Will I run out of money?
It’s the question behind almost every conversation I have with clients, whether they actually say it out loud or not. And I understand why - for most of all our working lives we’re encouraged to earn money, save it and not to touch it. But then retirement comes along and the rules flip somewhat - the money you spent decades protecting is now supposed to be spent, but how? Nobody gives you a guide to doing that in a way that feels ‘ok’, safe, sensible, guilt-free and fun.
So people become cautious. They’re comfortable covering the bills and the usual holidays, but the moment something bigger comes along, the worry kicks in. Sometimes it’s a car that needs replacing, or it’s one last big holiday with the kids and grandkids, or it’s help with a deposit on a first flat. We’re often talking about twenty, thirty, forty thousand pounds, which is a big number, and one that feels like it could undo all the careful planning.
So clients often ask if this kind of spending will mean they’ll run out of money, but the answer I give is actually “no”. Here’s why.
It’s habits, not one-offs, that run the money down
We ask all new clients to fill in a detailed spending questionnaire. Over time, we build a clear picture of what their life actually costs: the regular, habitual spending that happens month in, month out. That’s the number the plan is built on.
It’s changes to that number that make the real difference. If you go from spending £50,000 a year to £70,000 a year and keep it up for 25 years, that’s an extra half a million pounds out the door. That will have a material impact on your plan.
Spending an extra £30,000 once doesn’t move the dial in the same way. Yes, you have a bit less today. But the effect is small, and it shows up late - very late in fact.
This is where our cashflow modelling tool comes in to help show you, and it’s deliberately prudent. We assume people live well into their 90s, and we’re cautious about investment returns. For most of my clients, it shows they won’t run out of money at all; where it is a possibility, it tends to be in their late 90s.
So when someone asks what a big one-off year will do, the realistic answer is something like this: instead of potentially running out at 98, you might run out at 96. That’s on prudent assumptions. If things go reasonably well, you’ll probably be better off than the model says.
The £5,000 honeymoon
My wife and I got married in 2003 and spent three weeks in Australia on honeymoon. On a once-in-a-lifetime trip: hot air ballooning, a helicopter out to the Great Barrier Reef, some lovely hotels. We kept the wedding small partly so we could afford it, because at the time it felt like a huge, extravagant amount to spend.
A few months ago we had a clear-out at home and found the paperwork from the travel agent. If you’d asked me beforehand, I’d have guessed the trip cost £15,000 or £20,000.
The receipt said £5,000.
Even allowing for inflation, that’s only around £10,000 in today’s money. I’ve got clients booking three weeks in Australia now for £25,000, with business class flights and nice hotels. We flew economy, so I have one regret about that trip, it’s that we didn’t go business class when it was relatively cheap.
But I don’t miss a penny of the £5,000. I’m not sitting here 23 years later thinking how much better off I’d be if we’d had a fortnight in Scarborough instead. What I’ve got are the memories, and they’ve lasted far longer than the sting of the bill.
That’s the point I try to get across. Whether it’s a holiday, a car, or helping your children or grandchildren, if the purpose is right, you’ll feel the benefit for much longer than you’ll feel the cost.
My job isn’t to make sure you die wealthy
One of my clients turns 80 this year. She’s travelled all over the world on her own, and after a period of ill health, she’s feeling well again and wants to get back to it. At her review, my question was simple: why not? She has the money, and right now she has her health.
In ten years I fully expect her to still be here, and still be wealthy. What she might not have is the mobility to go. So I’ve ordered her a pile of river cruise brochures.
When people don’t give themselves permission, they don’t stop spending, they just spend on smaller things. A cheaper car, two weeks in Spain instead of the trip to Asia or Australia they’ve always talked about. Help for the family only when it’s a must-do rather than a like-to-do. Then, 20 or 30 years later, they’re wealthier than they ever needed to be, with a list of things they never did.
Some people make a different call, and that’s fine too. I have clients in their late 70s who know their pension will run out in their 80s. They’ve chosen the lifestyle they want while they can enjoy it, knowing the fallback is the State Pension and possibly equity release. That’s an adult decision, made with their eyes open. And it’s far better than spending a whole retirement scrimping so the pot never runs dry.
So, will one big year make you run out of money? For most people, no. Twenty years of quietly spending more than you planned might. One trip of a lifetime almost certainly won’t, and you’ll still be talking about it in 23 years’ time.