Inheritance tax interest costs soaring for bereaved families
A little-known process for paying inheritance tax is sending payments soaring for bereaved families thanks to the Bank of England.
The issue arises where a family has an inheritance tax (IHT) liability to pay after losing a loved one.
The Government, to give families the ability to pay the liability without being forced to sell the assets such as home, offers payment by instalment.
But there is a little-known caveat to this which is sending payments soaring for many.
Interest rate hikes from the Bank of England are hiking these IHT payments. Families are obliged to pay an interest rate of the Bank of England base rate plus 2.5%.
This means the rate of interest on the instalments is currently 4.25% – higher than some of the best loan rates on the market.
How do IHT instalments work?
When inheriting assets from a loved one, the Government allows bereaved families to pay the IHT due on the value of their home over 10 years in annual instalments.
If you sell the house, you have to pay the liability in full straight away. The first instalment is due within six months at the end of the month in which the death occurs.
For shares and other securities, families can pay the IHT liability in instalments if the person who has passed away controlled more than 50% of the company.
How to minimise IHT costs
HMRC has seen a year-on-year increase in the number of estates paying IHT. This is because while asset prices have grown steadily over time, the Government has frozen the thresholds for paying the tax.
This means families become subject to liabilities, purely because the value of their assets are increasing to a point over the threshold.
Fortunately, there are good wealth planning solutions to mitigate the costs of IHT with regards to property.
A single person has no IHT liabilities on the first £325,000 of their assets. With the addition of the residence nil rate band this rises to £500,000 if the asset in question is your main home. The extra £175,000 is only available if the house (or its value) is being left to a direct descendant, (Children, Grandchildren, Adopted Children). So, if leaving to trust or to a sibling or nephew for example, it isn’t available. For a married couple this allowance effectively doubles to £1 million-worth of property if it is your main home.
However, once an estate reaches £2 million in value, the home allowance is removed by £1 for every £2 above the threshold. This effectively removes the allowance once an estate is worth over £2.3 million.
There are other strategies to help minimise the bill, including the way you structure assets, where you invest your wealth, and how you gift it away.
If you would like to discuss the themes in this article or would like more information on anything relating to inheritance tax, don’t hesitate to get in touch.
State Pension set to rise by up to 11% - here’s what you need to know
The State Pension is set to rise by around 11% next year, as the Government has committed to the much-debated triple lock.
The State Pension triple lock guarantees that the benefit for retirees will rise by inflation, wage growth or 2.5% – whichever is higher at the time of the update. This is set to be decided by the data in September, with the rise implemented from the new tax year, 6 April 2023. This will affect around six million retirees in receipt of the benefit.
11% rise?
On the basis of those three inputs, the State Pension is likely to rise by up to 11%. This is not guaranteed, but what is forecasted by the latest inflation expectations from the Bank of England.
This has been known for some time, but the Government cancelled the triple lock last year. It did this because wage data at the time in 2021 was abnormally high.
But unlike inflation, which is high for particular economic reasons, the wage data was unusually high thanks to problems with the Office for National Statistics (ONS) information collection during the pandemic.
That wage data has now normalised, but inflation is at record levels. Despite this, the Government has now reaffirmed its commitment to the rule, leaving State Pension recipients in line for a bumper benefit increase.
The Government has come in for criticism over its decision to uplift the State Pension in line with inflation, particularly because workers aren’t receiving such generous pay increases, per ONS data, nor is it hiking other benefits such as Universal Credit by equivalent amounts.
Cash terms
Those who receive the full new State Pension currently receive £185.15 per week. If you defer taking the State Pension, this weekly payment can be larger once you do start claiming.
Those who reached State Pension age before 6 April 2016 will get a different amount which depends on the basic State Pension rules.
In cash terms for those who are eligible for the full new State Pension, an 11% uplift would be around £20.60 per week extra, or an extra £1,071.20 per year. This would take the State Pension payment over £10,000 for the first time ever to around £10,699 per year.
While this is a relatively small amount compared to other areas of wealth and income, it does form an often-essential part of many retirees income, especially in later years of life.
For those with ample income from wealth, or even those who are happy to continue working later in life, deferring the State Pension can be a really effective way to build up extra earnings for later in life.
