Fear of Running Out (FORO): 

One of the more surprising conversations I have with retirees is not about investment markets, superannuation returns or tax. It is about something much more personal: their reluctance to spend money.

After decades of working, saving, investing, reducing debt and diligently building their superannuation, many people arrive at retirement in a sound financial position. They have done exactly what they were encouraged to do throughout their working lives. Yet when the time finally comes to enjoy what they have accumulated, some find spending remarkably difficult.

I have seen this often enough with clients that I have started calling it FORO: Fear of Running Out.

FORO is not necessarily about how much money somebody has. I see it in people with quite substantial retirement savings as well as those with more modest resources. It is the uncertainty that comes with changing from a lifetime of accumulating money to suddenly relying on that money to support you.

From Saving to Spending

Think about the financial habits most of us develop over a working lifetime. For forty or fifty years, the message is remarkably consistent: earn an income, save what you can, pay down the mortgage, contribute to superannuation and build wealth for the future.

Those habits become deeply ingrained, and for good reason.

Then retirement arrives and the equation changes. There may no longer be a salary arriving every fortnight, and for the first time you may be drawing an income from the assets you spent decades building. Psychologically, that can be a much bigger adjustment than people expect.

I regularly speak with retirees who are financially comfortable but still worry about whether they can afford a holiday, replace the car or spend money renovating the house. They look at their superannuation balance and become uncomfortable when they see it reduce, even when drawing down on those savings is exactly what their retirement strategy was designed to accommodate.

That anxiety is understandable. None of us knows how long we will live or precisely what the future will cost. Inflation, investment markets, health expenses and the possibility of needing aged care can all create uncertainty. Faced with so many unknowns, being cautious can feel sensible.

The difficulty arises when caution begins preventing someone from enjoying a retirement they can reasonably afford.

There Are Two Sides to Retirement Risk

Most retirement planning naturally focuses on one important risk: running out of money too soon. A sound financial plan needs to consider longevity, spending requirements, investment risk, taxation, inflation and potential future costs.

But there is another risk that receives considerably less attention. It is the possibility of reaching later life with plenty of money remaining, but fewer opportunities to use it in ways that would have brought enjoyment or meaning.

This is something I encourage clients to think about carefully. Travel is an obvious example. The overseas trip that feels easy at 65 may feel quite different at 80. The same applies to renovating a home, pursuing hobbies or spending active time with children and grandchildren.

I have met retirees who continue living almost exactly as they did while saving for retirement. They postpone experiences and purchases they could comfortably afford because spending capital feels wrong. Yet there comes a point where preserving every possible dollar can work against the very reason that wealth was accumulated in the first place.

Financial security matters enormously, but so does understanding what the money is for.

Retirement Is Not About Finishing With the Biggest Balance

There can sometimes be an unspoken idea that a successful retirement is one where you preserve as much capital as possible.

I do not think it is that simple.

For some people, leaving a substantial inheritance is extremely important. For others, helping children or grandchildren while they are alive might be more meaningful. Some want to travel extensively, while others would rather remain at home, enjoy their garden and know they have ample reserves available for whatever life brings.

There is no universal definition of a successful retirement.

What matters is ensuring that your money reflects your priorities, rather than allowing fear to make the decisions for you.

This is why I distinguish between reckless spending and confident spending. Confident spending does not mean ignoring tomorrow and enjoying everything today. It means understanding what you can reasonably afford and then giving yourself permission to use some of your wealth without feeling guilty every time the account balance falls.

Putting Some Numbers Around the Unknown

This is where good retirement cash-flow planning can change the conversation.

Telling somebody, “You have plenty of money,” is rarely enough to overcome FORO. Most retirees want to understand why they have enough and what could happen if circumstances change.

We can model expected spending over time and consider different assumptions around investment returns, inflation and longevity. We can also allow for larger expenditures, perhaps replacing cars, travelling, helping family or making changes to the home, rather than pretending retirement expenditure will remain perfectly level every year.

Importantly, planning can also consider the less enjoyable possibilities. What might happen if markets experience a difficult period? What reserve should be available for unexpected expenses? How might future health or aged care costs affect the plan?

There will always be uncertainty. No financial projection can tell us exactly what somebody's life will look like twenty years from now. What modelling can do is turn a vague fear of “What if I run out?” into a much more informed discussion about choices, trade-offs and the capacity to adapt.

That clarity can make spending feel very different.

Instead of wondering whether a holiday is irresponsible, a retiree can understand where it fits within the broader plan. Rather than automatically saying no when a grandchild needs some help, they can consider what providing that assistance might mean for their own long-term position.

Sometimes the answer will still be no. But when the answer can comfortably be yes, it is important to know that too.

What Was All the Saving For?

This is one of my favourite questions to ask clients who are reluctant to spend:

What was all the saving for?

Most people did not work for forty years, pay off a home and build investments simply to finish life with the largest possible account balance. They made those sacrifices to create something valuable: choice, independence, security and freedom.

Retirement is the stage of life when those choices should start becoming real.

That might mean travel. It could mean spending more time with family, helping children or grandchildren, contributing to a cause you care about, improving the family home or simply enjoying everyday life without questioning every discretionary purchase.

A successful retirement should not be measured solely by the value of the assets remaining at the end. It should also be measured by how effectively those resources supported the life you wanted to live along the way.

For much of a client's working life, my job as a financial adviser may involve encouraging them to save, invest and prepare for the future. In retirement, sometimes my role changes.

Sometimes people do not need another reminder to save. They need the confidence, and occasionally the permission, to enjoy what they worked so hard to build.

 

General information only
This article is provided for educational purposes only and does not constitute financial advice. Personal circumstances vary, and professional advice should be sought before making financial decisions.