With thoughtful retirement planning, retirees can replace fear with confidence.
Retirement spending is like walking a tightrope and you can make it to the other end if you can successfully balance fear and risk. On one side, there is the fear of outliving your savings and on the other, the risk of being too cautious and not fully enjoying your golden years. If you lean too far in either direction, you risk falling.
However, Mark Philipps, head of portfolio management and analytics PPS Investments, says with a well-structured financial plan, acting as your balancing pole, you can walk confidently, knowing that each step is calculated and secure.
“Picture a newly retired couple torn between pinching rands and cents and pursuing long-postponed dreams. Many retirees face this dilemma: spend too cautiously and risk missing out on life’s joys or spend too freely and fear running out of money.”
In fact, he says, many retirees express anxiety when they tap into their retirement savings and confess to spending more than they anticipated. “These twin fears of outliving your savings versus not living life to the fullest underscore the need for a structured financial plan.”
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Longevity: every retiree’s double-edged fear
Philipps says It is no surprise that longevity is a double-edged sword in retirement. “Living longer is a blessing, but it means your money must last longer too. Longevity risk – the danger of outliving your savings – consistently ranks among retirees’ top concerns.
“Some retirees even end up underspending despite having ample savings out of fear or lack of know-how on efficient withdrawals. Ironically, this ‘die with a fortune’ approach can lead to unnecessary frugality and unfulfilled retirement dreams.
“On the other hand, some people are lured by the thrill of finally enjoying their money and might overspend early on, only to worry later. The key is striking a balance: acknowledging that running out of money is a real risk if you do not plan but so is living too small due to fear. A solid plan aims to neutralise both extremes.”
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Watching out for inflation, volatility and withdrawal rates in retirement
Retirees today navigate a minefield of financial challenges, Philipps says. “Inflation is a silent thief that erodes buying power over time. Even modest inflation can force higher withdrawals just to maintain the same lifestyle.
“It is no wonder global surveys show rising anxiety about day-to-day costs. Simply put, retirees fear their money will not keep up with price increases. Market volatility is another threat. A market downturn at the wrong time can be devastating, a blow from which near-retirees have little time to recover.
“These shocks can shrink a portfolio and heighten the risk of running out of funds in later years and that is why sustainable withdrawal rates are crucial.”
Philipps points out that finding a prudent withdrawal rate helps to ensure you do not deplete your funds too soon and that you use your money for a comfortable life, but he warns it is a careful balancing act, one you should revisit as conditions change.
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Mind over money: watch out for behavioural biases
Even with a sound financial plan on paper, our human psychology can trip us up, he warns. “Behavioural finance teaches us that biases like the planning fallacy and anchoring often cloud retirees’ spending decisions.
“The planning fallacy leads people to craft overly optimistic plans based on rosy assumptions, only to struggle when reality does not cooperate. Anchoring bias meanwhile can cause retirees to fixate on a specific ‘magic number’ even when drawing down from it is exactly what it is there for.
“Retirees may anchor on a mental picture of how their retirement should look to the detriment of flexibility. These mindsets help explain why someone with a healthy nest egg might live more austerely than necessary.”
Philipps says recognising these biases is the first step. By admitting that we are all susceptible to flawed thinking, retirees can consciously counteract it.
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Moving from a saver to a spender by crafting a sustainable plan
The crux of a successful retirement is transitioning from accumulating assets to using them in a sensible way and this requires a mindset shift and concrete strategies.
Philipps says the key pillars of a structured spending plan are:
- Diversifying your investments,
- Setting a sustainable withdrawal rate, and
- Practicing disciplined, purposeful spending.
Instead of viewing your savings as a static lump sum to be guarded, Philipps says you should start to see it as a series of income streams and safety nets working in tandem. “This mental re-framing, from saver to strategic spender, is liberating.”
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Planning retirement for peace of mind
Without a structured plan, you risk veering too far in one direction by either clinging too tightly to your savings out of fear or spending too freely without a safety net, he says. “The key to steady footing on the retirement tightrope is a well-balanced strategy that considers both the math and the mindset.“
He says your balancing pole is a solid plan that reviews your income sources, investment mix and withdrawal strategy, ensuring you stay upright against the gusts of inflation, market swings and longevity risk.
“Most importantly, remember: your savings are there to support you. By carefully distributing your weight between caution and enjoyment, you can move forward with confidence. Retirement spending is about balance and a structured plan is the tool that keeps you steady.”
