I Used to Think Running Out of Money Was the Biggest Retirement Risk. Here's the Flipside.

There's a reason I've pushed myself to save for retirement for most of my career, almost to an extreme. The idea of running out of money scares me. It scares a lot of people.

And it almost doesn't matter whether you retire with $3 million or $300,000. If you don't manage your savings carefully, you risk reaching the point where your IRA or 401(k) balance becomes $0.

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But I recently realized something important. Running out of money in retirement may not be the biggest risk seniors face. There's another key risk that's now equally on my radar.

When you're too scared to enjoy the fruits of your labor

One thing that surprises many people about retirement is how difficult it can be psychologically to shift from saving money to spending it. After 30 or 40 years of being disciplined, budgeting carefully, and watching retirement account balances grow, many retirees struggle to mentally flip the switch. And that includes seniors with millions of dollars banked.

I've watched this happen with older relatives and friends. One former colleague of mine could easily afford a second home if he wanted one. The last time I visited, his wife bemoaned the fact that their oven was starting to show its age. When I gently suggested treating themselves to an upgrade, she rolled her eyes and sighed.

"He'll never do it," she said. I believe her.

Of course, some of that caution makes sense. The hard part about managing retirement savings is not knowing how long that money needs to last.

But there comes a point where caution can become excessive. And even though I'm not retired yet, I could easily see myself getting caught in the same trap.

Underspending is a big problem, too

When people talk about retirement risks, they tend to focus on withdrawing from savings too aggressively and running out. But the flipside of that is being too cautious and taking more money than you want to the grave.

That's changed how I think about retirement planning.

I still believe that saving aggressively matters. I still worry about inflation, healthcare costs, and market downturns.

But I also know that after spending years working hard to fund my savings, I want the leeway to spend some of that money on myself. To that end, my plan is to work with my financial advisor to come up with a smart withdrawal strategy, and an evolving one.

There may be periods when I want to tap my savings more. There may be periods when it makes sense to be careful, like if the market is volatile.

But I hope to continuously remind myself that the reason I saved all of that money was to use it. And I'd encourage anyone who's struggling to spend in retirement now to try to do the same.

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