Are you underspending in retirement? 4 ways your financial planner can help you enjoy your wealth 

Saving and investing for the future while you’re still working could help you achieve the retirement you’ve always dreamed of.

However, after many years of diligently building your retirement nest egg, moving from saving to spending might be harder than you expect.

Research published by IFA Magazine shows that half of over-55s are worried about running out of money in retirement. This fear could make you anxious about using your savings, leading to underspending.

At first glance, this might not seem as problematic as overspending. However, feeling too anxious to enjoy your wealth could jeopardise the retirement lifestyle you’ve worked so hard to achieve.

Keep reading to learn more about underspending in retirement. Then, find out four ways your financial planner can help you overcome your money worries and start spending with greater confidence.

Retiring means shifting from a saving to a spending mindset

By the time you retire, you’ve likely spent decades earning, saving and investing towards your long-term goals. This saving mindset has served you well – it’s allowed you to build and grow a healthy retirement pot.

As such, transitioning from saving to spending when you leave work behind is a major psychological shift. That’s why changing these long-held habits can feel unsettling and difficult.

You might also carry memories of past financial shocks, such as job losses and market crashes, which could lead you to overestimate the risk of running out of money in later life.

Moreover, when you stop receiving a regular paycheque, this could trigger your instinct to save and protect the wealth you have.

While such feelings are natural and shared by many new retirees, they could lead to underspending, which comes with several risks.

Underspending in retirement could lead to missed opportunities and regrets

Consistently underspending in retirement could mean:

• You miss out on opportunities to fulfil long-held ambitions
• You fail to make the most of your younger, more active early retirement years
• Your wellbeing suffers due to living more anxiously and frugally than is necessary
• You have regrets in later life about what you wish you’d done when you had the chance
• You leave a larger estate, potentially resulting in a higher inheritance tax burden for your loved ones
• Your family only benefits from your wealth after you’re gone, rather than sharing meaningful experiences with them during your lifetime.

4 ways your financial planner can help you spend with confidence in retirement

If you feel anxious about loosening the purse strings in retirement, here are four ways your financial planner can help you transition from saving to spending with ease:

1. Identify and prioritise your goals

Knowing what you want to achieve with your retirement funds could make your spending decisions feel intentional rather than ad hoc, which may alleviate stress.

Perhaps you want to travel the world and renovate your home. Or maybe supporting your family and building financial security are what matter to you most.

Talking things through with your financial planner could provide the objective perspective you need to clarify and prioritise your retirement goals. You can then work together to ensure that your spending aligns with these ambitions.

Having a clear plan for using your wealth in a meaningful and well-considered way is a powerful strategy for reducing anxiety and guilt about spending.

2. Understand how much you can comfortably afford to spend each year

There are many factors, such as inflation and market fluctuations, which could affect how much income your assets will generate in the future.

Moreover, your life may change in unpredictable ways that could affect your income needs, for example, remarriage, divorce or illness.

As such, calculating how long your savings could last in retirement can be a complex task, and this uncertainty could fuel underspending.

Fortunately, your financial planner can use cashflow modelling to project your future income and show how much you can afford to spend each year without compromising your long-term security.

What’s more, this sophisticated technology can provide a clear picture of how your financial position could change in a variety of possible scenarios (more on this in a moment).

This could help you feel more prepared for unexpected events and boost your spending confidence in the short and medium term.

3. Explore “what if?” scenarios to test your fears

One of the most powerful features of cashflow modelling software is its capacity to stress-test your plans.

If you’re being overly frugal due to fears about what might happen down the line, your financial planner can run various “what if?” scenarios to explore how resilient your plan is. For example, what if you live longer than expected or face care costs in later life?

This could give you a more balanced, data-driven view of your finances, which may reassure you that mindful spending today is compatible with your long-term goals and ability to cope with unexpected financial shocks.

4. Create a sustainable income

If you’re used to receiving a salary every month, losing this regular income might undermine your sense of financial security and make you overly cautious about spending.

Instead of making ad hoc withdrawals from your pensions, savings and investments, your financial planner can help you create a structured retirement income. This could ease the transition from saving to spending by replacing your salary with regular payments that feel normal and sustainable.

Your financial planner can also ensure that your withdrawals are as tax-efficient as possible, helping your retirement funds to last longer.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients 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.

The Financial Conduct Authority does not regulate cashflow planning or tax planning.

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 value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.