Research indicates that the fear of retirement, particularly concerns about running out of money, could be preventing millions of retirees from fully enjoying their later years. While overspending is a risk for some, being overly cautious can mean missing out on the lifestyle or experiences you’ve been dreaming of.
According to a report in MoneyAge, 30% of retirees which is the equivalent of 6.4 million people – said spending money makes them anxious. A similar proportion agreed they often don’t spend money on things they need because they’re worried about the future.
The study also found that one in four retirees allow their emotions to dictate their financial choices.
While it’s important for retirees to budget carefully to ensure their assets last, the findings suggest many are limiting their spending due to emotional fears, rather than relying on a clear financial plan.
Spending too much too soon is a risk many retirees may want to consider
The fear of retirement, particularly the concern of running out of money, is valid for those who rely on flexible access to their pension or other assets to supplement a steady income.
Using flexi-access drawdown allows you to tailor your pension withdrawals to meet your needs. This flexibility can be helpful if your income requirements change or you encounter unexpected expenses. However, it also requires careful management to ensure your pension lasts throughout your retirement. Withdrawing too much in the early years could leave you facing financial shortfalls later, potentially affecting your ability to meet obligations or maintain your lifestyle.
While these concerns are understandable, being too cautious with your finances can create its own challenges. The fear of spending could stop you from enjoying the retirement lifestyle you’ve worked so hard to achieve, even if you have the financial resources to support it. Balancing caution with confidence is key to making the most of your retirement.
A retirement plan could help you manage financial fears
A bespoke retirement plan could help alleviate the fear of retirement by providing clarity and confidence about your financial future.
Working with a financial planner to create a retirement plan often includes using a tool called cashflow modelling. This tool allows you to visualise how your wealth and assets might evolve over your lifetime. For instance, you could assess whether withdrawing £35,000 a year from your pension is sustainable or explore the impact of taking out a lump sum to fund a luxury cruise or another one-off expense.
Cashflow modelling doesn’t just focus on your planned spending—it can also help you understand how unexpected events might affect your finances. For example, you could model the financial impact of replacing your roof unexpectedly or navigating a period of high inflation.
By addressing potential scenarios that may be causing financial fear, cashflow modelling can provide reassurance. You might discover that your finances are in better shape than you feared, giving you the confidence to enjoy your retirement. On the other hand, it might highlight potential challenges, allowing you to take proactive steps to bridge any gaps and maintain long-term financial security.
It’s important to remember that the results of cashflow modelling are not guaranteed. The projections rely on the accuracy of the information you provide and assumptions, such as future inflation rates or expected investment returns.
Despite this, cashflow modelling remains a valuable tool for understanding how your financial decisions could impact your long-term security. It offers insights that can help you make informed choices about managing your wealth during retirement.
One of the challenges of retirement is the shift in mindset it requires. During your working years, the focus is often on accumulating wealth—whether through pension contributions, building an emergency fund, or investing for long-term growth. These positive money habits may have played a crucial role in helping you achieve your financial goals.
In retirement, however, the focus typically shifts to decumulating wealth, as you begin using the assets you’ve worked hard to build to fund your lifestyle. Adjusting to this new phase can be more challenging than expected, especially if long-standing habits or the fear of retirement are holding you back.
A well-thought-out retirement plan can help ease these concerns. It provides the clarity and confidence you need to start using your accumulated wealth to achieve the retirement goals you’ve been striving for. This shift in mindset can empower you to embrace the next chapter of your life with greater assurance.
Get in Touch to Secure Your Retirement Income
If you want to learn how to use your pension to create a sustainable income in retirement or explore how your other assets could support your goals, we’re here to help. Contact us today to work together on a personalised retirement plan that reflects your financial circumstances and aspirations, giving you the confidence to enjoy your retirement.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
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.
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