Later Life Planning... where to start

By James Cole, Managing Director, Talis IFA

In many respects, financial planning in ‘later life’ is no different to other life stages – think about what you want to achieve (your goals and aspirations), then consider what financial resources you have at your disposal to make it happen. Mitigate any risks that might derail your plans along the way and make sure that you’re doing all of this in the most tax-efficient way possible!

Simple, right?

Well, yes and no. If you’re reading this publication, you already know that a multitude of external factors will influence your decisionmaking let alone the action you take as a result. In later life, there are two specific factors that we will address in this article.

First, increasing age inevitably means more help which can look like a stay in a care home, and second, the distribution of assets that we leave behind starts to feel much more real to us and our loved ones.

In truth, none of us knows when our time on this planet is up. The risk of accident or ill health could affect any of us. However, the longer we live, the greater the reality that it won’t be forever. Ironically the two factors mentioned above actually compete for our attention; greater wealth means you can afford to pay for the help you might require which in turn can mean a smaller legacy to leave behind.

Each of us feels differently about leaving wealth to future generations with the likes of Bill Gates and Warren Buffett famously declaring that most of their fortunes will be left to charitable foundations. We also attach sentimental value to certain assets, elevating the family home above cash in the bank, for example.

So first and foremost, it can be really helpful to get clear in your own mind if you’re up for ‘spending the kids’ inheritance’ (ski-ing!) or preserving wealth by whatever means necessary. In either case, don’t delay – book the flight and take the holiday, or start transferring assets that you can reasonably afford to live without right away.

Care-fees planning

The cost of care in later life can certainly be eye-watering and successive governments have repeatedly failed to get to grips with the implications of an ageing society. Right now, there is a tug of war between the NHS, local authorities and private care providers that many of us have experienced firsthand.

There is a growing trend of buying in-home care for as long as possible which can be an attractive option. You still have all the costs of running your own home, but the additional cost of care is modest compared to moving into a facility that charges for the accommodation as well as the care.

Under current legislation, you are responsible for the cost of care until your assets are depleted to just £23,250. If you own a house in the Southeast, the value of other assets is probably irrelevant. The local authority will also take account of your income so if you are fortunate enough to have a very large pension, you may find yourself ineligible for much support at all.

At the point care is required, there are two distinct options – simply fund the cost from your income and capital or secure an insurance policy (known as an annuity) to offset the risk of running out of money.

The average stay in a care home is around two years so buying an annuity from an insurance company often represents very good value for money especially if it is index-linked to take account of rising fees in the future.

The great wealth transfer

It is estimated that over £5tn (five trillion pounds!) will flow from baby boomers to younger generations over the next three decades. Undoubtedly much of this wealth is held in houses, but pensions and investment portfolios can be worth just as much or more.

Inheritance tax (IHT) is famously described as an optional tax because there are so many ways to mitigate against it. Of course, if it was that simple the Office for Budget Responsibility (OBR) wouldn’t be predicting IHT receipts of £7bn in 2023/24 and £8bn by 2027/28. One of the reasons for this is that many people defer decision-making until it is too late or fail to understand the rules in sufficient detail, perhaps thinking that no action is required.

Given that most estates don’t pay IHT, it is perhaps more important to consider how your assets are distributed and ensure that they go to the people you want to benefit. With an increase in ‘blended families’ and a persistently high divorce rate, it is easy to imagine that your hard-earned wealth might be shared more widely than you had anticipated.

In short, as we approach ‘later life’ it is essential to strike the right balance between using your wealth to enjoy your final years, and protecting any surplus for those you care about most. Ignoring these issues can be costly, but talking to a suitably qualified professional will help you prepare with confidence.

To find out more about how Talis IFA could assist with later life planning or any other financial advice please get in touch on 01233 722999 or visit www.talisifa.com