Despite popular imagination, the State Pension isn’t accessed from a pot of money someone works towards over their adult life. Contributions are measured through National Insurance payments by qualifying year. The more of these you build, the more State Pension you’ll accrue for retirement, until you reach the ‘full’ amount.
If you spend any time out of the workforce, for reasons such as caring for a relative, or perhaps if you care for your children full time, it’s really important to claim National Insurance Credits (NICs) to ensure when you get to retirement age you have the full quantity you need.
If you’d like to discuss this, or anything else regarding your wealth journey, don’t hesitate to get in touch.
Nationwide now offering 5% interest– is cash back?
Nationwide has launched a new offer of 5% interest on current account cash.
The building society has ratcheted up its interest rate on the FlexDirect current account to entice more customers through its doors.
The increase takes interest on the current account from 2% to 5%. However, the rate is only available for up to £1,500 for 12 months. At the end of the 12 months the rate falls to 0.25% AER.
You’ll also have to pay in at least £1,000 a month. Anyone who doesn’t already have a current account with Nationwide can switch using the Current Account Switching Service (CASS) and will receive a £100 bonus for doing so.
This combined with the interest will earn you £200 over 12 months with the account.
Best place for cash?
The Nationwide account will only take care of a small amount of money for you and isn’t practical for anything like larger savings amounts.
That being said, with the Bank of England hiking interest rates, cash is becoming more attractive.
The top rate on an easy access cash ISA is with Marcus by Goldman Sachs offering 1.3%. This is however still lower than the 1.5% rate that Marcus offered when it first launched in 2018.
For a one-year fixed cash ISA you can get 1.6% from Aldermore, two years 2.45% from Charter Savings Bank, or for five years 2.6% from Hampshire Trust Bank.
These rates are moving up regularly with the base rate rising but are still well behind the current level of inflation, which stands at 9.1% on the Consumer Prices Index (CPI) measure from the Office for National Statistics (ONS).
Is cash king yet?
With investment markets struggling this year it may be tempting to assign more wealth to cash, but ultimately this is still dooming money to devaluation, with such a big discrepancy between rates on offer and inflation levels.
The reality is that investments are still the best long-term method for growing wealth.
Cash is useful for an emergency fund. Holding some cash is also useful if you rely on wealth for your income, as having a pot of cash to draw upon in the short term is a good way of preventing the crystallisation of losses when markets are down.
But beyond this, cash really isn’t yet king. In fact, interest rate rises have a long way to run before cash savings become a viable method of storing long-term wealth again.
Note all rates quoted correct at the time of writing but subject to change.
RPI inflation change could cost pension schemes “billions”
Changes to the way that inflation is officially calculated could cost some pension holders “billions”, a challenge in the High Court has warned.
The challenge comes from representatives of the pension schemes of BT, Marks & Spencer and Ford UK and is attempting to block efforts by the Government to alter the way the Retail Prices Index (RPI) measure of inflation works.
What is RPI?
The Retail Prices Index – or RPI – is one of the oldest existing measures of inflation used by the UK Statistics Authority (UKSA) and Office for National Statistics (ONS) to calculate price changes in the economy.
It is however widely seen as an inferior measure, having since been superseded firstly by the Consumer Prices Index (CPI) and now Consumer Prices Index including Housing costs (CPIH).
CPI is often the most quoted measure in the media when we see news stories about rising inflation and such. But CPIH is generally perceived by statisticians as the most accurate measure of prices and the impact on households as it includes housing costs which form a large part of many people’s budgets.
Despite this, RPI is still used by many organisations to calculate price changes. This includes everything from student loan interest payments to rail fares, mobile phone, and broadband contract prices.
Why is the Government changing RPI?
RPI is widely seen as an inaccurate measure, often overestimating the true level of price inflation in the economy.
The impact of current high inflation levels is being exacerbated by RPI inaccuracy. For instance, in June the Government announced it would be capping student loan interest rate rises, as the RPI measure was leaving students facing a 12% rate on their debts. Instead, it is capping the rate at 7.3% to protect graduate incomes from greater financial pressure.
Instead of simply abolishing it, which would be a complicated process with many organisations reliant on the index, the Government intends to change the way it is calculated to align it with CPIH.
