For most of your working life, “good” financial habits likely meant saving more and spending less.
This might have looked like:
- Contributing regularly to pensions and investments
- Avoiding unnecessary spending
- Focusing on building enough wealth to support your dream retirement.
When the next chapter of your life finally arrives, you’re suddenly expected to reverse these habits – which you will have been practising for decades – and start spending your money rather than accumulating it.
Perhaps unsurprisingly, many people find this change uncomfortable.
Research reported by Yahoo Finance found that 72% of Americans feel guilty when spending money on things that bring them joy rather than putting it towards other financial goals.
Meanwhile, in the UK, 26% of survey respondents associate spending their pension with anxiety, while 15% associate it with guilt, Money Marketing reports.
After years of building your retirement savings, giving yourself permission to spend them can be harder than you might initially expect.
Years of saving can make spending your retirement fund feel uncomfortable
Seeing the balance of your savings, investments, or pension fall because you’ve taken money out, even when this was always part of your retirement plan, can feel uncomfortable.
You also don’t really know how long you will live, how markets will perform, or how inflation could affect the purchasing power of your savings. This fear of the unknown might make you even more reluctant to decumulate your wealth.
It’s vital to remember that being overly cautious can have consequences of its own, too.
Indeed, you may find yourself postponing dream holidays or financial gifts you’ve worked hard to afford despite having sufficient wealth to enjoy them.
Saving is important, but accumulating as much wealth as possible isn’t necessarily the end goal of a financial plan. Ideally, your retirement fund should help you live the life you’ve imagined during your working years.
Working out what you want your wealth to achieve can make spending easier
Moving from a saving mindset to a spending one can clarify what your money is for.
As such, it can be prudent to start thinking about the retirement you want to enjoy. This could include:
- Travelling regularly while you’re healthy
- Spending more time with loved ones who live overseas
- Buying a retirement home
- Enjoying hobbies you previously didn’t have time for
- Giving financial support to family during your lifetime.
Once you know what matters most, spending could start to feel more like you’re putting that wealth to work.
You could also separate your spending into various categories. Your essential expenditure could include housing, food, utilities, and protection.
Then, there are the expenses that make retirement more enjoyable, such as holidays, hobbies, or other experiences.
Looking at these separately could help you understand how much flexibility you have. It may even reveal that some spending you previously viewed as unnecessary is already included in your long-term retirement plan.
Giving yourself a dedicated budget for enjoyment could remove some of the spending guilt
Instead of spending spontaneously and then wondering whether you can realistically afford it, you may want to deliberately incorporate fun into your financial plan.
For example, you could allocate a certain amount each year towards holidays or particular passions.
Once you’ve accounted for this spending, you may feel more comfortable using the money when the chance arises.
Similarly, with larger purchases – such as buying a new car or helping children with a house deposit – you could consider this alongside your wider retirement plans rather than in isolation.
Understanding how the decision might affect your retirement fund over the next few decades could help you decide whether it’s affordable.
Cashflow modelling could help turn uncertainty into a clear plan
If the fear that you may need money later on is holding you back from spending, it may be practical to get a cashflow model from a financial planner.
This brings together your savings, investments, pensions, and expenditure to show how your finances could change over time. We could then model various scenarios, including:
- Spending more on travel
- Buying a new property
- Living longer than expected
- Experiencing a period of weaker investment returns.
Seeing your finances respond to different circumstances could replace fears of a shortfall with a more informed understanding of what you can afford.
A financial planner could also help you understand whether your current level of spending is sustainable and show how various choices could affect your long-term wealth.
This could give you the confidence to spend when it makes sense while retaining enough security to weather life’s uncertainties.
Get in touch
Our team of international financial planners can help you build a balanced plan that allows you to enjoy your wealth today while protecting your future security.
Email enquiries@alexanderpeter.com or give us a call on +44 1733 916909.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The Financial Conduct Authority does not regulate tax planning.
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