We’re living longer.
This has big implications for how we plan our finances for our old age.
Life expectancy has increased to the point that men aged 70 today can now expect to live until age 87 and women until 89. That’s between seven and nine years longer than for people in their 80s today, and this could mean that many people’s finances are not ready to support these longer lifespans.*
Here are the things you need to think about as you build a retirement plan that will meet this challenge.
Pensions and ISAs – the right mix
In an ideal world, you would arrive at retirement with both a large pension and considerable savings in other vehicles such as ISAs. You could then choose where to derive your income from to suit your needs and tax position at different times.
For example, because pensions can be passed on to beneficiaries free from any inheritance tax, you may want to start drawing your retirement income from your ISA to preserve the value of the wealth you pass on to your heirs in a tax efficient manner.
You can use all or part of your pension pot to buy a guaranteed income for life (also known as an annuity) with an insurance company.
This brings peace of mind, but there are sacrifices as well – for example, they are inflexible and your investment will no longer grow.
According to the Office for National Statistics, we will spend at least 16-19 years on average in ill health, with the majority of this taking place after retirement **.
This sobering thought means that it is wise to factor in potential costs for residential or home-based care into any long-term savings strategy.
Most people have most of their wealth tied up in their property.
Many people would assume the only way to access this would be to sell the property.
However, there are other options available including equity release products that can pay you either a lump sum or regular income in return for a share in your property that is repaid from the sale of the property when you pass on.
As we get older, it becomes more likely inheritance tax will enter the conversation.
After carefully organising your finances so you are able to pass your wealth to your heirs, it would be a shame not to approach inheritance tax sensibly.
To maximise the wealth you pass on to your chosen you may consider using your annual gift allowance or making lifetime gifts.
The rules are complex, so it is very important to seek professional advice from a financial planner.
To find out more about how Brewin Dolphin can help you answer these questions, request a callback today.
The value of investments can fall and you may get back less than you invested.
Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.
Past performance is not a guide to future performance.
No investment is suitable in all cases and if you have any doubts as to an investment's suitability then you should contact us.
The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.