Transition from saving to spending

Mr Badger

Mr Badger

Mr Badger

Soldato
Joined
27 Dec 2009
Posts
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For context, I'm still working and most likely won't be retiring any time soon (excepting a lottery win). But a recent conversation has got me thinking about the associated transition from saving to spending. For those lucky enough to have a full defined benefit pension this wasn't really an issue, as when you retired your pension income replaced your salary. But now most of us with private pensions have it in the form of our own pension fund, so when you retire your pot of cash starts reducing.

I've always endeavoured to live within my means and put some money aside for the future. Which I suppose is a classic saver mentality. Someone was essentially arguing that you have to let go of that thinking on retirement and become a spender. It's about using up your assets so you get to enjoy them whilst you can. Do not let the government or a care home get them!

However, another mate of mine retired early at around 55 due to having had enough of the wacky world of IT. Although he does seem to be enjoying his retirement, now he's hit 60 he's becoming worried about his diminishing funds and says he wished he had carried on working for another couple of years to put himself into a more secure financial position before leaving the workforce.

So I'm interested in how other people have either already approached this, or what you think you will do. Not so much the financial advice side, more the mindset. Do you quit working as soon as you think you can afford to retire? Do you plan how much money you need to spend to get rid of your assets before you die? Do you carry on scrimping and saving after retirement to be the richest man in the graveyard?

Of course this is all based on the assumption that you have some assets/private pension provision - not wishing to be insensitive to those who don't.
 
Uther said:
I retired early due to circumstances. I'm blowing mine, and when it's gone, meh.
Click to expand...

Perhaps it needs a poll with options ranging from:

Retire now and blow it all, you could get hit by a bus tomorrow.

To:

Keep saving, show them all by being the richest man in the graveyard.
 
You don't necessarily have to reduce your pension pot. As long as your pension is invested then it may grow, and then you can withdraw a certain amount of this growth . What you are after is the safe withdraw rate, which is well covered in the FIRE community.

Don't think you ha e X hundred thousand in a savings account and will withdraw 40k per year therefore you will burn through it in Y years. Make sure your money is working for you
 
My plan has always been to have enough saved so that I can live off the interest alone. Treat it like a salary.

E.g., if you have £1m in your pension/ISA/savings and it's earning roughly 7% interest* a year then that's ~£70k/year, or if you have £500k that's £35k/year.

Whatever you don't spend goes back into the pot and compound interest does its work.

* the average stock market return over time, although obviously it will fluctuate
 
Make spreadsheets to take the guesswork out of it. If you can see at a glance how big your pot will be each year, after growth and withdrawal/contributions, then you can see how long it will last, and see the impact of an extra year working.

My general plan is to retire asap, have more income than I need, and run the pot down to zero.

I agree with the mental thing of shifting from saving to spending. It can be difficult to blow your cash after spending so long being frugal.

If retiring earlier and using an ISA bridge then it's different again, because you must make it to being able to withdraw from your pension and the government can move the age threshold.
 
Spend more now.
I'm very anti FIRE because you might get a couple more years of retirement. But you are absolutely not promised those years. Even if you are alive, you might not be able body enough to enjoy it.

I don't have kids, so this is even more relevant
 
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I don't have the issue in spending... my issue is the reliant on credit! lol

I guess when the time comes, I will setup a method to withdraw x amounts from my different pots to be put into my main account.
That amount will have enough to cover me for saving for a holiday (or three) and other large purchases along with the monthly bills.

As said, I rely on credit... not that I can't afford to buy something out right it's just the way I've operated since 18!
I put all my monthly spending on one credit card and pay it off monthly to get the cash back on the card.
Large purchases get place on a interest free card and I chip away at it till the amount is paid off and when the period is over, I simply switch over to a new card.
I do have store interest free credit as well, I'm not buying a watch out right when I can pay for it monthly and let the amount gain interest in my bank account.