This would have the effect of softening the impact of the measure while not getting rid of it entirely. The change is set to take effect by February 2030.
High Court challenge
Now however, this decision is being challenged through the courts by the above-mentioned pension schemes.
Those schemes argue that changing RPI to match CPIH will costs the schemes, and their members, billions in lower returns.
These schemes see their values uprated by the rate of RPI each year and could wipe out valuable rises for members. For the BT scheme, for instance, some 82,000 members will see around £2.8 billion in value wiped out by the change, costing each member around £34,000.
The case also argues that the holders of £90 billion-worth of Government RPI-linked gilts will lose out in rises as a result. Pension schemes would be affected as these RPI-linked gilts form a large proportion of their holdings. The Government says it doesn’t intend to offer any compensation to such gilt holders.
Overall, the case argues, RPI-linked pension holders will see 4-9% of their pension values wiped out by the change.
How could it affect me?
While it is uncommon for most pension schemes to have RPI-linked increases, it is still possible and worth checking. It is also worth ensuring that portfolio holdings aren’t overly exposed to RPI-linked assets such as gilts, although the readjustment in value for these will have largely already taken place.
If you’re unsure of whether your pension, or any other assets, might be affected by the changes, don’t hesitate to get in touch with us to discuss.
Annuity rates hit eight-year high - are they worth considering again?
Annuity rates have reached their highest level in eight years. But is it time to consider this former staple of retirement income again?
Inflation is reaching multi-decade highs at the moment, and looks set to stay higher for longer. The upward spike in price rises caught many central banks, including the Bank of England, off guard.
As a result, the bank is hiking its core interest rate to combat those price rises. The organisation is mandated by the Government to keep inflation levels at around 2% – and it is currently nowhere near achieving this, with inflation measured by the Consumer Prices Index (CPI) at around 9.1% according to the Office for National Statistics (ONS).
For this reason, the Bank of England is intent on hiking rates, which currently stand at 1.25% – the highest level since 2009. This is where the rise in annuity rates comes in.
What are annuities?
Annuities are a form of retirement income product. Before 2015 when pension freedoms were introduced, they were a much more common product to opt for at retirement than today.
But a decade of low rates, and changes in the rules for accessing pension cash effectively killed the market.
When you purchase an annuity, you exchange cash in your pension for a product that pays you a guaranteed income, generally for the rest of your life. You can get different types of annuities – including level annuities which pay the same amount every year, escalating annuities which rise at a fixed rate each year or inflation-linked annuities which rise (or fall) with inflation.
The length of an annuity also varies, with short, fixed term or lifetime annuities. Impaired annuities also exist, which pay out at a higher level if you have any pre-existing conditions such as obesity or diabetes, or if you are a smoker. Protection can also be built into an annuity in the form of spouse’s income, guarantee payment period or value protection. Each of these options will affect the rate of annuity you can achieve.
Depending on the product you pick, you exchange the cash in your pension for a regular income.
Why are annuity rates hitting new highs?
Providers of annuities will typically take your money and invest in low-risk assets such as bonds. As bond yields have risen this year thanks to adverse investment market conditions, so annuity rates have also moved upwards.
Annuity rates are also rising because the bank rate is rising. These rates move in the same way as cash savings, rising with interest rates. Annuity rates are increasing at the quickest pace in 30 years currently.
Is it time to buy?
Annuities are looking like a more attractive option, and could feasibly be considered as part of a wider portfolio of investments. It could be an especially attractive option if your long-term life expectancy is short thanks to medical conditions, lifestyle or age.
As is the case for all wealth solutions, it makes sense not to put all your eggs in one basket. Annuities can provide some income peace of mind, but are also not very flexible, unlike investments that produce an income from other assets such as bonds or equities.
Pension freedoms, when introduced, were very popular for a good reason – giving retirees much more choice over what happens to their lifetime of wealth growth.
Annuity rates will also change again over time – it’s impossible to say whether they will continue to climb, or will reverse as markets normalise and inflation peaks.
If you would like to discuss your options, or for any queries in general, don’t hesitate to get in touch with your financial adviser.
Cost-of-living crisis scams – how to spot the latest tricks from fraudsters
Financial scams are more prevalent than ever, and scammers are finding evermore ingenious ways to part you or your loved ones from your money. The cost-of-living crisis has provided fraudsters with yet another way to try and swindle you.
