The last mile of retirement is a spending problem

For decades, the retirement industry preached a simple accumulation message: save more, spend less. The Institutional Retirement Income Council's new white paper, "The Last Mile of Retirement," released Tuesday and covered by PLANADVISER, argues that the second half of that slogan has quietly become the industry's hardest problem. Underspending can cost retirees the comfort those years of saving were meant to buy.

The paper draws on a Corebridge Financial survey of pre-retirees and retirees. Only 28% said they were comfortable drawing down their savings. The survey also found that 38% deliberately underspent to protect their savings. These are the automatic-enrollment era's success stories — people who saved diligently, heard the warnings, and now sit on money they are afraid to touch.

The consequences reach beyond the household. Without a spending plan, IRIC writes, participants default to fear-driven choices or exit the plan through a rollover. A rollover moves assets out of institutional pricing and fiduciary oversight. It shrinks the plan's scale and strips the retiree of the governance that comes with a managed account.

Much rollover leakage, in IRIC's logic, is a plan design failure rather than a clean decision. When the menu offers no income mechanism, a rollover is the only option that remains.

The answer IRIC proposes is what it calls "behavioral infrastructure for decumulation" — defaults, education, guidance, planning tools, retirement income — delivered by the providers already closest to the participant. This is the accumulation toolkit (auto-enrollment, auto-escalation, target-date defaults) pointed at the payout phase.

The first barrier is mental. IRIC advises reframing drawdown as a personal paycheck, giving participants permission to spend. Kevin Crain, the council's executive director and the paper's author, recommends separating expenses into buckets — essentials versus discretionary — so the budget becomes manageable choices rather than one intimidating number. Crain says the exercise also gives clients a sense of control and lets them spend guilt-free on what they prioritize.

The second barrier is mechanical. Corebridge found that just 29% of pre-retirees 55 and older have a withdrawal plan. Seven in ten near-retirees are approaching retirement with no plan for turning savings into income. IRIC's suggestion is practical: sponsors add scheduled withdrawals and retirement income selections to the menu. That serves the sponsor's interest too; Crain notes that assets kept in the plan preserve recordkeeping scale and can hold down participant costs.

Recordkeepers get a role too: redesigning statements, portals, and apps so participants see something other than a lump sum. The surfaces that display an account influence how participants think about it. If they show only a growing balance, the saving mindset never loosens.

Advisers can put the paper to work in one meeting: walk a client through buckets, estimate a paycheck, and let the discretionary bucket be the one that gets spent. The obstacle for most clients is less product complexity than the absence of an assigned frame. That is a decumulation conversation the industry has been slow to start.

Underneath the practical suggestions sits a sharper argument: underspending is a design problem, not a moral one. Retirees are responding to a system that spent thirty years telling them to hoard. The industry built auto-escalation to solve under-saving; the decumulation phase is the same project in reverse, building the mechanisms that make spending feel safe. The prize is not only happier retirees but plans that keep their assets, and their fiduciary edge, past retirement. The tools are not exotic, and the survey numbers show how much room there is to act. Whether plan sponsors act may depend on whether they see underspending as their problem at all.