A big part of retirement planning is making sure your savings last you till the end of your life. But there’s a fine line between being cautious and excessively frugal. Here are some things to keep in mind so you don’t compromise on the retirement you deserve.
Is the fear of running out holding you back?
It might sound odd, but some older Australians struggle when it comes to spending money. Retirement comes along, it dawns on them that their savings are finite, and they over-correct by under-consuming.
It makes sense when you think about it. During your working years, it’s easier to weather a dip in the market or a bad month budget-wise when your savings are being regularly topped up by an employer. But when you’re retired, those losses suddenly become a lot harder to stomach.
On top of that, there’s a big question mark over what your future expenses will look like. Will you eventually need aged care? Could you handle another spike in inflation? All that uncertainty can make hoarding your money seem like the only sensible option.
Of course, there’s nothing wrong with being a little thrifty, especially if you plan to leave an inheritance for your children. But if you’re denying yourself all of life’s joys just so your savings don’t dip too much, that’s a good sign you might be taking things too far.
So what’s the solution?
If the thought of drawing down on your savings fills you with fear, try to work out how much you can spend each month without depleting your savings too quickly. Keep in mind that your spending will probably ebb and flow throughout your retirement. For example, it’s likely to be higher in the first ten years, when your good health allows for travel and more expensive hobbies.
Beyond that, here are a few things to consider
Try to tap into your values
- It might help to remind yourself that money is a tool, not an end in itself. Try to connect your spending decisions to the things that truly matter to you, whether that’s travel, treating your family, or cultivating your ideal home and garden.
Optimise your portfolio
- There’s no ‘correct’ way to invest, but if you feel anxious about spending, consider allocating a portion of your portfolio to defensive assets (like cash). If share prices dip, these can serve as a buffer to draw from while you wait for things to recover.
Be flexible
- Be open to adapting your spending in response to market conditions. Tightening your belt during bad years and loosening it during good ones can help you reduce the overall impact of market fluctuations on your savings.
It’s normal to feel a twinge of panic when the market dips or a large bill unexpectedly arrives in the mail. But dialling back your spending so much you miss out on the fun of retirement can be an overreaction. Remember, retirement should be a time to enjoy the fruits of your hard work over the years, and if you can strike a balance between saving and spending, that becomes a lot easier.
Note: This article was originally published on Advisely with the title “Why underspending could be the biggest risk to your retirement” on 14 April 2025.
Struggling to strike the right balance between spending and saving?
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This information provided in this article is general advice only and has been prepared without taking into account your own objectives, financial situation or needs. Before making a financial decision based on this advice, you must consider whether it is appropriate in light of your own needs, objectives, and financial circumstances, and where relevant, obtain personal financial, taxation or legal advice. Where a financial product has been mentioned, you should obtain and read a copy of the Product Disclosure Statement (PDS) prior to making any decisions about whether to acquire a product.