I guess the credit companies are just waiting for me to slip up; but I'm very much of a deadbeat as I've not paid any fees apart from the very small odd foreign transaction and make the most of the credit cards rewards/benefits making sure I have the money in savings to pay off all my cards.

I guess this needs to stop once I retire and don't have an monthly income... as is there any point as I will be paying for it out of my savings and not my income?
 
As with all things, there’s a balance - no point in dying the world’s richest man having experienced nothing, but also you need to ensure you have some sort of a safety net in case unforeseen events.

Number 1 on the priority list is to enjoy life and experience things that make you happy.

Everyone will have different opinions on what this entails so expect a different answer from every poster, and that’s absolutely fine.

You only get one life - make it count.
 
im currently retired and trying to be careful and not spend too much, always think about going back to work and have a bit of a better buffer
being 54 ive seen a few i went to school with die and im a little concerned about my own health but working on that
i can see both mindsets work and save for a better retirement or spend now as you might die next year

my dad went into a carehome and spent a good chunk of life savings on carehome costs, whilst the lady in the next room had nothing and got exactly the same care for free
so my current thinking is to have nothing left in the future as you get the same care anyway, the systems broken :rolleyes:
 
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Pho said:
My plan has always been to have enough saved so that I can live off the interest alone. Treat it like a salary.

E.g., if you have £1m in your pension/ISA/savings and it's earning roughly 7% interest* a year then that's ~£70k/year, or if you have £500k that's £35k/year.

Whatever you don't spend goes back into the pot and compound interest does its work.

* the average stock market return over time, although obviously it will fluctuate
Click to expand...
Sounds good, if you're one of the 2% in the entire country with a Pot that large.

Average UK Pension pot at retirement in the UK in 2026 was £100-110k

Based on the FCA Financial Lives 2024 pension survey for people aged 55–64 with defined-contribution pensions.

The relevant pot size bands are:

<£100k = 46%
<£200k = 58%
£250k–£500k = 9%
£500k–£750k = 3%
£750k–£1m = 2%
£1m+ = 2%.

You're also neglecting Income Tax and CGT (Depending on the Vehicle you hold the Asset(s) in)
You're also neglecting up and down years on the Stock Market, what do you do when the markets crash 25-30%? Take nothing, or eat the equity?.
 
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Beans on toast Dave said:
im currently retired and trying to be careful and not spend too much, always think about going back to work and have a bit of a better buffer
being 54 ive seen a few i went to school with die and im a little concerned about my own health but working on that
i can see both mindsets work and save for a better retirement or spend now as you might die next year

my dad went into a carehome and spent a good chunk of life savings on carehome costs, whilst the lady in the next room had nothing and got exactly the same care for free
so my current thinking is to have nothing left in the future as you get the same care anyway, the systems broken :rolleyes:
Click to expand...

My other half’s grandad developed dementia and went rapidly downhill over a few months - after a ridiculous months long process of assessments and financial checks taking into account his wife still had to live in the house, he was eventually moved to a paid-for care home and settled in.

He promptly decided to go a few days later :D
 
Mr Badger said:
So I'm interested in how other people have either already approached this, or what you think you will do. Not so much the financial advice side, more the mindset. Do you quit working as soon as you think you can afford to retire? Do you plan how much money you need to spend to get rid of your assets before you die? Do you carry on scrimping and saving after retirement to be the richest man in the graveyard?
Click to expand...

That really depends whether you like working or not. Ideally, you should be doing what you want to do in life, whatever that is.
 
EyeDot said:
Average UK Pension pot at retirement in the UK in 2026 was £100-110k

You're also neglecting Income Tax and CGT.
You're also neglecting up and down years on the Stock Market, what do you do when the markers crash 25-30%? Take nothing, or double your Draw?.

Based on the FCA Financial Lives 2024 pension survey for people aged 55–64 with defined-contribution pensions.

