Anxiety about running out of money in retirement is preventing over-55s from buying things they actually need.
MoneyAge reported findings from a recent study conducted by behavioural finance experts, Oxford Risk. The research, from more than 1,000 people over 55, revealed that 30% of those surveyed agree that “spending money makes them anxious”. And 31% said they often don't spend money on things they actually need.
The research shines a spotlight on a new acronym, “FORO”, which translates to a fear of running out of money. This fear may be particularly pertinent if you’re approaching or in retirement.
Recognise the effect your emotions may have on your investing and spending decisions
You may find it difficult to adjust to the change in mindset needed when you turn your regular income stream off and begin to spend the savings you’ve worked hard to accrue over the course of your career.
The good news is that while a financial planner can help you save for the retirement you want, they can also provide reassurance and support to help you make the transition from saving for retirement to spending once you’re no longer working to earn your living.
Think about how your spending will fluctuate throughout retirement
Over time, your needs and aspirations change, and your income will almost certainly fluctuate too.
Instead of thinking about your retirement as static, it can help view it in three distinct stages:
1. On the go immediately after retirement
The first few years of your retirement are likely to be your most active, and potentially more expensive. You may want to prioritise ticking off your top bucket-list items while you’re still fit and healthy. This could involve regular overseas and long-haul travel. The early years could also entail a high level of spending, requiring you to budget beyond your day-to-day living costs.
2. Slowing down
As you get older, you may still be looking to enjoy a fulfilling lifestyle but may not be quite as active as you were during in the initial years of your retirement. This may mean that your outgoings are reduced, but you’ll still want to ensure you have a good quality of life.
3. Reaching later life
In the final stage of life, you may find that your health starts to deteriorate and you could experience a loss of mobility. This might result in increased medical costs and potential care requirements. Sadly, this stage could last several years, and it will become increasingly important to ensure you don’t outlive your wealth, particularly in the event that you need to pay for private care.
Read more: 3 practical steps when planning for later-life care costs
A financial planner can help you plan for each stage of your retirement. They will help you find an appropriate route to a sustainable retirement income and formulate a plan that gives you peace of mind that your money will last as long as your retirement.
Get a reassuring preview of your financial future
Being able to envisage your future might help you to overcome some of the concerns you have about spending in retirement.
This is where cashflow planning can prove invaluable. It can show you how certain personal and external financial events may affect your wealth and income stream.
While the results can't be guaranteed, it’s a useful way to see the potential outcomes of different scenarios.
For example, you could see whether you could afford to double your outgoings for three years to tick off bucket list goals, before adjusting to a lower income. Or how your total assets would be effected if you increased the income you take from your pension by 20% throughout retirement.
The fear of market turmoil
Another overarching financial concern once you retire may be that your retirement fund is finite. This knowledge may cause you to draw less than you might need to live comfortably. It may also increase anxiety around the potential for market fluctuations to affect your invested assets.
We’ll work with you to ensure your retirement savings are invested according to your appetite for risk, while also ensuring your investments are well diversified across a range of sectors and geographies.
It’s important to remember that markets typically recover after periods of turbulence. And, over the long term, investing may allow more potential to grow your money than putting it in a cash savings account.
That said, there are a couple of alternate ways to ensure that your income stream isn’t swayed by market fluctuations:
If you’re keen to diversify your retirement income stream and would like to explore all your options, please get in touch.
Get in touch
If you’d like help to create a financial plan to structure a tax-efficient income in retirement, please get in touch. We will work with you to create a plan that suits your goals and gives you the confidence to use the assets you’ve built up during your working life.
Email enquiries@alexanderpeter.com or give us a call on +44 1689 493455.
