We’re retired, when do we cash in our ISAs?

Q: I’m 68 and my wife is 67, both with workplace pensions that will cover living costs and annual holidays. My question is: when do I cash in the assets from our ISAs? 

We have paid off our son's mortgage and want a clue when to realise our various ISAs. For people with humble beginnings it is difficult to spend, as we were conditioned to save for our old age.

A: You’ve clearly managed your money well throughout your working life, with pensions covering essential living costs and ISA funds in reserve. Many people your age face a far more uncertain future. 

But your question highlights that financial planning isn’t just about number-crunching and tax rules — it also involves emotions. In this case, it's about the challenge of switching from a ‘saving for tomorrow’ to a 'spending now’ mindset. You’re not alone in feeling this and, as you point out, this hesitancy may be more likely in those who started with little and were taught to be cautious with money. 

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There’s no right or wrong answer to your question, but there are some useful things to consider. At 68 and 67, you hopefully have many years of retirement to enjoy, so you may not want to spend the money all at once. That said, people’s health can begin to decline in their later 70s and beyond. Think about how you’d like to use your ISA funds — whether for home improvements, new hobbies or a more extravagant holiday — and discuss with your wife whether it makes sense to do this now or wait a few more years. 

You mention your pensions cover an annual holiday, but many people choose to travel more extensively in the earlier years of retirement — perhaps going further afield or taking longer trips. Bear in mind that as you age the cost of travel insurance can rise significantly, even if you stay in good health. So, if you’re planning a big trip, there may be a good case for not putting it off too long.

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Also, remember that you don’t have to cash in your ISAs all at once. Withdrawing funds in stages may allow you to enjoy some of the money now, while keeping a reserve for future needs. Money taken from an ISA is not subject to income tax, so it’s a very efficient source of retirement spending. 

Family might be another consideration. If people die without using their ISA funds, these are usually passed on to children or grandchildren, where they could be subject to inheritance tax. If you expect the value of your total estate means you might pay this tax, there may be an advantage to spending or gifting some of these ISA savings sooner rather than later. If you gift the money and survive a further seven years, it will fall outside your estate for IHT purposes. An added bonus is the chance to see loved ones enjoy your generosity and making the most of this money during your lifetime. 

• Read: IHT on pensions to push wealthy families into 80% plus tax 
• Read: Who should really be the target of Inheritance Tax?
• Learn more about passing on your wealth

Balanced against this is the need to consider future care costs, which can be very expensive. Ring-fencing some ISA funds for this purpose can give you peace of mind — and perhaps make you feel more comfortable about spending some of these ISA savings in the short term. 

Whatever you choose to do, it’s important to remember that cashing in an ISA isn’t wasteful or indulgent: this is what the money is there for. You no doubt contributed to these savings plans to ensure you and wife have a good retirement so perhaps it time to start putting these savings to good use.   

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Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Eligibility to invest in an ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.