Are your clients ready to spend their retirement savings?

Turning pensions savings into retirement income

For financial advisers, retirement planning has traditionally centred on one major question: has the client saved enough? That remains important, but today, retirement introduces a different challenge. Once employment income stops, clients must turn their pension savings into an income they’re both able and willing to spend.

As an industry, our thinking may have become too narrow. We’ve done a good job of simplifying accumulation, but we’ve also created default thinking around decumulation, with the ARF becoming the default product.

That’s understandable. For years, low annuity rates made annuities appear poor value, while Approved Retirement Funds (ARFs) offered flexibility, control, continued investment exposure, access to capital and tax planning opportunities. Those features remain valuable. However, the logical appeal of continued investment doesn’t always align with how clients behave once employment income stops.

On paper, many retirees look financially secure. In practice, advisers continue to meet clients who fear running out of money, hesitate to spend, and feel uncomfortable drawing on wealth they spent decades building. This isn’t confined to smaller pension pots – it can be just as common among clients who are considered comfortable.

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The risk of underliving retirement

Many retirees fear running out of money more than they value the benefits of spending it. The fear of spending on holidays, experiences or family feels irreversible, while waiting another year feels safer because the decision can always be revisited.

They wait for markets to improve or for their fund to feel more secure. But one year can easily become the next, and retirement can pass without them enjoying the money they worked hard to save. Advisers spend considerable time discussing the risk that a drawdown fund may run out during a client’s lifetime, but far less time considering the risk that the client may never use money they could reasonably afford to spend.

This behaviour is linked to a difficult transition. For 30 or 40 years, clients earn, save, protect capital and delay gratification. Then, almost overnight, retirement asks them to do the opposite: live without a salary, draw on accumulated assets, and trust that the money will last.

For many, the pension pot stops feeling like a source of income and starts to feel like savings, or a rainy-day fund that must be protected. Minimum drawdown then becomes the default, even where the original reason for choosing an ARF was flexibility and access.

One pot for different spending needs

A retirement pot is rarely there to serve just one purpose. In practice, it should do several jobs at once:

• Cover the essentials – day-to-day living
• Discretionary spending – improving day-to-day life
• Lifestyle – experiences, travel, the things a retiree wants this stage of life to include
• Legacy – the freedom to choose to help family

However, clients often see only one pension pot, one balance and one withdrawal rate. Everything is protected in the same way.

In trying to protect both the foundation and the legacy, the middle gets squeezed. Holidays, richer day-to-day experiences and helping family while it matters are repeatedly deferred. That is what underliving retirement tends to look like.

Annuities deserve a wider conversation

Annuities have traditionally been associated with cautious investors and clients who value certainty. But they can also suit clients who find it difficult to switch into spending mode. Using part of a client’s retirement fund to buy an annuity can provide reliable income and the confidence to use the remainder of an ARF more freely.

Beyond the security it provides, a partial annuity can often strengthen the value clients receive from their retirement savings. For example, a €500,000 fund used to buy an annuity for a 65-year-old annuitant with a five-year guarantee and a 50% dependant’s pension would provide €28,963 a year at a rate of 5.793%. The same fund in an ARF, drawing the minimum of 4%, would provide €20,000 – a difference of almost €9,000 a year. A partial annuity can therefore do two jobs: offer value and give the client confidence to use the rest of the ARF properly.

Of course, rates can change, product features need to be considered, and individual circumstances will determine suitability. The broader point is that guaranteed income can provide more than financial security. It may also offer both value and behavioural benefits by buying income efficiently while helping the client feel comfortable using the assets that remain invested.

A retirement income philosophy for advisers

The starting point is not a product contest, but a retirement income philosophy built around how the client expects to live. Advisers can separate essential, discretionary, lifestyle and legacy objectives; identify the income already guaranteed; assess the client’s capacity and willingness to accept investment and longevity risk; and then determine the balance of certainty, access and growth that best supports those objectives.

The adviser’s role is not simply to help clients fund retirement; it’s also to help them live it well: spending comfortably and enjoying the wealth they’ve spent a lifetime building, while retaining appropriate safeguards for later life and legacy goals.

That may require clients to accept that a pension fund reducing over time is not necessarily failure. In many cases, it is the fund doing the job it was built to do. It may also mean making a small number of considered, deliberate choices upfront rather than repeatedly choosing not to spend.

So it’s worth considering the role of guaranteed income for every client, not as a product default, but as a way to unlock the flexibility of the ARF. Then adapt the solution to the person, their behaviour and the life they said they wanted.

Minimum may be the default. But a retirement plan should do more than preserve the pension; it should help clients live the life they built it to support.

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If you’d like to explore how approaching retirement income in this way can support your client conversations, please speak to your Standard Life Business Manager.

A version of this article is available to read in the October 2026 edition of Irish Broker Magazine.