And banks, which are now bound by a code of conduct for victims of scams, are becoming more unreliable than ever when it comes to handling those cases, according to an investigation by consumer group Which?.
While in many cases banks are now obliged to reimburse you for loss of money thanks to fraudsters, the process is by no means easy, and it can take a lot of time to recover stolen funds.
It’s therefore essential to know how to protect yourself in the first place, and to recognise some of the latest ways in which they try to fool us.
- Cost-of-living crisis scammers
This is a new type of scam which will often come through a text message, email or phone call. One of the biggest tools scammers have, is to weaponise anything that is being whipped up as something to be worried about in the media.
At the moment the scammers’ zeitgeist is the cost-of-living crisis. With Chancellor Rishi Sunak promising thousands more in support for vulnerable households, scammers will no doubt be trying to get in touch with people to steal their bank account details while purporting to be from the Government, your local council, bank, or any other institutions.
But the truth is that these cost-of-living payments are being made automatically, and in many cases you don’t need to make contact with any authority. Certainly, none will be in direct contact with you about it, so just ignore any supposed outreach!
For the recent £150 energy relief payments, if you haven’t had it yet, try giving your local council a ring, or look on their website for new information.
- Advance fee fraud
Another recent rising scam, which Lloyds Bank has warned it has seen a 90% rise in instances of, is advance fee fraud.
This is again likely coloured by scammer references to cost-of-living crisis help, or at least easy credit in the face of rising bills.
Advance fee fraud leads people to enter their contact details on websites which appear legitimate when looking to take out a loan or a credit card. The website will then ask for an ‘advance’ payment – which you will never see again.
Liz Ziegler, director of fraud and financial crime at Lloyds Bank, comments: “Organised crime gangs will ruthlessly exploit any change in consumer behaviour. We saw that during the pandemic with the surge in purchase scams as certain goods became scarce and more people shopped online.
“The important thing to remember is that a genuine loan company will never ask for an upfront payment before releasing the funds. If you’re concerned in any way about your finances there are lots of organisations that can help, and it always makes sense to speak to your bank first.”
Key here to spotting the signs of a scam is strange looking URLs in your internet browser, spelling mistakes or poor-quality logos on websites. Unfortunately, these scammers do often just mimic the official websites of normal financial firms, so being highly vigilant if you’re looking to take on any new debt is essential.
- Bank account bait-and-switch
Another rising bank scam, reported by many of the major banks, is a so-called ‘bait-and-switch’ scam.
Instead of trying to directly swindle you, the scammer will get in touch pretending to be from your bank to say your account or other financial details have been compromised. They will encourage you to move your funds into a family member’s or friend’s account ‘for safe keeping.’
Your money is safe at this point but the next bit of the scam – the ‘switch’ – will see the scammer get back in touch to say your new, safe, account is ready for you. At this point they get you to move funds and if successful, will have control of your money.
The really important thing to remember with this one is that a bank will never get in touch with you in this way. If a bank does contact you, it will be through official channels such as your app or by letter.
The first thing to do if you do have someone contact you is to cease the exchange politely then search out the correct details for your provider and contact them directly to confirm what the situation might be.
Families face inheritance tax bill shock thanks to house price boom
Home-owning families are facing surging inheritance tax (IHT) bills as house prices continue to rise precipitously, new data from Wealth Club shows.
Analysis from the firm shows that the average IHT bill will likely exceed £266,000 in the 2022/2023 financial year. This is thanks to fast-rising property prices in the past two years and represents a 27% increase on pre-pandemic levels.
House prices have risen spectacularly during the pandemic, with prices up 10% in 2021 alone, according to the Office for National Statistics (ONS). House prices are now slowing, according to Zoopla, but still rising around 8.4% year-on-year in March.
The simple fact is homeowners are increasingly falling into the IHT trap, thanks simply to having invested in buying their own home. IHT receipts for the Government have increased every year in the last decade and are up by 57% since 2012/2013.
What to do about IHT
Although there is essentially an unavoidable aspect to paying IHT and associated levies, there are mitigations that can be made to lessen the tax burden on your estate.
