There comes a time in life when you have to flick the spend/save switch from saving to spending. If you have been careful with your money during your working life, it can be hard to spend and watch your savings dwindle. Spend too much and you might run out of money; spend too little and it will be your children who get the benefit of your life savings.

There are three phases to retirement which each have different spending requirements:

• The Live It Up phase where you travel, enjoy sports and participate in community activities
• The Fix It Up phase during which the house needs renovating inside and out, you need a new car, and various body parts need replacing (hips, knees and hearing aids)
• The Wind It Down phase where issues such as home help or moving to a rest home become important

Making the right decisions about how much to spend and when can be difficult. The three major risks to be considered are:

• Timing. It is hard to judge when each of the three retirement phases will start and end. Spending too much in the Live It Up phase may leave you short by the time you get to the Wind It Down phase.
• Longevity. With improved health care, people are living much longer in retirement and there is an increased risk of running out of money before you run out of time.
• Inflation. The longer you live, the greater will be the impact of inflation on your savings. With 3% inflation, the purchasing power of your money will be almost halved after twenty years.

The best approach is to plan ahead as far as you can and steer the middle course of living in comfort rather than poverty or luxury.