If you're worried about your retirement savings, you can probably relax. If you’ve been saving in a 401(k), IRA, or taxable account, you're likely to be just fine, a recent study shows.

Why? Because Americans who consistently sock away money also end up spending less than they expect to in retirement, according to the Retirement Consumption Gap, a study by Texas Tech University. “There is definitely pervasive underspending” among wealthy retirees, says Christopher Browning, assistant professor of personal financial planning at Texas Tech University and coauthor of the study.

The research looked at the retirement savings and spending habits of retirees. Browning ran hundreds of portfolio simulations that used different mixes of stocks, bonds, and fixed-rate annuities to see how much retirees could spend each year while being assured they would not run out of money for 30 years. Overall, the research found that retirees have enough in retirement savings that they could spend 8 percent more than they do every year.

Some people could spend even more than 8 percent, the study showed. Households that started retirement with investable assets of at least $650,000, for example, could spend 38 to 54 percent more and not run out of money for 30 years. Households with assets of more than $100,000 but less than $200,000 could spend between 17 and 25 percent more based on their mix of stocks, bonds, and fixed annuities.

So why are retirees not spending more? It could be in order to leave a bequest or to have enough money to cover the costs of later-life care.  But even when the researchers reran the numbers starting with an assumption that 40 percent of a household’s assets on their retirement date would be held in reserve, the median underspending for wealthier households was still more than 40 percent.

This information aside, not everyone should be worry-free. In its new annual Retirement Confidence Survey, the Employee Benefit Research Institute found that 40 percent of respondents had no retirement savings at all, beyond what they have earned through Social Security or a pension from an employer.

Boost your confidence in your financial future by taking these steps: 

  • Create a retirement savings plan. Consider hiring a financial planner to help you nail down a safe-meaning sustainable-retirement income plan. In a recent survey, about half of pre-retirees with a written plan say they are confident about their retirement, compared to less than 20 percent without a formal plan.
  • Recognize your spending will fall through retirement. According to EBRI, spending for a 65-year-old retiree decreases by 19 percent by age 75, and spending is halved for retirees who live to 95. Morningstar Investment Management retirement expert David Blanchett found that even though later-life medical expenses tend to rise, reduced spending elsewhere, such as  on entertainment and travel, offsets those costs.
  • Understand the shortcomings of retirement calculators. Even the best online tools, such as the T. Rowe Price Retirement Income Calculator, have an embedded flaw: They assume that your spending will be constant throughout your retirement and that there will be automatic annual inflation adjustments. Not only will you likely spend less through retirement but you will also have the ability to adjust your spending in the face of portfolio declines. Skipping an annual inflation adjustment when the market dips or even scaling back your withdrawal in a year following a bear-market is a sure-fire way to extend the life of your investment portfolio.


If you're looking for more advice, check our retirement-planning guide.