure may help clarify which needs require genuine protection and which spending decisions are simply being constrained by habit.
If declining balances are creating anxiety, consider reframing discussions around long-term income sustainability rather than portfolio value. Bucketing strategies can also help because clients often feel more comfortable maintaining growth exposure when near-term spending needs are clearly funded.
And where mental accounting has relegated capital to the "do not touch" category, it may be worth examining whether the structure of retirement income itself is contributing to the problem.
For some clients, better framing alone may not be enough. If the underlying concern is uncertainty about future income, the retirement income structure may need to do more of the heavy lifting.
Income-layering strategies can assist by combining guaranteed and market-linked sources of income, rather than forcing clients to choose between certainty and flexibility.
This is where solutions such as Allianz Guaranteed Income for Life (AGILE) and Allianz Guaranteed Income for Life: Super+ (AGILE Super+) can play a role. By allowing clients to allocate part of their retirement savings to guaranteed lifetime income while retaining investment exposure and access to capital, AGILE can help convert a portion of retirement assets into a more spendable income stream without requiring commitment of the entire portfolio.
For advisers who identify a gap between what clients can afford to spend and what they feel comfortable spending, that combination can be particularly valuable. Part of the client's future income becomes more certain, while the remainder of their capital retains the flexibility they still value.
Whether the solution lies in better framing, a new spending reference point, or the structure of retirement income itself, the objective remains the same: ensuring unnecessary uncertainty does not dictate a client's lifestyle.
When a good financial outcome isn't enough
Retirement advice has become increasingly sophisticated at answering the question:
"How much can this client safely spend?"
Planned-versus-actual spending introduces a different question:
"Are they actually living the retirement that spending was intended to fund?"
When the answer is no, the gap deserves investigation.
Sometimes it simply reflects changing preferences. But when it reveals unnecessary caution, adviser reviews create an opportunity to reset unhelpful anchors, address the source of uncertainty and reconnect clients with the lifestyle their plan was designed to support.
After all, a successful retirement plan is not only built to ensure money lasts. It is also built to help clients turn financial security into the retirement experiences that security was intended to support.
For further reading, download our Two-Chapter Retirement paper to discover:
- why even financially well-prepared clients default to minimum drawdowns, delay key decisions and leave money on the table
- how the fear of irreversible decisions – not longevity or market risk – is the greatest emerging threat to retirement outcomes;
- what a new framework for retirement planning means for how you structure conversations, sequence decisions and build lasting client confidence.