The nil rate band for IHT stands at £325,000 and hasn’t changed since 2011. There is also a residence nil-rate band of up to £175,000 over the initial £325,000.
If you’re married these rates can essentially be combined, meaning a married couple can pass on a property worth up to £1 million effectively – or a property worth £350,000 and other assets worth £650,000.
But the reason why more estates fall into paying IHT every year is because these nil-rate bands have been frozen for over a decade. As assets you won increase in value, the likelihood of breaching the band gets closer.
Preparing for IHT takes good wealth planning, well in advance.
Gifting is a really good way to do this as you’re not liable to pay any IHT if you live seven years after a gift, and you can give up to £3,000 in gifts each tax year without incurring any liabilities no matter how long you live after. You can also make any gift ‘out of income’ as long as it doesn’t materially affect your regular earnings from a salary or investments.
There is also a small gifts allowance whereby you can give £250 to as many people as you like in a tax year without any liability. If you have a child getting married you can gift them £5,000, or for a grandchild – £2,500.
But even earlier preparations than this can be made. Pensions for example are exempt from IHT, so holding a good deal of your wealth inside a pension can be very efficient for tax purposes. This is a really important consideration when you’re still in the accumulation phase of your wealth journey, making balancing the amount you are saving into an ISA or pension critical. However, those with substantial pension assets must be aware of the Lifetime Allowance which is a separate tax charge which can become payable on death.
Another method is taking out a life insurance policy which is written into trust, thus not forming a part of your estate. HMRC treats premiums as a lifetime gift, but if they’re below the annual £3,000 exemption or the gifts are out of normal income exemption, then they are considered tax free.
There are other, perhaps more complex ways to mitigate a large IHT bill. If you would like to discuss your options, or for anything else relating to wealth planning, don’t hesitate to get in touch with your financial adviser.
Rishi Sunak launches another round of help for the cost-of-living crisis
Chancellor Rishi Sunak has announced a fresh round of financial help for households facing ever-mounting living costs as inflation rises.
Sunak announced a raft of measures to help raise money and doled much of it out to households in varying amounts. It comes in the wake of an announcement a few days before from energy regulator, Ofgem, that the cap on average energy bills could rise to £2,800 per annum in the Autumn.
The package of measures has drawn criticisms at both ends with the Labour Party accusing the Chancellor of not doing enough for households, while economists have been questioning the wisdom of pouring more money into households’ pockets while inflation soars, and the Bank of England raises rates to attempt to slow spending.
But not all households are receiving equivalent amounts. So, what do the measures contain?
(Not a) windfall tax
The main tax-raising measure that the Chancellor has announced in order to fund measures for households is by taxing oil & gas and energy firms for the extraordinary profits they’ve received as a result of high energy prices.
The tax has been dubbed a ‘windfall tax’ in the media, but in practice is going by another name. Firms such as BP, Shell and British Gas owner Centrica will see a temporary 25% “Energy Profits Levy” imposed on their profits. This will increase their overall tax rate to 65% of profits, a combination of corporation tax and other levies they already pay.
The Chancellor says the measure will raise around £5 billion in the first year, but firms will be able to offset 91p for every £1 of their obligations if they invest in the UK’s energy infrastructure, a significant incentive.
Help for households
At the other end of the announcement – Sunak has announced significant help for households to pay for rising bills.
The core of this plan is a £400 grant which every household will receive in the Autumn. This replaces a previously launched £200 loan which was set to be paid back through higher energy bills in the future.
The grant will be paid out automatically to customers who use direct debit or credit payments for their energy bills. Households with prepaid or voucher-aid meters will have it applied to their meter automatically too.
Beyond this, around eight million households which currently receive means-tested benefits will get £650 cost-of-living payments, payable in two instalments in July and the Autumn. Those eligible will get the money automatically and needn’t apply.
Pensioners will also receive a £350 one-off payment, paid automatically. The disabled will also get another £150 one-off payment. Again, neither have to be applied for and will be funded through existing systems.
In total, the package of measures is expected to cost £15 billion – some way higher than what is being raised from the so-called windfall tax. The Government plans to fund the rest of the package through borrowing, but says it is doing so while maintaining fiscal responsibility.
NS&I to hike premium bond rates, but is it the place to put your cash?
