Most of the advice about managing finances in retirement focuses on controlling spending to ensure assets last. But many retirees face a different challenge: even though they have ample resources to support themselves, they’re so reluctant to draw on their savings, they actually spend too little.

This “consumption gap” can lead to a much less satisfying retirement than necessary, suggests Texas Tech University professor Michael Finke and other researchers in a report entitled “Spending in Retirement: Determining the Consumption Gap,” published in the February 2016 issue of the Journal of Financial Planning.

The researchers examined the income, spending and wealth patterns of a group of 65- to 70-year-olds (all of whom retired in 2000) during a 10-year span, dividing them into five groups according to net worth. The findings: assets increased from 2000 to 2010 for all five groups. This means that after 10 years of retirement, most of the retirees had more money than when they started.

Moreover, except for households of quite modest means, the majority of retirees spent much less on average than the amount available to them from social security, employer pensions and sustainable income from retirement accounts. In the case of wealthy retirees, they spent less than half of what they could afford to spend.

Retirees with median wealth had a consumption gap of approximately 8%, on average. Those with higher levels of wealth had a consumption gap as high as 53%.

There are several reasons that may explain why many retirees are so reluctant to dip into their savings. The researchers attempted to factor in the effects of uncertain longevity, potential medical costs and bequests when measuring the difference between retirees’ actual and available consumption by assuming that 40% of the financial assets at the beginning of the study period were set aside as reserves. Despite this conservative approach, most retirees in the study still spent less than they could have.

So, what can you do to help your clients overcome their anxiety about drawing down their assets during retirement? One recommendation is to help clients reframe their retirement perspective to focus more on potential income flow and less on the amount of money saved.

“A shift of this nature would require less focus on asset management and more attention on income management to ensure that clients receive the highest possible satisfaction from their accumulated retirement wealth,” the report notes.

Another strategy: have retired clients immediately purchase an annuity with at least some portion of their assets. That decision is irrevocable and income arrives automatically each month, so your clients may come to think of it more as sustainable money available to spend, whereas withdrawing the same amount from savings means dipping into the principal.

The report concludes: “These actions may increase the confidence of a client and lead to spending patterns more consistent with the goals that motivated accumulation.”

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