Time to enjoy everything you have worked for!

If you’re retired or semi-retired, you’ll most likely be focusing on enjoying life but also keeping a watchful eye on your money. You might even have started to think about passing something on to loved ones. Here are a few tips to help with your later-life financial plans.

• Will I have enough money in retirement?
• How can I avoid paying too much tax?
• How can I pass on my wealth?

Life after work

You’re ready to enjoy the money you’ve built up over the years. Work can be a burden, a blessing, or both, but you’ve earned the right to put your feet up, as you see fit.

Most of us spend years looking forward to retirement, but approaching it can be stressful for many. Having confidence in your financial decisions can go a long way providing peace of mind and living your dream retirement.

Structuring your retirement income — the mystery of decumulation

‘Decumulation’ is simply taking your savings to provide an income stream in retirement. As you will no longer earn a regular income, you’ll be relying on your accumulated savings – whether that’s across investments or pensions – to finance your retirement. You could benefit from talking to a financial adviser to help you create your own decumulation strategy.

Making your money last 

Even if you have plenty of money, there’s always the worry that you might not have enough. It’s an understandable concern. Retirement cash flow modelling can help to alleviate your concerns about your retirement income. It is key to a happy and secure retirement.

It’s about bringing together many elements: the rate of drawing down your savings, how your investments are performing, your living costs, your plans, your health, your planned legacy and external factors like tax and inflation. These combine to build a picture of your finances now and in the future. 

You can work with a financial adviser to create your retirement cash flow planner and illustrate your financial situation and whether you will have enough money in the future.

Stay proactive 

Funding your retirement, nurturing a sustainable income, possibly peppered with a few lump sums is challenging. Particularly with a complex range of investment products to choose from. 

You’ll need to be proactive about carefully choosing your investments and investment vehicles. If you want to maximise your returns and minimise income and capital gains tax bills (tax you pay on the increase in value for assets you own), be aware of tax thresholds and aim to stay underneath them by spreading out your earnings. 

Or, if you’d rather spend your time on other pursuits, hire someone else to do it for you.

Show a healthy concern

People are living longer. In 2020, a 65-year-old man could expect to live to 85, while a woman could expect to live to 87.¹ Think about you and your family’s health history. 

Residential care homes in the UK have hit an average cost of £60,320 per year, while nursing home costs have averaged over £73,320 per year.² The high cost of care can be a worry, so you may like to bear this in mind when you’re planning and include it in your ‘you never know what might happen’ plans. 

Something or somewhere different?

Sometimes, a new phase of life calls for a new scene, usually with warmer weather.  If you’ve already retired, you’ll have plenty of time to explore your options for living abroad including what you’ll need to qualify for residency, currency rates, property prices, living expenses, tax and healthcare. 

If you’re considering moving abroad, taking advice early is important. Being prepared will help you avoid potentially expensive mistakes, with advice delivered from international centres in places like Jersey. They’ll be up to date with the latest regulations and issues and can help you overcome the challenges.

Prepare to pass it on

Take some time sooner rather than later to think about what you’d like to happen to everything you’ve accumulated over your working life, both financial and physical. Some decisive wealth transfers could be another type of decumulation.  

Would it be better to give assets or personal items away or sell them now or later? Keep in mind that inheritance tax may apply to anything you give away within the last seven years of your life.

Are you worried about how your partner could cope financially without you? If you’re the one who holds the purse strings in your household, make sure that all the financial paperwork is sensibly stored in one location. Take a look at the details of your pensions to see if your partner can inherit the proceeds.  

Talk about what you have in place, and if your partner isn’t inclined to money management, perhaps brief a suitable family member or a financial adviser who could take over if necessary.

Estate planning

If the value of everything you own (your estate) is more than £325,000, those who inherit may have to pay inheritance tax. There’s no tax to pay on anything you leave to your husband, wife or civil partner.³ 

Anything over the £325,000 inheritance tax threshold could be taxed. How much is inheritance tax? The standard rate is currently 40%. If you own your own home, your tax-free threshold could increase to £500,000 if you pass it on to your children. Or if your entire estate is worth less than £2 million.⁴

Get giving?

Even gifts you give in the last seven years of your life could require a tax payment unless it’s to your spouse. You can give away gifts worth up to a value of £3,000 each year as part of your ‘annual exemption’, which you can carry over for one tax year.

You can also give small gifts up to a value of £250 per person in a tax year. You’re allowed to give up to £5,000 tax free to a child, £2,500 to a grandchild and £1,000 to any other person in the year they get married or start a civil partnership.⁵  

If you’re making payments towards someone’s living costs, you can do this tax-free, provided it’s part of your normal regular spending. 

Inheritance tax planning is complex – you may want to contact a professional for estate planning advice. 

Set up a trust?

A trust is an arrangement for someone (a trustee) to hold property for the benefit of someone else. Some types of trusts are treated differently for inheritance tax purposes and a financial adviser could explore the potential benefits with you.  

There are various types available designed for different circumstances and some, such as a bare trust or an interest in possession trust, could work as an asset preservation trust. Different rules apply for different beneficiaries such as children, disabled people or charities. You’ll need to ask a solicitor to help set up a trust. 

Leave a legacy for a good cause?

You may like to give some or all of your estate to charities or towards causes you would like to support. If you leave anything to a charity or amateur sports club, they won’t have to pay inheritance tax. If you leave more than 10% of your assets to a charity, you could potentially pay inheritance tax on some assets at a reduced rate.⁶

Get ready to delegate

A lasting power of attorney (LPA) is a legal document that gives someone else the ability to make decisions for you. There are two types – one for health and welfare, and one for property and financial affairs. Financially speaking, it permits someone else to manage your bank and savings accounts, bills, pensions and the sale of your home.

Aim to set it up while you can still manage your own affairs, and leave it waiting in the wings until you feel someone else needs to take over.

You’ll need to choose your attorney and register the LPA with the Office of the Public Guardian. You can cancel or change an LPA at a later date.⁷ 

Update your will

Consider whether you need to update your will, if anything major changes in your life. For example, a marriage automatically cancels any previous will, as does divorce, or if the person you had asked to take charge of your plans dies.

A will can protect your loved ones and ensure your wishes are carried out after you die. You can even include details about what sort of funeral you would like and who you would like to look after your pets. 

Up to 60% of people don’t have a will.⁸ If you die without one, the law decides who will inherit your assets, and your family will have time-consuming administrative tasks to sort everything out.⁹

Prepare for unexpected upsets

There are upper age limits on many insurance products, but life and health insurance options are available that may suit you if you’re worried about easing the burden of sudden, unexpected costs. Make sure you compare prices and check that the policy does what you want it to.

Get in touch

Just because you may have stopped working doesn’t mean you can stop managing your money. If you’d like help with income drawdown, inheritance tax and anything else related to financial planning, speak with one of our experts.

Sources

1. Office for National Statistics - National life tables – life expectancy in the UK
2. Carehome.co.uk - Care home fees and costs: How much do you pay?
3. GOV.UK - How Inheritance Tax works: thresholds, rules and allowances
4. GOV.UK - How Inheritance Tax works: passing on a home
5. GOV.UK - How Inheritance Tax works: gifts
6. GOV.UK - How Inheritance Tax works: thresholds, rules and allowances
7. GOV.UK - Make, register or end a lasting power of attorney
8. Which? - Reasons for making a will  
9. GOV.UK - Applying for probate