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What you should know: When it comes to money habits, most people fall into one of two categories – those who overspend and risk running out of money, and those who underspend and fail to enjoy their savings. Overspenders often feel disconnected from their future selves, which prompts them to prioritize spending now based on readily available negative examples (e.g., someone dying soon after retiring). Strategies to counter these biases include visualizing your future self and detailing future retirement scenarios to foster a closer connection to your long-term needs.

Conversely, some retirees are overly cautious, influenced by biases such as pessimism (overestimating negative events), zero-risk bias (favoring safety), and loss aversion (fearing losses more than valuing gains). These biases can lead to overly conservative spending or investing. To counteract this, you can leverage tools or an advisor to understand sustainable spending levels, create pseudo-paychecks to mimic regular income, or reconnect with your values to encourage spending.

Key takeaways: The manner in which you spend in retirement can be complicated by behavioral biases, but understanding these biases and employing targeted strategies can help you find a balance between overspending and underspending.