Why many retirees don't spend enough

Retirement is often seen as a time to relax and enjoy the fruits of decades of work. Yet many retirees struggle to spend enough money in retirement, holding back despite having saved. This reluctance can mean missed opportunities to live comfortably and enjoy life.

Experts explain that retirees often find it hard to feel comfortable spending down their capital. They may worry about outliving their money or feel guilty about spending on luxuries. Understanding how to plan intentional, sensible withdrawals can help retirees overcome these fears.

In this short video, discover why many retirees underspend and how financial planners can guide you to spend confidently on what matters most. Get ready to see retirement as the opportunity it should be to enjoy life while you still can.

Key takeaways

Many retirees underspend due to anxiety about capital depletion and concerns about responsible spending.

Financial planners help retirees reframe spending as intentional deployment of money to improve life and support causes.

Ongoing planning and cash flow modelling provide retirees the confidence to spend wisely without fear of running out of money.

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Transcript

Robin Powell: Something retirement planners say all the time is that their biggest challenge is not stopping their clients overspending, but persuading them to spend more than they do.

There are several reasons why retirees are reluctant to loosen the purse strings.

One is that, after decades of accumulating wealth, many people struggle to realize that the time has come to spend it.

Retirement expert Pete Matthew says retirees have to feel comfortable with spending down their capital.

Pete Matthew: Most people spend more than their guaranteed incomes in retirement. I think it's not that many of us have such wonderful guaranteed pensions coming in, for example, that we can sort of comfortably spend what we want within that most of us have to dip into capital to some degree, and that's fine. 

You know, I spend my life trying to encourage clients that that's okay. 

So it's not so much spending less than you earn or spending less than your income. It's just about spending intentionally and doing some planning and some math to try and work out what a sort of sensible withdrawal rate is. 

RP: Another reason why some retirees spend less than they probably should is that they tell themselves that spending on luxuries is irresponsible. They may even feel guilty about it.

PM: Then, if we're going to start spending frivolously. They don't want to waste money. None of us do. Right. But, you know, they might see extravagant spending as wasteful, which I don't think is right, but they might see it like that. And so a large part of an advisor's job, I think, is to reframe spending, because it's really deploying the money. 

And it might be, you know, to make your life a little bit better, to go business rather than the economy. To change the car a little bit more often and maybe upgrade to a higher standard, whatever, if that floats your boat. Or it might be to help the kids out earlier, or a cause that you care about. 

You know, if you don't have kids or if you don't want to help the kids, you know, maybe you want to give to a local charity or, you see, you know, the food bank struggling if you not only want to devote some time, but maybe pay some money into that. 

RP: One of the benefits of having a financial planner in retirement is that they can encourage you not just to spend your money, but to spend it on what really matters to you.

PM: You know, sometimes it takes years. And one couple recently walked in the door. They've been clients for 20 years, and I've been banging on to them about inheritance tax planning and giving more money away, now early 80s and finally said, you know, Pete, we think you're right. We need to think about this. 

Like, okay, we should have had this conversation ten years ago.

If you don't spend any of your capital. But we are where we are. Let's talk about it now. I had another example of a lady who inherited a load of money. Well, it took me about three years to convince her to go first class to Australia. When she went to see her sister, because that was anathema to her, because she wouldn't have been able to afford it.

It's a perennial challenge. Money. I would say. That's one of the things I spend most time doing is trying to encourage people to spend the money they've spent so long and worked so hard to build. 

RP: In short, retirement is a huge opportunity to do what you always wanted — and while you still can. 

Ongoing financial planning, and cash flow modelling in particular, can help you do those things before it’s too late, safe in the knowledge that you won’t run out of money.