The risks of underspending in retirement

Being frugal with your money is a good idea when saving for retirement, but it can actually be harmful to your financial, physical and mental health in retirement.

You’ve spent your whole life watching every dollar carefully and now you have a sizeable nest egg for your retirement. You should be kicking back, relaxing and enjoying the fruits of a lifetime of labour.

But it can be hard to kick those penny-pinching habits after so many years. After all, it was those habits that got you here, it would be silly to spend like crazy now, especially in this economic climate, right?

Not necessarily. Underspending in retirement comes with its own set of problems that can ruin not just your financial health, but your physical and mental health too.

Entering retirement shouldn’t mean the end of your investments. But for many retirees, continuing to use your money to make even more money after you finish work is a risk they’re unwilling to take.

But by being too frugal, you might be avoiding investments or other financial opportunities that could help grow your wealth over time.

Australians are living longer lives, and compound interest returns in retirement can act as a safeguard against running out of money. Ironically, by sticking too closely to your budget you may actually be putting yourself at greater risk of that occurring.

Underspending can, naturally, also lead to a lower quality of life. What’s the point of retirement if you’re not enjoying it? By being too frugal, you might miss out on experiences and activities that could enrich your life and boost your happiness.

Your health, especially in your retirement years, is often the first thing that suffers when you underspend. For example, you may think you’re helping yourself by buying cheaper food, but cheaper options are often heavily processed frozen foods that can contribute to a number of different conditions.

By not eating right, you increase the risk of health problems down the road that could have been prevented with proper care and nutrition. In the end, these health problems can end up costing you more money than you saved by being frugal.

Being too tight with your money can also lead to feeling of social isolation. Loneliness and depression are all too common in older Australians, and one of the best ways to combat this is through regular social outings with friends.

But that inevitably costs money, which may make chronic underspenders feel uncomfortable. The idea of actually budgeting for social outings is anathema for some, but your mental health and happiness are something worth spending on.

It’s about finding the right balance between spending and conserving money that you’re most comfortable with, and that will deliver you the best quality retirement.

Do you find yourself still spending as little as possible in retirement? Would you say you’re enjoying your retirement? Let us know in the comments section below.

Also read: Has your car insurance gone up? Here’s what you can do.

Brad Lockyer
Brad Lockyer
Brad has deep knowledge of retirement income, including Age Pension and other government entitlements, as well as health, money and lifestyle issues facing older Australians. Keen interests in current affairs, politics, sport and entertainment. Digital media professional with more than 10 years experience in the industry.


  1. Working out how much to spend is a difficult question. I have been retired for close to 20 years and some time ago made the conscious decision to try and spend my income (sources from Employer Superannuation, my own SMSF and some other investment income).

    Prior to COVID19 it was possible as I would travel internationally twice a year to visit friends and to do things that I wanted to do. During COVID19 when I could not travel I was saving money because there was nothing much that I could or wanted to spend my money on in Australia (I have no debts other than the monthly credit card account – automatically paid in full and see no point in owning a bigger and better television etc).

    Now that we are able to travel etc I have resumed my pattern of travel with the exception of Russia where interaction between normal people have been made difficult by political decisions.

  2. I think that Overspending is far worse than Underspending.
    Running out of Money is far more a problem than having too much.
    Running out of money could end up with having to jump through all those hoops to try and get the meagre Age Pension, and may even have to sell your Family Home to survive.

    • Making sure we have enough money to pay a bond in Aged care is our dilemma. None of us know what the future ahead will bring. One could be there and the other still paying bills or both could be there.
      Do we do the last big overseas trip while we are both fit enough and spend some of the money?
      Oh, for a crystal ball.

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