HOW TO LOOSEN THE PURSE STRINGS WITHOUT RUNNING OUT OF MONEY IN RETIREMENT

You’ve saved hard for decades, funnelled away every spare pound, and now it’s finally time to put your feet up for a well-earned retirement...

But all those dreams of world cruises and taking the grandchildren on theatre trips to London never come true – not because you can’t afford it but because, after so many years of careful saving, you cannot bring yourself to let go of your money.

It’s an increasingly common problem among those who are retired, warn financial planners and money coaches. They are finding that hard-working couples who have saved to be able to enjoy their later years are struggling to give themselves permission to spend the cash when they get there.

About one in four people expect they will be loath to dip into their retirement savings, according to research by financial firm Aegon.

But it can be a costly mistake to make. Not only could you miss out on your retirement dreams, but a huge chunk of your money could end up in the taxman’s clutches if you don’t spend it yourself.

Charlotte Wheeler, of JP Morgan Personal Investing, says: ‘A lot of clients in their 80s and 90s have a lot of money that they haven’t had the confidence to spend.

‘One of the biggest dangers is getting to that age and realising you have been too conservative.’

Faced with a high cost of living, care fees that can run into thousands of pounds a month, and an unknown number of years left to you, it can be hard to know how much you can afford each month.

Here, retirement experts share ways in which you can figure out how much spending money you really have and reveal tricks they use to get their clients to shift from a ‘save it’ to a ‘spend it’ mentality.

Work out far your saved pot will stretch

One of the biggest barriers to enjoying money in later life is worrying you will run out of cash, says retirement coach Ian Shadrack.

It’s a natural fear, as, official figures suggest, at least 15 million Britons are currently under-saving for retirement.

If you want to work out how far your retirement pot will stretch, a financial planner should be able to give you a clear picture. They will tell you how long your savings will last – and you may find you have more cash than you thought.

They will typically ask you to list all of your expected expenses, such as utilities, council tax, car payments, grocery shopping.

With the daily expenses accounted for, you’ll be given an annual ‘budget’ to work within for you to spend on fun activities, and you’ll have the peace of mind of knowing that you won’t run out of money in your later years.

If you’d rather do the calculations yourself, you should be able to work out a rough budget.

Tot up all your expenses over the course of the year to see how much you’ll need to live on. You’ll need to take into account annual inflation, growth of your invested funds, any dividends you receive and your state pension, too.

The Retirement Living Standards from Pensions UK – guidelines that are widely used by the pensions industry – are a useful benchmark.

For example, a couple needs an income of £45,400 a year post-tax to be able to lead a moderate lifestyle. This affords you a fortnight in the Mediterranean, one weekend break and a three-year-old car.

For a more comfortable retirement, couples will need £62,700, which is enough to pay for a fortnight away and also three long-weekend breaks.

As a rule of thumb, to make sure you never run out of money you should take no more than 4 per cent out of your invested pension pot every year.

If you are a couple who both receive the state pension (currently worth £12,547 a year), you’ll need an additional combined income of nearly £20,304 for a modest lifestyle in retirement. This means your total combined pension pots need to be worth £507,620.

Visualise the kind of retirement you want

Once you know how far your savings will go, you need to work out what kind of lifestyle you want in later life.

Not only is this key to working out how much money you’ll need, it will also make you excited to spend it.

Wheeler says: ‘Take a step back and think, “What does retirement look like for me?” Sometimes people say they want to visit family regularly, some are happy staying around the house, others want to play golf.’

One big priority for many is travel. And you’ll probably want to do that in your first decade or two after giving up work while you are at your fittest and most energetic.

Paul Hammond, a retirement coach at Panthera Life, says to pick the top five places and create what he calls a three-to-five-year hit list.

Think about what is important to you, he says. Some prefer to get their house in order when they first retire, with mortgage paid off and a change of cars. But don’t focus solely on big expenses. Consider smaller activities you’d like to do more of, such as theatre trips or days out.

You may want to use part of your savings to make financial gifts. If you can afford to, it might be better to make these gifts while your children are in their 20s or 30s, when they may need the money more, rather than only leaving them money in your will. If you don’t, they may end up paying 40 per cent in inheritance tax if your combined estate as a couple is worth more than £650,000, or £1million if you leave your home to a direct descendant.

Gifts must be made at least seven years before death for them to be fully free of inheritance tax.

Once you have a clear picture of how you want to spend your retirement, work out how much your fun activities will cost you.

For example, you might hope to go to the theatre every other month, and so budget £300 for two tickets, a meal beforehand and transport. Or you and your partner may want to go on a two-week trip to Spain every year, and budget £3,000. Add up all of these extras to see if they are within your budget – you may discover you have money in your ‘fun fund’ to spare. Once you have this, you can get to work on spending it.

Stick the budget on the fridge... and spend it!

Even after you’ve been given the go-ahead to spend more money by a financial planner, it can be hard to start splashing the cash.

Hammond suggests thinking about your goal for the year, perhaps landscaping the garden, and put your mind and money towards that.

Alternatively, break it down into a monthly budget, to make it more manageable.

For example, if you know you have £10,000 a year allocated for enjoyable activities, you can think about spending £2,500 every three months on dinners out or day trips. Hammond tells his clients to put their spending goal on the fridge – say £3,000 by the end of the year – and tells them to spend it on activities such as coffee dates, dinners or the theatre.

‘It’s about breaking down the money and allocating it,’ he says. ‘People plan so much for their retirement day but actually the mission is to spend your cash.’

Use ISAs for fun stuff and pension for living

Keeping your pension strictly for day-to-day spending may make you feel more secure in later life.

You could instead use other savings accounts, such as an Isa, as your fun money, says Shadrack.

For example, you may have £500,000 in a pension when you retire aged 65.

But you may also have a £100,000 Isa pot, which can be used for dream retirement activities such as long-haul holidays or golf.

You won’t pay any income tax on withdrawals from your Isa, either. You will still need to be careful with how much you take out, as you don’t want to run out of travel cash in the first five years.

Remember risks of not enjoying your cash

If it’s still tricky for you to let go of your spare cash, remind yourself of the risk you run by not spending it while you can.

You might get to later life and realise you haven’t done the activities you wanted to, or you could inadvertently land your family with a huge inheritance tax bill after you’re gone.

Try reframing retirement as a chance to enjoy the fruits of your labour – and give yourself permission to spend your money.

Hammond says two of his clients, Darren and Sarah, a professional couple in their late 50s, had the instinct to be cautious about their upcoming retirement – even though he knew they had more than enough to enjoy the lifestyle they dreamed about. But in one session, Hammond mentioned a couple of long-standing clients of his had died recently, which ‘shifted’ something in Darren and Sarah, whose names have been changed.

Within weeks they had added an extra city break to their agenda, booked a trip to Australia and planned on speeding up their phased retirement.

Hammond adds: ‘The numbers hadn’t changed. What changed was their sense of permission.’

Don't lose touch with how much things cost

Alongside the fear of running out of money, Shadrack says retirees can struggle to splurge when they’ve been so used to saving, as it seems frivolous.

He says: ‘The reluctance to spend is made worse when people save aggressively just before they retire because they had to cut back on spending. Suddenly, when they have retired, they are not in the habit of eating out and then they see the prices.’

You don’t want one unexpectedly large restaurant bill to put you off enjoying a monthly meal out with your family. But make sure you have budgeted for all of your expected costs before you splash the cash and your savings dwindle.

You don’t want to be left stretched in your later years or unable to pay expensive care fees.

Tell us about how you set your budget in retirement. Email [email protected]

2026-09-13T11:29:00Z