Discretionary vs non-discretionary spend

One rather obvious item which you need to understand after stopping work is how much your annual outgoings are going to be for the remainder of your life.

Quite often the advice on this topic is rather flimsy, usually boiling down to estimating an annual amount needed at the start of retirement which you maintain linked to inflation. There are issues with this approach however:

  • State pension kicks in, reducing the amount needed to draw down from assets
  • You likely slow down spending in the last 50% compared to the first 50%
  • Unknown care costs exist toward the end of life.

Although you can adjust the annual projections to model these scenarios, it’s a bit complicated and ultimately a guess. It’s much more flexible to split spend into two buckets: discretionary and non-discretionary spend.

Non-discretionary spend are the non-negotiable lifestyle aspects which you want to uphold for the remainder of your life. As well as the basics like food, insurance, energy, clothing etc, it will also include things like house repairs, hobbies, socialising etc. If you want two holidays a year in a particular location, this goes in also.

Once you have this number, it will be stable for the remainder of your life, increasing only by inflation. You can swap certain items within your lifestyle, for example you could forgo a holiday to buy a computer, but you cannot increase your lifestyle spend above that non-discretionary amount.

Discretionary items are just that. They are things you can live without and you decide whether you want to incorporate them. A holiday may well be non-discretionary, but a 4 month luxury trip to India would be considered a discretionary item.

The key feature of discretionary spend is that it is entirely unpredictable. There’s certainly no earthly reason why it is the same every year. For me, in 2021, mine was £26,000. In 2022 it was £0. In 2023 it was £23,000. The bulk of that was two new cars which won’t be repeated for at least another decade.

So, drawdown of assets in retirement needs to recognise the variable nature of overall spend. I’ll be writing more detailed posts on this topic, but essentially I hold four years of non-discretionary spend in cash and treat my surplus assets (total minus future tax reserve minus future non-discretionary reserve) to be entirely available for discretionary spend whenever I choose.

So, this means I could blow all my surplus funds today on a single purchase. However, I’d have to accept that the remainder of my life would only be within non-discretionary limits.

This gives a flexibility to make every discretionary purchase on it’s own merits and priorities.

Read more on this topic . . .


I am not your financial adviser.

The information in this post relates to my financial journey. It may or may not be relevant to your own. You need to make your own decisions on your own financial strategy.

Do not buy or sell anything based solely on what you read.