The relevant bands are
<£100k = 46%
<£200k = 58%
£250k–£500k = 9%
£500k–£750k = 3%
£750k–£1m = 2%
£1m+ = 2%.
Click to expand...

Yeah, good point. I'm not a financial expert so don't listen to me to be fair.

I'm not confident the state pension will still be available when I retire so I put as much into my pension and ISA (which I treat as a retirement fund really), so far seems to be working for me.

I live pretty frugally which also makes things much easier as I've got no super expensive hobbies or anything to afford.
 
Beans on toast Dave said:
im currently retired and trying to be careful and not spend too much, always think about going back to work and have a bit of a better buffer
being 54 ive seen a few i went to school with die and im a little concerned about my own health but working on that
i can see both mindsets work and save for a better retirement or spend now as you might die next year

my dad went into a carehome and spent a good chunk of life savings on carehome costs, whilst the lady in the next room had nothing and got exactly the same care for free
so my current thinking is to have nothing left in the future as you get the same care anyway, the systems broken :rolleyes:
Click to expand...

Yes it's the great unknown. I've been going through the phase of my older generation of relatives dying off, mostly in their 80s and 90s. But recently it seems to be more people I know aged in their 60s that are going down with various cancers. Especially one guy who was a super fit cycling enthusiast, who went shockingly quickly after his diagnosis. Makes you think...
 
both DCs and DBs pensions
EyeDot said:
<£100k = 46%
<£200k = 58%
£250k–£500k = 9%
£500k–£750k = 3%
£750k–£1m = 2%
£1m+ = 2%.
Click to expand...

That’s just depressing… I’m 20 years still from my official retirement age and still paying off my mortgage.

I have both a DB and DC pension pot along with a stocks and shares ISAs.. hopefully I’ll be in the upper 7%.

A lot of people have their pensions/savings in their homes but refuses to sell up when the time comes.
 
I pretty much retired last year at 54 but only started drawing from my SIPP this year. De-accumulation is a hard concept to adjust to when you have saved hard. I haven't fully adjusted despite hours spent modelling the next 30+ years. I always wanted to retire early so became focussed on bridging the gap to a final salary pension I have at 65 and state pension at 67. I think I have enough and even with a relatively conservative growth estimate of 4% pa and inflation at 3.5%, I will die with too much. Wife may retire next year so we will both be on pensions!

We are far from rich but pretty comfortable - no debt. 1 child moved out and another at university means we still have financial committment for two years for quite a chunk but beyond that I am budgeting for c£48-50k year net spend. This breaks down as c£35k base expense for house, car, food etc and I plan on spending the balance on travel. Will also likely downsize in next two years and move further north.

No matter how many times you pour over the numbers it's still quite hard to adjust to not having a salary that bails you out every month. I track expenses every month and if I'm honest my budget is slightly on the optimistic side but last year it was there or thereabouts - only really screwed by a high vet expense.

The biggest issue with a SIPP or ISA is that you are exposed to idiots like Trump and the "sequence of returns risk" which is at it's greatest in the early years. I'd say with each month that passes I am less twitchy. I'm very focussed on health and longevity. Both of us have had cancer scares (thankfully negative) and I think those things are helpful to keep life and its fragility in perspective.
Ideally I want to be able to support my children deal with student debt or get on housing ladder but that will realistically only be if we have any inheritance or if I have a good decade in the stock market.

TLDR
It's a process. you get used to it. Life is not a rehearsal. Remember that next time you see the wife spunking £130 on hair and nails!
 
My defined benefit in no way replaced my salary however with amother small pension it now returns anout 17k then adding a state pension of 12.5k it is about half of what i earned in 2016.

When i retired in 2017 age 65, my income dropped from 50k ish to 25k ish and i was still paying rent on a house. We had enough in the bank to purchase a small semi detached in a nice area though so i am mortgage free.

My wife has also just retired with a state pension but no other pension.

We live fairly frugally but well and still save money.
 
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