Simple mistakes can put your client’s retirement lifestyle at risk
Is it possible that spending money is harder than saving it? For many clients, the answer is yes.
Accumulating wealth for retirement is relatively straightforward, Clients earn, save, working towards a goal. But once they stop building wealth and start spending it – the decumulation phase – there are new risks, emotions and decisions to cope with.
Decumulation brings a new set of challenges, from market risk and tax planning to behavioural biases and longevity. Without the right strategy, even well-funded retirements can come under pressure.
Here are some of the most common mistakes retirees make – and where your advice can make all the difference.
Too much, too soon
It’s no surprise than many newly retired clients will want to splash out to celebrate or treat the first ‘active’ decade as one long holiday. At the very least, assume their existing lifestyle can continue unchanged.
The challenge is that their retirement pot may have to last 30 years plus. Withdrawing too much in the early years is one of the most common errors made by retirees and can be especially damaging if it collides with sequencing risk. If markets fall early in retirement, large withdrawals can lock in losses and permanently reduce the portfolio’s ability to recover.
A withdrawal rate of 3-4% a year in retirement is still considered sensible and sustainable, but sticking to a fixed withdrawal amount can be a big risk. There is no magic number. The key is to help clients remain flexible, adjusting withdrawals in response to market conditions, longevity expectations, fluctuating inflation and so on.
Being too conservative
Some clients make the opposite mistake.
After decades of saving, retirement can trigger a response to feel safe, leading them to move too much into cash or lower-risk investments. While that many feel reassuring, it can increase exposure to inflation risk and longevity risk. The slow erosion of spending power might only become visible after a decade, by which time it’s too late to do anything about it.
Of course, cash feels safe and it’s essential for liquidity and short-term needs, but holding too much cash can be measured by the returns they miss out on.
There’s also a danger of suffering sequencing risk in reverse. If markets perform well early in their retirement, but your client is holding too much cash, they miss the compounding that could have supported later withdrawals. Missing early growth can be just as damaging as suffering early losses.
Poor tax planning
Tax strategy doesn’t stop at retirement.
Poor tax strategy can cost clients tens of thousands of pounds over the course of retirement. Deciding when to draw from pensions, ISAs and other assets can significantly impact both tax bills and long-term stability.
Professional advice is just as important during decumulation as it is during accumulation. In many cases, it's what helps clients keep more of the money they've worked so hard to save.
When emotions get in the way
Many retirees struggle with the mindset shift from saving to spending. They feel guilty about withdrawing money and worry that their discretionary spending is “too much”.
Behavioural biases often intensify in retirement. Loss aversion can increase as retirees worry about running out of money, leading to under-spending, over-saving and a too-cautious investment approach.
Market volatility can trigger increased anxiety, amplifying the risk of panic selling and a dash to cash that then becomes much harder to reverse. Sitting in cash reduces anxiety but that emotional comfort can become a trap. The emotional weight of decisions like that means they’re often put off.
All this means that achieving a sustainable decumulation strategy is as much about emotional planning as financial planning.
Don’t overlook guaranteed income options
Guaranteed income solutions such as annuities aren’t right for every client, but a partial annuity could help to manage risk and provide a stable, predictable income to cover essential spending. For some retirees, this can offer valuable emotional reassurance because that stream of income is not then dependent on volatile markets.
Interest in annuities is certainly on the rise. According to the latest data from the ABI, the amount paid into pension annuities in 2025 reached its highest level since pension freedoms were announced in 2014¹. Rising annuity rates, which improve the amount of income you receive, are one reason why they’re getting more attention. Another key incentive is that pensions will be subject to Inheritance Tax from April 2027, encouraging retirees to opt for a guaranteed income without the worry of leaving their loved ones a potentially big tax bill.
Retirement isn’t ‘set to forget’
Retirement isn’t a one-off event. Decumulation requires continuous monitoring because so many things change during the retirement phase. Spending patterns will vary, health and family circumstances will change, markets will fluctuate.
The value of professional advice is as much about helping avoid bad decisions as it is about making the right ones. That’s why it’s so important for retirees to review their income strategy regularly to avoid slipping into an unsustainable withdrawal rate, for example, or to ensure they don’t miss opportunities to rebalance their pension pot or optimise tax planning options.
A flexible, well-managed decumulation strategy can make all the difference between simply having enough money in retirement and having the confidence to enjoy it.
¹ ABI Quarterly Individual Pension and Bulk Annuity Data, February 2026
This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity.
Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.
