Retirement isn’t just a financial shift – it’s a psychological one. Susan Hope (pictured), Business Development Director at Scottish Widows, explores how financial advisers can support clients through the emotional and behavioural challenges of moving from a lifetime of saving to a new reality of spending, helping them – and their families – navigate this transition with confidence and clarity.
Research suggests that the average person in the UK works for around 40 years of their lives, a statistic that is likely to only increase as people live longer.
During this period, individuals learn how to save and budget to reach their goals, whether that be buying a home or supplementing their pension pot – building a financial ‘muscle’ that becomes part of their everyday lives. So after many decades of working and saving, it can be hard to suddenly make the switch to spending those hard-earned savings that retirement requires.
This means that when it comes to stopping working, many retirees will feel that they should continue to save, or are even worried about ‘spending the family inheritance’. As with all things, there is an important balance to be struck and advisers can play a key role in supporting clients during this transition, and learning new habits.
The spending struggle
Making the switch to spending can feel jarring. For those who are particularly engaged with their finances, money represents resilience. But after successfully building up their wealth over a working lifetime, they’re faced with watching it slowly but steadily being eroded. It can be quite traumatic, often prompting them to contract their spending unnecessarily and too quickly.
With limited or no money coming in, even relatively modest outlays – such as a holiday or a new car –can feel overly indulgent or excessive. This can be exacerbated by direct or indirect familial pressure, with retirees who spend more readily often on the receiving end of jibes about a shrinking inheritance or wasteful purchases. Whether said in jest or not, these comments can lead to otherwise sensible, budgeted spending being pared back.
Another challenge can arise when one half of a couple is at a different stage of their career. If one partner hasn’t yet retired, it can complicate conversations not just around household budgeting, but also around holidays, mortgages, and other big-ticket items.
How can advisers help?
By helping clients navigate the transition advisers have the opportunity to really demonstrate value and more firmly embed themselves at the heart of true generational financial planning.
Part of doing this successfully is helping clients and their families understand the different phases of retirement. Explaining these different phases, and the spending shifts that come with them can help to build confidence in the wider financial plan for the family.
Typically, these three phases are:
- The Go-Go: The earlier years of retirement where people are most active. It’s here that we tend to see those bigger spends on leisure/ travel etc
- The Slow-Go: While still active, people typically slow down a bit, taking fewer trips, spending time more locally. Bigger purchases tend to reduce in frequency during this period
- The No-Go: Physical abilities diminish, meaning that there’s often a greater reliance on support from care-givers. Spending may not necessarily reduce, but simply shift to care and health needs
Managing mindset
Each periodic shift in retirement requires a mindset shift and here, the benefit of regular touchpoints with clients cannot be overstated. Whether it’s being on hand to answer any worries, sharing regular budgeting reminders, or offering observations about spending trends – clients and their families take huge comfort in knowing not just that there is a plan, but that it is also being adhered to properly.
Advisers can also leverage technology that helps them map the expenses of clients against what had been discussed, enabling them to deliver truly holistic insight into affordable lifestyle and expenditure.
For clients with partners, it is wisest to make sure that they too are also fully aware of the planning, financial headroom, and any potential bumps in the road ahead. In fact, for those couples retiring at different times especially, they may benefit hugely from joint financial planning. Carrying out joint reviews to help ensure everyone is confident about the financial parameters of the household.
It is important to keep the wider family involved as much as possible, even if this means having some hard conversations. Advisers should be out of their way to make their planning strategy accessible, so that other family members are ready to step in when required.
As technology continues to move forward, the world will become increasingly reliant on AI & chat bots but advisers must retain the human touch where it is necessary. Helping clients transition in the manner laid out above is one such area where the human element is crucial to making families feel truly supported during a time of big change.
