Despite the great news that we are living longer, it is important to note that with increased longevity comes additional financial risks. Statistics show that typically, people now have around 20 plus years in retirement (from the age of 65). But the research suggests that on average, men underestimate their life expectancy by almost four years, and women by two years (Aviva). One in three individuals born today will live to 100, and this group underestimate their longevity by an even greater margin.
As we get older, the quality of our decision-making tends to decline as cognitive ability inevitably reduces. This suggests that conversations about the risks of ‘living too long’ and the need for careful planning should start relatively early. Flexibility and contingency measures such as having an Enduring Power of Attorney and an up to date Will are fundamental.
The pension reforms of 2015 mean that we now have greater flexibility and choice when accessing pension savings, which offer planning opportunities if properly advised. Conversely, mortality drag means drawdown investments must work harder as investors age to provide the same level of income as an annuity. Drawdown investors don’t have pooled risk in place and if they lose cognitive ability they need to ensure that their affairs can be dealt with properly.
A well advised investment strategy that aims to achieve real income or capital growth can help provide for a fulfilling retirement. Also important is the understanding of the impact of inflation on cash savings.
Financial priorities tend to develop throughout retirement from the early years of lifestyle maintenance and improvement to considerations on estate planning as we move into later life. For many the latter includes planning for the potential impact of care fees or reducing the Inheritance Tax burden for their beneficiaries.
There are a number of well-established estate planning strategies to reduce or potentially eliminate the amount of Inheritance Tax a family are required to pay on their estate when they die. Examples include gifts, trusts and making the most of investments that qualify for Business Property Relief (BPR).
An experienced accredited later life adviser will understand all the options for funding care, insuring against longevity risk and preserving wealth for the next generation.
At Succeed Wealth Management we are proud to be fully accredited members of the Society of Later Life Advisers.
Chartered Financial Planner