Underspending could be just as much a threat to your retirement as overspending. Here’s why

Planning how to spend your retirement savings could help you achieve your goals and enjoy your desired lifestyle when you leave work behind.

Indeed, overspending in retirement and running out of money in later life is a common concern for many retirees. Research published by IFA Magazine has revealed that nearly 1 in 2 UK adults are worried that their savings will not last them through retirement.

Yet, you might face the opposite challenge when you retire – underspending.

After years of working and saving to accumulate the wealth you need for the retirement of your dreams, loosening the purse strings might not be as easy as you’d think.

However, underspending could be just as detrimental to your retirement lifestyle as overspending.

Read on to find out why and learn how a financial planner can help you find a healthy balance between spending too much and being too frugal, so that you can enjoy your retirement years to the full.

You might be psychologically biased towards underspending in retirement

By the time you retire, you might have spent decades building your wealth by diligently contributing to your pension, saving consistently, and creating an investment portfolio.

This saving mindset may have allowed you to achieve your goals and prepare financially for the retirement lifestyle you’ve always wanted.

However, changing these long-held habits and switching to a spending mindset might be difficult.

Perhaps you’re worried about running out of money too soon, or not being able to leave a meaningful legacy to your loved ones. Maybe saving and boosting your wealth gives you a sense of fulfilment and achievement.

While such feelings are completely natural, they could hold you back from fully enjoying your retirement. Indeed, if you consistently underspend, you might miss out on all those bucket-list experiences you’ve worked so hard to save for.

Of course, overspending could also lead to challenges in later life. If you spend too much too soon, you might need to compromise your lifestyle in the later stages of your retirement or you may struggle to cover unexpected expenses.

So, managing your retirement spending is a delicate balancing act. Fortunately, with careful financial planning, you could enjoy a comfortable and fulfilling retirement for as long as it lasts.

3 ways a financial planner can help you manage your spending in retirement

As financial planners, it’s our job to help you create a plan that allows you to achieve your life goals. This means not only accumulating wealth but also deciding how to spend it.

We can provide the guidance and support you need to achieve this, including:

1. Supporting you to identify and prioritise your retirement goals

Knowing what you want your retirement to look like is the first step towards effectively managing your spending.

Whether you’re still working, or already retired, it might be hard to picture your life many years ahead. On the other hand, you might have so many ideas about how to spend your retirement years that it’s hard to decide what’s most important to you.

Talking through your aspirations with an objective third party could help you identify and prioritise your retirement goals. Once you know what type of lifestyle you want, you can work with your financial planner to ensure that your spending aligns with your goals.

2. Demonstrating how long your savings could last in retirement

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

What’s more, your personal circumstances might change, which could affect your spending habits. For example, you may downsize your home, get married, or experience ill health.

As a result of such uncertainties, you might find it difficult to assess whether you have enough savings to achieve your retirement goals, which in turn could lead to underspending (or overspending).

Happily, your financial planner can use cashflow modelling to project your future income based on a variety of possible scenarios. In this way, you could gain a better understanding of how your spending might affect your long-term finances.

So, if you’re being overly frugal due to concerns about running out of money, cashflow modelling could help you feel more comfortable spending your wealth during retirement.

3. Helping you to manage risk and feel more confident about spending

If fear of running out of money is driving your underspending, managing this risk could be the key to feeling more confident about spending your wealth and enjoying retirement.

A financial planner can help you explore options such as buying an annuity that would provide a fixed income for life, and planning financially for unexpected costs that might arise, such as later-life care.

If you’re worried about providing for your loved ones after you’re gone, your financial planner can also support you in creating an estate plan that ensures your wealth is passed on in line with your wishes.

Addressing your concerns in this way and intentionally planning your retirement finances could provide the peace of mind and confidence you need to let go of underspending and embrace the retirement you’ve always dreamed of.

Get in touch

Whether you’re already retired or planning for the future, we can help you make the most of your wealth and achieve the retirement lifestyle you desire.

So, if you’re looking for a financial planner in Bristol, please get in touch either by email at helpme@aspirellp.co.uk or by calling 0117 9303510.

Please note

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

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

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.