Rather, many retirees rely on ad hoc withdrawals when they need money or leave their savings untouched until they must begin taking required minimum distributions (RMDs).
But there’s a path forward. A new Vanguard research paper, From Retirement Savings to a Retirement Paycheck, examines this behavior and explores how plan sponsors can help participants turn their hard-earned retirement savings into reliable retirement income.
RMDs are not an income strategy
A recent survey of 8,000 Vanguard clients found that about 8% of retirees with less than $1 million in retirement savings actually use those savings for everyday expenses.2 That’s fewer than 1 in 10.
Of the others, 53% dip into their savings only for specific purposes, such as paying down debt, covering medical expenses, or making home repairs. Another 39% don’t even go that far, preferring to tap their savings only when RMDs begin at age 73 or 75, depending on birth year (Figure 1).3
About half the participants who wait for RMDs report having other sources of income. The other half rely primarily on Social Security as their main source of income and say they have had to cut back on spending.
This reliance on RMDs could raise a red flag for plan sponsors—namely that participants may not know how to turn their savings into a sustainable income stream throughout retirement.
More broadly, this cautious approach to managing savings may indicate that these participants don’t know how much they can confidently spend in retirement. This presents an opportunity for sponsors to step in, offer their participants guidance, and explain why RMDs may not be the best income strategy.
RMDs are often misunderstood (Figure 2). They’re not spending recommendations, and participants who rely on them may underspend during their healthiest, most active years. Perhaps more concerning, the income generated by RMDs in later years could also increase their lifetime tax burden.
The return of the paycheck
For many participants, one of the biggest retirement concerns is the longevity of their portfolio.4 For plan sponsors, that concern creates an opportunity to help participants translate their account balances into a more familiar income experience: a paycheck.
Our research compares the current investor behavior of relying on RMDs only with three income strategies. These strategies balance current income (available for everyday spending) and financial flexibility (cash available for later-life spending).
To compare these strategies, the analysis focuses on a 63-year-old retiree with $360,000 in a 401(k) plan. The retiree had an annual pre-retirement income of $120,000 and an estimated annual Social Security benefit of $34,000.
- No paycheck—Social Security and RMDs only: The retiree lives on Social Security and begins taking withdraws from their 401(k) when RMDs kick in.
- Real paycheck: The retiree takes regular, automatic withdrawals from their 401(k) to supplement Social Security.
- Partial annuity paycheck: The retiree combines the real paycheck strategy with guaranteed income from a partial annuity (subject to the claims-paying ability of the guarantor).
- Social Security bridge paycheck: The retiree takes larger withdrawals from their 401(k) while delaying Social Security until age 70 to maximize the monthly benefit.
The approaches differ depending on what matters most: current income or financial flexibility. Certainly, there’s no “right” approach that works for everyone. However, the real paycheck and partial annuity paycheck can provide a steady flow of income through retirement while preserving money for later-life expenses (Figure 3A). The current investor behavior of Social Security and RMDs only creates a lumpy spending pattern and potentially larger lifetime taxes (Figure 3B).
Panel B. Projected annual spending and cumulative taxes by age in a typical (median) market scenario
Notes: The analysis assumes a 63-year-old single male retiree with $360,000 in a traditional 401(k) and $34,317 in annual Social Security benefits. Unless otherwise noted, portfolio wealth is invested in a target-date fund. All results are shown in today’s dollars and are hypothetical; they do not reflect actual performance or guarantee future outcomes.
Sources: Vanguard Financial Advice Model simulations using life expectancy assumptions from Society of Actuaries mortality tables and steady‑state capital market and inflation assumptions from 10,000 Vanguard Capital Markets Model (VCMM) paths as of February 28, 2026.
Plan sponsor intervention
Plan sponsors have done a remarkable job helping Americans save for retirement. So far, though, there hasn’t been as much focus on helping those same Americans manage their savings through retirement.
Strong plan designs—with features such as automatic enrollment, automatic increases, and higher defaults—have made it easier for participants to save. Now there’s an opportunity to apply that same emphasis to retirement-income design.
Well-designed choice architecture can help participants navigate decumulation. Rather than overwhelming participants with multiple retirement-income solutions, sponsors can offer a more guided approach, starting with a retirement paycheck. This can help participants better understand their needs, evaluate their options, and determine how much they can spend in retirement.
Plan sponsors can make retirement-income choices easier to navigate by:
- Helping participants consolidate savings. Multiple accounts can make retirement-income decisions harder. Sponsors can encourage participants to roll over savings from former employer plans into their current plan throughout their careers.
- Making in-plan distributions more flexible. Options such as installment payments and partial withdrawals can help make it easier for participants to draw income from their savings.
- Offering guided retirement-income choices. Participants need help understanding how much they can spend, what the risks are, and whether guaranteed income may be appropriate. A paycheck solution like those outlined above can make a useful start.
Today’s retirement system has made saving for retirement easier. More than 11,000 Americans turn 65 every day. Let’s help make it as easy for them to spend in retirement as it was to save for it.
For a more in-depth look at retiree concerns and attitudes toward spending, don’t miss our new research, From Retirement Savings to a Retirement Paycheck.
Also, be sure to check out our How America Retires report for a complete examination of how retirees manage the life-changing transition from saving to spending—and the behaviors they follow as they weigh their money management decisions in retirement. Don’t miss the new edition coming this October.
Related links
Sources:
1 The Peak 65 Zone: A New Chapter in America's Retirement Landscape. Alliance for Lifetime Income, 2026. limraconsumer.com/peak65/.
2 Vanguard Retirement Income Survey, December 2025.
3 Required minimum distribution (RMD) age refers to the age at which individuals must begin withdrawing minimum amounts from tax-deferred retirement accounts under IRS rules. Following recent legislative changes (SECURE Act and SECURE 2.0 Act), the RMD age is currently 73 and is scheduled to increase to 75 for individuals born in 1960 or later.
4 What Americans Fear More Than Death: Living Too Long on Too Little. In 2026 Annual Retirement Study. Allianz Life Insurance Company of North America, 2026. allianzlife.com/-/media/Files/Global/documents/2025/07/22/09/10/EXT-1127.pdf.
Notes:
All investing is subject to risk, including the possible loss of the money you invest.
Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target-date funds is not guaranteed at any time, including on or after the target date.