How to fund your retirement and beyond

With inflation riding high over the past few years, the cost of living has risen across many areas of our lives. One consequence is that it’s even more important to take control of our long-term financial futures.

A typical experience for many people is that they have a certain level of spending in the first phase of retirement when they’re enjoying everything life has to offer. This then starts to taper when they reach their mid to late 70s, as they tend to spend less on things like travel and going out. This spending dip could compensate for the costs of care should you need it, including care home fees.

How much will you need to fund your retirement?

Your answer will depend on the income you are used to and what you want to do. As a guide, the Pensions and Lifetime Savings Association has worked out how much on average a couple or single person will need to support their retirement each year, whether their living standards are minimum, moderate or comfortable. Don’t forget these figures are rising steadily due to inflation and so will almost inevitably be higher by the time you retire¹.

1.  https://www.retirementlivingstandards.org.uk/

Later life care costs

The difficulty with care fees is that you don’t know whether you or your partner will require care – or when. However, it is possible to include potential figures in your personal financial forecasts. The Department of Health and Social Care estimates that one in seven people will face costs of more than £100,000 for their later life care. For about one in ten, it will cost above £120,000 over their lifetime².

Here are some key areas that you could start thinking about now:

— Pre-funding the costs of care to ensure your lifetime care needs are sustainable

— Keeping loved ones informed and involved in your decisions

— The type of care you would like, which meets your needs and expectations

— How your choice of care will affect your ability to pass wealth to your children

When planning for your long-term care needs, professional guidance from a financial planner can help you make decisions that remove some of the financial stress for you and your family during what could be a difficult time. Cash flow planning can also help the process by looking at how much money you have and considering potential future expenditure and budgeting. 

How your financial planner can help plan financially for later life:

There are some options your financial planner can help you explore, including investing in a portfolio of shares that quality for Business Relief, which will fall outside your estate for IHT purposes after two years. The benefit of this approach is that you can still sell the shares if you need the money in later life. 

Other questions you may want to discuss with your financial planner include:  

— Have you considered using the capital locked up in your property to meet your future care needs?

— Are you postponing helping loved ones financially because you are concerned about your future care costs?

— How much capital have you earmarked to meet your care needs?

— What state benefits could you claim?

— How will your capital support your income to meet changing care needs?

— Should you consider a care annuity to preserve your choice of care and capital?

Decisions you make based on these questions could be influenced by any number of factors, depending on your financial situation. By starting the planning process sooner rather than later, you’ll be able to take some time to ensure you’re making the best choice for you and your loved ones, both emotionally and financially. 

Passing on wealth to your children

If you want to reduce the inheritance tax liabilities on your estate then you’ll need to think about striking the right balance between putting money away but not losing control in case you need it.

One option your planner can help you explore is setting up a trust. A trust is a way of maintaining control of assets while potentially removing them from your estate. Some provide access to income and capital, but all provide a sense of control. It's important to seek professional advice. 

We’re here to help you prepare financially for later life, as well as other issues related to managing your money. You might like to read our blogs on how to mitigate inheritance tax and ensure the next generation is best equipped to be financially literate. Or please contact us if you’d like to speak to one of our financial planners.

Sources:

2. www.gov.uk/government/consultations/operational-guidance-to-implement-a-lifetime-cap-on-care-costs/operational-guidance-to-implement-a-lifetime-cap-on-care-costs