Relaxing and enjoying retirement is the ultimate life goal for many – but not everyone is comfortable spending the money needed to achieve it.
Almost two thirds (63%) of UK adults are concerned about running out of money in retirement, according to research from investment and retirement firm LV=.
And anxiety is particularly prevalent among older people, financial experts have told MoneyWeek.
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The reasons for this fear can be multi-faceted, said money psychotherapist Vicky Reynal, but they are in part an “emotional defence”.
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“As people become more conscious of ageing, physical decline, and mortality, which are frightening prospects that feel outside of one’s control, they may cling more tightly to the areas of life in which they still feel they have some sense of agency,” Reynal said.
Reynal has previously discussed the reasons why some people feel guilty about spending their money on the MoneyWeek Talks podcast. But there are reasons why this appears to be a particularly acute issue for those in retirement.
Why do retirees find it hard to spend money?
It isn’t just emotions holding retirees back from spending their money – there are also cognitive and behavioural reasons.
Reynal said a lot of people struggle to transition from spending a salary to drawing down on savings.
“It’s money [they] worked hard to protect and have up-to-this point, focused on growing,” she said.
Others may be fearful of spending money because of embedded cultural traits.
Money coach Dennis Harhalakis said a lot of Brits feel proud about being thrifty and frugal and identify with the feeling that “self-denial is virtuous”.
“There’s that whole stuff around ‘oh, look at so and so, flashing his money around with that new car and that big TV’. Those messages still exist in our culture.”
Generational attitudes towards money also have an influence on spending habits, Harhalakis said.
A lot of people reaching retirement now will have had parents who grew up in a post-World War Two bubble when lives were more austere and “part of peoples’ ethos was saving, making do”, he said.
Lucie Spencer, partner at wealth manager Evelyn Partners, said retirees often need “permission” to spend money in retirement.
“A lot of clients who are coming up to retirement now, they lived through some really tough times in the 70s and 80s and they’re frightened of going back to those tough times where they had mortgage rates around 15% or 17%.
“They’re just inbuilt with that mindset of ‘must save, must save’, and switching that to ‘okay, it’s alright to spend’, that’s quite a difficult mental shift to make.”
What to do if you’re worried about spending money in retirement
Financial advisers can help map out your retirement spending based on factors such as your desired lifestyle and savings.
You will have to pay for the service, which costs between £100 to £350 per hour, according to government advice website MoneyHelper.
Evelyn Partners’ Spencer said she draws up cash flow models with clients which are revisited at regular periods, for example once per year.
Cash flow models can be used to project your income, spending, savings and investment over time and how they might be impacted by lifestyle choices.
Effectively, they offer you a tangible sense of how much you have to live on in retirement and how certain financial decisions will impact your pot.
Reynal said having this type of structured financial plan in place can provide reassurance. If, after this point, you’re still feeling anxious, it could be worth seeking help.
Reynal said: “In some cases…therapy can help: having a space to talk about and face fears of dependency and ageing can help them not be located in the material or financial.
“It’s helpful to ask oneself questions like: ‘what was the money accumulated for? What amount can one allow oneself to spend without feeling too much fear or guilt instead of just defaulting to “spend the least amount possible”? What might I regret not doing while I still had the health, energy or opportunity? Am I protecting myself from a realistic risk, or trying to eliminate uncertainty altogether?’”
How much do you need in retirement?
This will depend on a range of variables including how long you expect to live, how much you have saved and what type of lifestyle you want.
For a basic sense of how much income you’ll need to live on, you could start by looking at Pension UK’s Retirement Living Standards.
These standards factor in the income one or two people might need to sustain three different standards of living, excluding rent and mortgage costs.
Jon Doyle, founder and financial planner at financial planning firm Juniper Wealth Management, also said he encourages clients to hold a “Sleep at Night” fund: an emergency savings pot covering six to 12 months of essential living costs in a worst-case scenario.
