How to break the habit of ‘save, save, save’

“Why are you still working?”

It’s a question we often find ourselves asking our clients. They’re fed up with their jobs and can comfortably afford to retire, but they’re still dead set on keeping going, grinding out a few more years of employed life.

Often, it’s only when we raise the idea of early retirement that they even entertain the idea of kicking back, relaxing, and spending some of the money they’ve spent their lives saving up.

Of course this doesn’t apply to everyone - often we have to break the news to people that they’re spending too much or won’t be able to achieve what they want. We met someone recently who wanted to see if they could retire and the answer was ‘no’ unfortunately.

But quite often the news is good. For example, we were able to tell a client last year that he was in a position to hand his notice in. It was almost as if we gave him the ‘permission’ he felt he needed before he could comfortably say: “That’s it, I’m retiring!”

When we meet him now, we can see he’s a changed person. It’s as if weight of the world has been lifted from his shoulders.

Learning when to let go

So, what is it that holds people back? Is it concern they’ve not saved up a big enough nest egg? Fear of the unknown? 

For a lot of us it’s a fundamental trait that the older we get, and the longer we work, the harder it is to get out of a mindset of ‘save, save, save’. 

And it’s a hard cycle to break. We start paying into a pension and setting funds aside for a rainy day – but then we get nervous about taking money out of the pot. 

We see clients who’ve reached retirement age, no children, or their kids have moved away from home and are no longer dependent. A lifetime of saving up means they’ve probably got assets approaching the £1 million mark. But they’re finding it hard to kick the frugal mentality and nervous about overspending.

Of course, it’s easy to see why people worry about spending money (particularly with the current climate of rising living costs). That’s why a big part of the conversations we have with clients isn’t always about telling them to save more money – it’s about changing their behaviour and approach to spending.

Let’s take a simple example. If you’re looking to book tickets to see your favourite West End show, £195 might seem like a lot. And it probably is if you compare it to what you might once have spent on a night out, or a trip to the cinema. But it’s about letting go of that context and asking yourself why you’ve saved so hard in the first place – surely it’s to enjoy the things you love doing?

This might not be what you expect to hear from a financial planner. Of course, we’re here to advise you on pensions and investments and how to protect the money you’ve saved up. But a good financial planner goes beyond that – and it’s not just so we can see your happy faces when you’ve enjoyed that trip to the theatre or stopped working! 

In fact, sitting on piles of cash could leave you bigger problems in the future – not least inheritance tax, so it’s important to develop a healthy attitude to spending from the tax man’s perspective too (unless you really like him!).

Answering the age-old question – do I have enough?

People still think of retirement as being a cliff-edge when they reach their mid-60s.

Being single-minded about saving up to reach that date will make life more stressful, you’ll be constantly asking yourself questions such as will my pension funds last my retirement years? What happens if I need to pay for care arrangements when I’m older? What happens if things go wrong? 

These worries are understandable. While you’re working, you can always work more and replace any lost income. Once you retire, that’s all you have.

These are all important factors to consider, but focusing only on the saving side of things can come at the expense of enjoying your life.

One of the most effective tools that we use is cashflow modelling which will show you what the possibilities are. Often, we’re able to show that even if you live to 110, you’ll still have money to spare.

And it answers those niggling worries about worst-case scenarios. Using simulations of all sorts of real-world examples, we can show you how your finances would fare through previous big market shocks, such as the last financial crisis or the pandemic. It’s always more reassuring when you see how investments tend to bounce back. 

A financial plan is just a starting point

Of course, we all live in the real world. Changing jobs or circumstances and unplanned events often mean adjusting your financial horizons. That’s why a financial plan isn’t something you leave gathering dust on a shelf, it’s regularly reviewed and updated.

Say your portfolio has had a bad year, in our annual review we’ll recommend you take less out that year adjusting the lifetime allowance.

A good financial plan is a lifelong process and will take all this in its stride. Ultimately, for you it means you don’t have to relentlessly ‘save, save, save’ instead you can enjoy those savings, whether it’s retiring early or eating out five nights a week.

You can always speak to us about this and if you’re not sure, we can show you the figures that’ll show you’ll have enough to retire on, no matter what comes your way!

Want to get the balance right between spending and saving? Give us a call.