discretionary spending<\/a> usually falls away quite naturally.<\/p>\n\u201cLater in life, spending can increase again, but in a very different way. It\u2019s less about choice and more about necessity, particularly around healthcare or long-term care.\u201d<\/p>\n
Why it could leave you short of cash<\/p>\n
There are many downsides to the U-shaped retirement, which experts warn about.<\/p>\n
You can\u2019t predict how long you\u2019ll live<\/p>\n
One of the biggest risks is simply not knowing how long retirement will last, making it \u201cimpossible\u201d to know how steep the \u201cU\u201d will be, Craig Rickman, personal finance editor at interactive investor, said.<\/p>\n
This uncertainty makes it difficult to judge how much you can safely spend early on without jeopardising later years.<\/p>\n
Overspending early can backfire<\/p>\n
Spending more in the early years is tempting and often encouraged. But it comes with trade-offs.<\/p>\n
Rickman said: \u201cPeople should absolutely make the most of their go-go years and spend money doing things they enjoy while they\u2019re in good shape, otherwise they could hit their later retirement years drenched in regret.<\/p>\n
\u201cBut equally, they should be mindful that retirement can last several decades, and being overly frivolous early on, especially if they\u2019re heavily reliant on their pension savings and have little in the way of guaranteed sources to fall back on \u2013 could lead to financial hardship down the line.\u201d<\/p>\n
Tom Selby, director of public policy at AJ Bell, added that those intending to live \u201chigh on the hog\u201d in the early years of retirement should have a clear eye on the impact this could have on their lifestyle later in retirement.<\/p>\n
Investment risks are greater at the start<\/p>\n
Drawing heavily from investments early in retirement can amplify risks, particularly if markets fall and your pension is invested in them.<\/p>\n
Hollands said: \u201cSpending more in the early years can be entirely appropriate, but it needs to be balanced against market conditions and portfolio sustainability.\u201d<\/p>\n
The \u201cdip\u201d in spending may never happen<\/p>\n
A key assumption of the U-shape is that spending naturally falls in mid-retirement. <\/p>\n
But that\u2019s far from guaranteed, particularly if you become used to a certain level of spending, and find it hard to reduce your outgoings.<\/p>\n
Alan Barral, financial planner at Quilter Cheviot, agreed: \u201cThe short answer is that the U-shaped idea broadly holds in practice, but it is far messier and less predictable than the theory suggests.\u201d<\/p>\n
Health, lifestyle and personal circumstances can all disrupt the pattern, he said, adding: \u201cA client in their late seventies who is fit and socially active may spend more than they did at 65.\u201d<\/p>\n
Care costs are unpredictable \u2013 and often underestimated<\/p>\n
Selby said preparing for care needs is particularly difficult because how much care you might need and what it might cost are \u201cinherently uncertain\u201d.<\/p>\n
He continued: \u201cMany will prefer to keep some money set aside just in case, although those with property assets can also choose to use these if they need to pay for care \u2013 either through downsizing or equity release.\u201d<\/p>\n
The unpredictability makes it risky to rely on a neat spending curve.<\/p>\n
Inflation and policy changes can derail plans<\/p>\n
Even well-planned retirements can be thrown off course by external factors.<\/p>\n
Travel, care and energy costs have not moved in line with general inflation \u2013 which currently sits at 3.3 per cent \u2013 over the past decade, which distorts any simple curve based on historic averages.<\/p>\n
There are also tax considerations, Rickman said. He added: \u201cAs any pension money you haven\u2019t spent by the time you pass could be walloped with tax, it might make sense to spend more while you\u2019re fit and healthy.\u201d<\/p>\n
Acting on this too aggressively could still create problems later though.<\/p>\n
Perhaps the most important takeaway is that retirement planning should not be rigid. Instead, experts stress the need for adaptability.<\/p>\n
Rickman noted: \u201cFrom market performance and economic shifts to health changes, there are several variables that can affect your future income requirements.<\/p>\n
\u201cYou might plan for a U-shaped retirement, but if things change, for example new rules or regulations are introduced, it\u2019s important to have the flexibility to switch tack.\u201d<\/p>\n
Hollands added that good retirement planning is less about fitting clients into a predefined curve and more about building a flexible, resilient strategy that can adapt over time.<\/p>\n","protected":false},"excerpt":{"rendered":"Rising living costs, longer life expectancies and uncertainty around future care needs are changing attitudes to retirement savings…\n","protected":false},"author":2,"featured_media":560920,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[84,4176,1086,4178,4174,4175,4204,3668,56,54,55],"class_list":["post-560919","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-business","tag-finance","tag-investing","tag-pensions","tag-personal-finance","tag-personalfinance","tag-retirement","tag-savings","tag-uk","tag-united-kingdom","tag-unitedkingdom"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/560919","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=560919"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/560919\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/560920"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=560919"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=560919"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=560919"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}