You’ve spent a lifetime saving – now what?

You’ve planned, sacrificed and saved. You’ve skipped holidays to top up your ISA, passed on pay rises to boost your pension contributions, and ridden out market storms with discipline and grit. Now you’re on the brink of retirement with a healthy pension pot … but you’re not sure how, or even if, you should start spending it. "What if I run out? What if I spend too much too soon?"

These are all valid fears – especially as we’re living for longer. But it’s not just about the numbers. It’s psychological – and on a deeper level than the fear of being able to make your pension pot last as long as you do.

The saver identity can be hard to shake

When you save for years, it becomes second nature. For many, it’s more than a healthy habit – it’s become part of your identity. Switching from saving to spending isn’t easy for everyone – it’s as though being a ‘saver’ becomes part of who you are.

Psychologists often refer to this as identity consistency – we’re wired to behave in line with how we see ourselves. So when ‘saving’ becomes part of your self-image, spending can feel almost … wrong.

But remember – spending isn’t reckless, it’s why you built your pension pot in the first place.

Why spending feels like a loss

Behavioural finance offers some clues to this. There’s a well-known concept called loss aversion – where the emotional impact of losing something feels greater than the equivalent gain.

So, when you start drawing from your pension – even if you’re doing it wisely – it can feel like a loss, even when it’s not.

There’s also ‘scarcity bias’ – the sense that a limited resource (your pension) makes every withdrawal feel riskier, prompting thoughts like, ‘What if I spend now and need it later?’

It’s no surprise that many retirees underspend in the early years – sometimes missing out on the very experiences they worked so hard for.

5 tips to help you to spend with more confidence

You don’t need to throw caution to the wind. In fact, spending confidently means having some guardrails in place. Here are a few ideas:

1. Think about using the 4% rule as a starting point

This well-known rule of thumb suggests you withdraw 4% of your pension pot in the first year of retirement, then adjust for inflation each year. Analysis suggests that this way you won’t run out of money over a 30-year retirement even in the worst-case scenario.

It’s not perfect – and it’s based on US data – so the ‘right’ rate may be higher or lower for UK retirees depending on markets, inflation and your circumstances. But it’s a useful starting framework.

• Read: The 4% rule: the basics
• Read: ‘Mr 4% rule’ identifies the key risk for pension investors

2. Learn what sequencing risk is

This is the danger of withdrawing money during a market downturn. If the value of your investments falls early in retirement and you’re taking regular income, it can have a long-term negative effect.

Keeping enough short-term income in cash and making sure your remaining pot is invested for longer-term growth can help reduce this risk.

There's a really useful section in our principles for good investing about sequencing risk.

• Read: Understand what sequencing risk is

3. Divide your pension pot into categories – spend like a wise OWL

It might help you to think about your spending in categories:

• O – Obligations: housing, bills, food.
• W – Wishes: travel, hobbies, fun.
• L – Legacy: gifts, inheritance, charitable giving.

Knowing you’ve got the essentials (obligations) covered can help take the guilt out of spending – whether that’s on yourself or passing it on down the line.

One way to ease the worry about covering life’s essentials is to make sure the income to pay for them is guaranteed. An annuity can do this – and with interest rates currently higher, annuities are more favourable than they’ve been in past years. The State Pension also plays this role, giving you a reliable income foundation. With your ‘obligations’ secured, you can keep the rest in a flexible drawdown arrangement to support your ‘wishes’ and ‘legacy’. Some annuities even rise with inflation, though these start with lower initial payouts. Just remember that annuities are permanent purchases, so make sure you do your research thoroughly.

4. Check in on your spending

Don’t set and forget about your retirement withdrawals. Review your plan once or twice a year, or sooner if something major changes. Remember – your pension withdrawals (beyond your tax-free allowance) are subject to income tax, so factor this into your plan.

5. Don’t forget our useful tools and calculators

Our retirement and pension calculators give you valuable insights to help you plan, save … and spend. They let you test different scenarios, so you can see what’s realistic for you and adapt your plan as life evolves.

• Use our retirement and pension calculators

Success in retirement isn’t about clinging to your pension pot until your final days. Life’s for living and hopefully these tips give you some confidence to start spending – without the guilt.

Help is at hand – consider financial advice

If doing the right thing by your pension feels like too much to take on by yourself, you might like to think about financial advice.

The government’s Pension Wise service offers free, impartial guidance to help you understand your options at retirement. You can access the guidance online at www.moneyhelper.org.uk or over the telephone on 0800 138 3944.

If you’re looking for personalised financial advice and have over £100k invested (this includes your pension) our financial advisory service can help. The initial conversation with a Fidelity adviser is free and there’s no obligation, it’s simply a chat to see if financial advice might be right for you.

• Learn more about financial advice.
• Read: How 4% inflation could derail your retirement
• Read: 6 ways to fix your finances for the 100-year life

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. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). 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.