From saver to spender: making the most of your money in retirement

There’s an aspect of retirement which isn’t talked about enough – the transition from saving to spending. It sounds relatively simple, but for many people, this moment can feel surprisingly unsettling. After years – decades even – of preparation, flipping the switch from putting money in, to taking money out, warrants a sudden change in mentality. It’s as much a psychological shift as it is a financial one, which can take some getting used to.

This short guide aims to help you prepare for that change. So when the time comes, you feel better equipped to balance your spending habits with a fulfilling and enjoyable retirement.
 

Why spending can feel unnatural

Throughout your working life, you’ve likely grown accustomed to routine. You earn a salary, spend on what you usually do, put some aside for the future, and repeat. During retirement, that routine is flipped on its head. Suddenly, you may receive an income from a mix of pensions, investments, or savings accounts – and you’ll probably have more spare time to fill too.

This new sense of freedom and control can feel empowering, but it also means that decisions which once felt automatic, now require more thought. It’s perfectly natural to feel like a rabbit in the headlights – which may cause some retirees to err on the side of caution, and spend less than what they’re comfortably able to.

But truthfully, this is what all those years of saving were for – to give you choices and the ability to enjoy life on your terms. So it’s important to give yourself permission to make the most of things – otherwise, what’s the point? The trick is doing so responsibly and sustainably.
 

The fear of running out of money

This is one of the most common concerns for retirees. 64% of people worry about running out of money more than death itself, according to a recent US-based study from Allianz*. What if I outlive my retirement savings? What if I have to go back to work? What if I need to cut back drastically on things I enjoy? These are valid fears, which many people understandably stress over. It can be incredibly difficult trying to figure out how spending affects the longevity of your money – there are lots of moving parts and things to consider.

The good news is that you don’t have to go it alone. Financial advice can be especially invaluable in this area. Expert help can stretch your income and investments in a way which balances the present with the future. This may involve products which guarantee an income for life no matter what, or investment solutions which are designed to protect you from market downturns.
 

Reframing how you think

One of the most powerful steps you can take is reframing what your money is for. We’re not necessarily talking about over indulgence, but realising that your retirement savings now have a different job – to support your lifestyle, fund experiences, and bring enjoyment and meaning to day-to-day life. During your saving years, your money may have felt off-limits, representing security for the future. Now, it represents possibility for the here and now. Ask yourself:

• What kind of life do I want to live in the next five to ten years versus further down the line?
• What things might I regret missing if I don’t act on them?
• What level of comfort and security makes me feel relaxed and confident?

Your answers to questions like these will help paint a picture of what matters most to you. Once you’ve nailed that, the urge to resist spending may weaken. Remind yourself, you’re not being wasteful – you’re simply using your money for what it was always designed to do. You don’t need to dive in headfirst. Rather, start small. Increase your spending a little at a time on things that enrich your life, and review things as you go.
 

Structuring your income

Having a structured spending plan can make a world of difference to your mental clarity. Splitting your expenditure across different ‘buckets’ is a great way to prioritise, and ensures your retirement savings are being spread effectively across your basic needs and goals. A suggested approach could be:

• Essentials
  Think food, utility bills, or debt repayments. These are everyday costs which need covered no matter what.
• Lifestyle
  Non-essential spending which can bring you enjoyment; such as holidays, social life, or hobbies.
• Legacy
  Money which you may want to pass to family later, or simply keep as a buffer just in case. Knowing you’ve got this pot can help with the first two.

Having clear objectives with each category can help give better oversight of where your money is going, and brings confidence that your spending is sustainable over the long run. It also means you can adapt more easily as your circumstances change by tweaking your spending allocation between each pot.
 

The cost of hesitancy

From 6 April 2027, most unused pension funds and death benefits will be included in a person’s estate for Inheritance Tax purposes – where anything over £325,000 is subject to a 40% tax. Under these new rules, unused pension funds could tip you over that threshold, or raise your taxable amount by even more.

Inheritance Tax can be complex though, and there are different exemptions and thresholds which may apply depending your circumstances. You can find out more by visiting MoneyHelper.

So how does this all relate to spending? Well, if you choose to delay using your pension savings, some of that may end up subject to tax after you’re gone – money which you could have enjoyed during retirement. This tax change moves pensions more firmly into the ‘use it or lose it’ mindset since spending it sensibly now could reduce future tax exposure. If passing money on isn’t a priority, this is even more important. You want to avoid a situation where you reach a point in life and regret not enjoying your money when you were younger and more able.

This doesn’t mean you should spend for the sake of it. Far from – every withdrawal may affect your tax situation now. But it does mean you should review your strategy in light of the upcoming changes, ideally with a financial adviser. If you’re planning on leaving money to loved ones or good causes, they can help you balance everything tax-efficiently.

Tax rules can change and the impact of taxation and any tax relief depends on your circumstances, including where you live.
 

How financial advice can help

Financial advice can make a big difference in helping you make the transition from saving to spending. A good financial adviser can help by:

• Modelling different spending levels so you can see what’s sustainable
• Planning tax-efficient withdrawals across different types of income needs (essentials, lifestyle, and legacy)
• Building a holistic plan which balances your spending patterns with your goals, needs, and investment longevity

Perhaps most importantly, advice provides reassurance. Knowing that your finances have been reviewed by an experienced professional can replace anxiety with confidence – freeing you to focus on the things that matter.
 

Ready to take the first step?

Book a no-obligation chat with one of our expert financial advisers today. It’s a great way to find out whether advice is right for you, and is a great opportunity to ask any burning questions you may have. We’re rated 4.9/5 on VouchedFor, and are dedicated to helping more people feel confident about their financial future.

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* Allianz Center for the Future of Retirement conducted an online survey, the 2025 Annual Retirement Study in January/February 2025 with a nationally representative sample of 1,000 Respondents age 25+ in the contiguous U.S. with an annual household income of $50k+ (single) / $75k+ (married/partnered) OR investable assets of $150k+.