Retirees can struggle to shift the ‘saver mindset’

After a lifetime of being a responsible saver, perhaps denying yourself luxuries in the pursuit of a comfortable retirement, your hard work has paid off. Your pension can provide a more than comfortable investment income. Plus, your calculations (often with the reassurance of a financial adviser) tell you that there’s no way you’ll run out of money. Yet spending still scares you.

What’s the problem? It’s not maths, it’s psychology. And it can have a pernicious and damaging effect on the experience of retirement.

Financial advisers say navigating the change in mindset from saver to spender is a challenge many clients are unprepared for. A study by the Institute for Fiscal Studies found around age 62, more than half of the sample have incomes higher than expenditure, and this figure increases to about 80 per cent by the end of retirement.

“It is incredibly common to work with clients who have more than enough wealth to last them their lifetime, if not several, yet most feel at some level that they may still run out of money,” says Katherine Waller, co-founder of wealth manager Six Degrees.

One problem is the preconditioning that comes through a savings habit lasting 30 to 40 years. Dan Haylett, director of TFP Financial Planning, says: “We’re spoon fed saving and associate money in the bank with security. But in a modern retirement we need to flick the switch to spending.”

Another issue is that there are no retirement “role models” to learn from. People retiring now have a very different experience to that of their parents and grandparents. Someone with a defined benefit pension retiring 25 years ago went from a regular income through their work salary to another secure guaranteed (albeit lower) income through the pension scheme. “We’re now going from income, to no income and a pot of money that we have to deplete intentionally,” says Haylett. “Also, that’s a pot of money that gives us social status and a feeling of achievement. The sense of loss from spending it is huge in modern day retirement. People struggle with it.”

Vicky Reynal is a psychotherapist who focuses on people’s relationship with money. When it is hard to shift from saving to spending, she says it might be because saving was a psychological defence against negative feelings. “Changing our behaviour could leave us feeling too vulnerable or unable to manage the emotions that emerge as we try to spend our hard-earned money,” she says.

Most experts cite childhood as a key influence. It doesn’t matter how old we are, our spending is still influenced hugely by what we’ve observed when growing up. Haylett says: “There’s no blueprint if you look to parents or grandparents. For them, frugality was a badge of honour.”

In the worst cases, the emotions preventing spending may be strong feelings of anxiety and fear. “Some people . . . cling anxiously to every penny just in case a catastrophic — and unrealistic — series of events could materialise,” says Reynal. “Spending threatens a sense of security and evokes almost primal fears.”

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At the same time, people often overestimate how long they’ll live, says Haylett. “If you’ve had four aunts live to 101, I get it. But not many people know someone aged 100. I think the idea of a 100-year life is completely ruining people’s retirement.”

In the UK, people aged 65 can expect to live on average a further 19.7 years for men and 22.0 years for women, according to ONS data. This is projected to rise to 21.9 years for males and 24.1 years for females aged 65 years in 2045.

One way is to think of money left behind after death as a “lost opportunity”. Haylett says: “If I fast forward 20-30 years and you still have 70 per cent of your net wealth on the table, people say it feels stupid and they have missed out.” The potential for the government to tax it at the end is another incentive to spend and enjoy it now. 


But the balance is difficult to get right, especially since advisers disagree on whether retirement spending should follow a U-shaped path or a straight line.

Many advisers talk about the three phases of a 30-year retirement, roughly divided into 10 years each. First is “go-go”, when people have lots of energy and may want to explore the world and spend money. Then comes “slow-go”, when spending slows. Finally, they enter the “no-go”, or resting years, when health may be poor. Spending is higher at the start and at the end too, if long-term care is needed.

The prospect of a large care bill at the end of life is what most people’s anxiety centres around. “People usually want a back-up plan in place,” says Waller.

This is often your housing wealth. But it might also include gifting to family in tiers, holding some gifts back for later in retirement. Or using a gift and loan trust, where you can have access to the capital, but won’t benefit from any investment growth.  

Analysis by Interactive Investor, an investment platform, shows that someone living until age 100 could need an extra £260,000 pension wealth to give them a comfortable retirement, compared with someone who lives until 83 years old. The average nursing home costs around £61,000 each year, so two years in a care home could cost around £122,000.

Doug Brodie, founder and chief executive of Chancery Lane Retirement Income Planning, disputes the fact that spending is higher at the start of retirement. While some of his clients plan to spend an extra £10,000 to £20,000 a year on holidays in the early years of retirement, he says in every single case he’s found they don’t. He puts this down to lifestyle being fixed by the time they reach retirement. “If you have all the time on your hands, would you go and spend a week living in a fancy hotel in Paris? Most people say ‘that’s not the lifestyle that makes me feel comfortable.’ You’ve spent 40 years embedding your lifestyle with kids, family and local relationships.”

More often than not, Reynal says the feeling evoked around spending is guilt, either over its profligacy or the fact that money spent on themselves will reduce the amount their children inherit. “Sometimes it’s the guilt of not having been better parents emotionally,” she says.

All advisers agree that it’s important to try to identify these unconscious discomforts — and this can be done in conversation with family or a trusted adviser. “Talking can be emotive but writing it down or seeing it in writing can be different,” says Waller.

Moira O’Neill is a freelance money and investment writer. Email: moira.o’neill@ft.com, X: @MoiraONeill, Instagram @MoiraOnMoney



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