From saving to spending!

fly-catchers

I finally retire from RM this Saturday. Had considered going ever since I hit 60 in January 2018 but fell into the one more year trap! Got most of my DB pension at 60 but after changes at RM  the last 8 years were moved to 65. Might not touch that. But even if I did two years early would only lose about 10%.
My pension income and savings are a lot less than a lot of examples posted here. But apart from my tropical greenhouse (electric heating bill)  my needs are quite modest. Don't need expensive holidays and don't run a car. No mortgage now. I do intend to supplement my pension with a drawdown from some of my savings.
 Once I get to 66 and SPA combined with NRA65 pension will be on income slightly higher than my current full time wages. And as the pensions are indexed linked and RM wages are not likely to increase vastly in the short or medium time are very happy with result. But is there any suggestions as to get in the mindset of actually spending money rather than mainly saving it? Also should there be a time where investing in a S&S ISA is less advisable going forward? Or given the non existent saving rates on cash just to carry on as normal? cheers          

Marcon

fly-catchers said:

But is there any suggestions as to get in the mindset of actually spending money rather than mainly saving it? 

I wish I could find the link, but I can only remember the gist of a bit of research done a year or two back. IFAs/wealth managers were asked which piece of advice clients were least likely to follow. The 'winner', by a large margin, was that people in the 60+ age group found it very difficult to follow the advice 'spend it, you can't take it with you'. Interestingly, that seemed to hold good even where the individuals concerned didn't have children or other close family members/friends to whom they could leave their mortal spoils.

Maybe some reverse budgeting - instead of setting yourself a maximum spending target, how about a minimum? Much more fun, too!

fly-catchers

Sounds good! Given this year who knows how anyone has!

Stubod

..+1 for reverse budgeting! I think this is probably quite a common problem for the newly retired entering the "depletion" phase.

We had saved for years and retired a couple of years ago and it has taken that long to get our heads around spending / depleting your pot, (and yes we still struggle!).

Pre retirement it was the usual spreadsheet recording income and expenditure in a few basic categories. It was our aim to make sure that our "pot" went up every year so that we could retire early.

During the first months it was difficult to get used to seeing the "total" either go down or remain static after years of seeing growth.

We therefore changed the emphasis from "saving the max budget", to creating a "planned spending budget" instead.

ie We know what our income is likely to be, and we have long known what our expenditure is so now the spreadsheet focuses on comparing what we planned to spend "v" what we actually spend....and within reason don't worry too much about the "total pot left" column.

Obviously the spending budget can be re set at the start of each year to reflect any changes.

TBC15

Pruning the beautiful bloom you have cultivated for30+yrs is hard to do. I suppose you have to remember why you planted it in the first place. (Every cut hurts at the moment)

enthusiasticsaver

We have the same issue except you seem to live a more modest lifestyle and our pensions are relatively high (approx £38k per year combined).  We have been retired for 2 years for me now and 3 years for DH and we took early retirement at 58 but now all three of our occupational DB pensions are paying out we are getting near enough what we were earning when working but without having to save for retirement. When our state pensions kick in 4 and 6 years from now we will have a higher income than when working. We have continued to invest in stocks and shares isas and sipps for now as savings rates so poor but things we have done without wasting money are the following. 

We did some major home improvements - new kitchen and bathrooms , garden makeover and next year a porch.  
Normally we would spend a lot on holidays but of course a few were cancelled this year. 
We have increased the amount we spend on gifts to our daughters this year. 
At some point we will replace our cars but they are both fine for now. 

We still look for good value (good deals etc ) but cost is no longer the main issue when we need something because within reason we can afford whatever we want.  That is a mindset change but our  IFA  keeps saying we either need to  spend or look into estate planning because we are not drawing on investments at the moment, in fact we are adding to them.  It is a nice problem to have though. I still budget  (more reverse budgeting now though) and save  and if we are doing major spending on the house, cars or holidays they come from savings.  When we run out of savings we will then use the investments. We have set arbitrary limits on how high we are comfortable with the investments  going and will then look into personal equity transfers.  

If you are happy with your lifestyle I would not say you should look to just spend for the sake of it but maybe think of things that will enhance your life.  If you are not bothered about holidays but have hobbies then are there things you need for that other than your greenhouse? What about things that could make your home more comfortable or you could future proof it  or in other words look ahead and see what might need doing as you get older? If you don't drive then maybe look into taxis rather than public transport unless you like using the bus/train? 

jamesd

fly-catchers said:

Also should there be a time where investing in a S&S ISA is less advisable going forward? Or given the non existent saving rates on cash just to carry on as normal?       

It became much less advisable on 6 April 2015.

From that date you can take out any part of a personal pension, 25% tax free. The rest taxable but best left untouched until you're not working. Not much time left but you can still make gross pension contributions up to gross pay. Once no longer working you're limited to 2880 net, 3600 gross and can do that until your 75th birthday.

badmemory

I retired 8 years ago on more than I was earning.  I still find it difficult to spend & am still  saving.  So I hope you are more successful than I am.

Linton

Excess wealth is I believe a "problem" that many people living off savings and pension pots in retirement will face....
 - Initial plans have to be over cautious because the consequences of failure are very high.  For most people most of the time the worst case scenarios wont happen.
 - As you get older the less long term growth you need as there is less time for inflation to be a major factor, therefore the less money you need to put aside for growth - you can begin to drawdown on your core assets.

After 15 years in retirement I am certainly finding this is the case.  So I manage this by....
Data
1) Know exactly how much you are spending on day to day expenses.
2) Predict using pessimistic assumptions what you can afford to spend on day to day expenses for the rest of a very long lifetime whilst leaving enough to finance care.
Whilst (2) is well above (1) you have flexibility for extra expenditure

Increasing Minor expenses
1) Go for higher quality - "Finest" rather than "Basic" if you can tell the difference
2) Increase donations - if a cause you support sends out a request for more income,  perhaps because of COVID, give them more than they ask for.
3) If you feel you need something, buy it.
4) Short break holidays
5) "A budget is a target, not a constraint"

More Major expenses
1) House improvements to improve your quality of life
2) A "once in a lifetime holiday" more than once in your lifetime.
etc

zagfles

I don't know why anyone considers having excess income a "problem". If you spend less than you earn, then as Micawber says, you should be happy. Survey after survey on "happiness" shows that once your basic needs are met, increased income doesn't make people more happy. So don't feel under any obligation to spend what you don't need, any more than if your apple tree produces too many apples for you to eat you shouldn't force yourself to eat more.

Disagree about supporting charities that contact you. Support those that DON'T contact you, those who don't waste their money on marketing whether by post or even more annoyingly by phone, or even much more annoyingly (and wastefully) use chuggers!

Maybe consider grandchildren (or children) if they haven't yet bought a house, high house prices are probably the biggest financial problem the young face, contrary to popular belief it's not low wages (full time min wage is £18k a year), it's not student loans (repayment threshold over £25k for current plan), it's the stupid amount they need to stump up for somewhere to live.

Sea_Shell

TBC15 said:

Pruning the beautiful bloom you have cultivated for30+yrs is hard to do. I suppose you have to remember why you planted it in the first place. (Every cut hurts at the moment)

Like digging up the nuts you've squirrelled away for such an occasion. 😉

That's what they're for.    But it's tempting to leave some to grow still, into big Oak trees!!!

It's a balancing act, that's for sure!!