8 Preparing for a long retirement
You should now know where you stand financially with your plans for retirement. Ideally your forecast pension income will at least meet your forecast spending. And if not, you’ll now be aware of the options you have to cover the shortfall.
As you get older there are other money related matters you need to consider to give you and your family peace of mind.
Planning for inheritance
It’s a good idea to make a will so you can decide who to leave your money, property and possessions to. If you don’t have a will the law dictates who gets everything. Pension plans usually have arrangements to pay some of your pension to a spouse or other dependents, so it’s important to check that you have given your pension provider up-to-date details of your dependents.
If you die aged under 75, anything that is left in your pension pot – meaning anything that has not been used for your pension income via drawdown or an annuity – can normally be passed on tax-free to beneficiaries. If you are 75 or over, what is left in your pension pot can still be passed on, but the beneficiary would be liable to pay income tax.
A link is provided at the end of the course to learn more about making a will.
Increasingly, people are also giving ‘living inheritances’. This refers to when you give beneficiaries money, property or other bequests while you are still alive. Some people use equity release for this purpose. Again, there may be tax implications with this so it’s important to get advice.
Planning for care
It might seem a long way off, or you might think it will never happen to you, but it is worth understanding a bit about the potential consequences of long-term illness or infirmity, and what financial support you can expect from the government in these circumstances. While approaching retirement this knowledge may help you in arranging care for your own parents or other older relatives. But the knowledge gained might eventually help you too – but do look out for any future changes to government policy on social care and their impact on you. At this point, you could think about what you would do if you had to pay for residential care now. Perhaps equity release could help here if this has not been used previously?
Planning for decision-making in later life
You might also want to consider putting in place a lasting power of attorney (LPA) to enable others – usually family members – to take decisions about your finances or well-being if you’re unable to do so. As you get older you may experience cognitive decline or dementia, making it difficult to make complex financial choices. LPAs do not come into effect until necessitated but save your family or others having to go to court in order to manage your affairs. You can find out more about powers of attorney via a link provided at the end of the course.
This reality of ageing also means that active financial planning and decision-making can become challenging. It may, for example, mean that a guaranteed income rather than an investment-backed product may be better in later life.
It’s understandable that people may shy away from or postpone making these arrangements. Once made, however, there is the comfort that you’ve made sensible preparations for the future and taken control of your estate’s future.