With interest rates rising, NS&I has increased the rate on its premium bond prizes.
The rate on premium bond prizes is now equivalent to 1.4%, up from 1%, as of 1 June. With this the number of £100,000 prizes has increased from six to 10, while the number of £50,000 prizes has increased from 11 to 19.
As for the £1 million monthly winners, there will continue to be only two per month.
NS&I premium bonds work on a lottery basis, but with the likelihood of smaller prizes being much higher, the effective rate of return for your money is 1.4% per year – although this is still not guaranteed as it continues to function as a prize draw.
Premium bond or cash savings?
The question now is whether Premium Bonds, which are extremely popular, are worth putting money into or not.
There are two parts to this answer.
Firstly, ask – what is the money for? If you need it in the short term or if it is a rainy-day fund, then it should be kept in cash. You can cash in your premium bonds at any time, meaning they essentially function like an easy-access savings account (albeit without a guaranteed rate).
While you may scoop a £1 million prize, the odds of this are extremely low. You are, generally speaking, better off saving any short-term cash holdings into an actual easy-access savings account.
At the time of writing the best rates on offer come from Virgin Money club M Saver, offering 1.56% or the Chase Saver Account offering 1.5%. Both are easy-access so you can take your money out at any time.
The second part of the answer comes when considering longer-term saving. If the money you are putting away is for the long term, then realistically it needs to be saved through a tax-efficient vehicle such as an ISA or pension, and invested in assets such as stocks, bonds or other investments.
With inflation riding around 8% currently, saving into cash accounts over the long term is not only ineffective, but also actively reduces the value of your wealth. While the stock market has suffered turbulence in 2022, and is never guaranteed to perform, over time it still beats cash equivalents with ease.
Ultimately what matters then is having a cash fund which you can turn to for short-term needs – be that for a rainy day or to use for expenditure in the near future. But anything saved for the future should be invested.
When it comes to premium bonds, it might be a nice idea to hold a few just in case of that big win – but really the vast majority of your money should be elsewhere.
One in four savers worried they won’t have enough in retirement – but how much is enough?
One in four savers worry they won’t have enough money to retire on, new data from the Pensions and Lifetime Savings Association shows.
The research, which canvassed people saving into workplace pensions, shows that there is considerable uncertainty over whether workers can put enough away amid issues such as the rising cost of living.
The current minimum contribution into a workplace pension is set at 8% – 5% from the employee’s earnings and 3% from the employer. This, many pensions experts argue, is a good start but ultimately inadequate when it comes to long-term saving for retirement.
But defining how much is ‘enough’ is tricky, because it is very dependent on individual circumstances.
Here are some of the key considerations to make.
How long do you plan to work?
Thinking about your working life is a key aspect here because your job is generally speaking going to be the number one way in which you accrue savings for retirement.
It is a very personal consideration, especially depending on what type of career you have. Professions such as trades (builders, plumbers, electricians, engineers) tend to be more physical and you may find your physical condition can’t keep up once you get older.
Likewise people who work a relatively comfortable desk job could conceivably keep going for longer. And with the increase in flexible and remote working, there’s less pressure to commute.
Another important consideration is how much you actually like working. Some people work until late in life simply because they love their job and find it rewarding enough to keep going. Others can’t wait for the day to hang up their boots and relax!
Alternatively, you might be considering decreasing your hours, but continuing to do some work to keep money coming in.
All that is to say, if you foresee circumstances in which you’ll want to retire sooner rather than later, then you need to make sure you’re contributing as much as you can as quickly as you can, to give your wealth time to grow in line with your goals.
Of course, you may be planning on working for longer, but this doesn’t mean you can just forget about pushing hard on the savings front.
What assets do you have?
Your asset mix will have a really important impact upon how much income you can earn in retirement.
It is very normal for people’s most valuable asset to be their home. But tying up all your wealth in property can become an issue once you’re looking to retire and generate an income.
Unless you’re willing to sell and downsize to generate cash, your house is a highly illiquid asset that isn’t easy to capitalise on.
The exception to this is if you have become a buy-to-let landlord and intend to use income from that in retirement. But of course, you’ll want to consider whether you want to be a landlord at all as you retire.
There is also a consideration for asset mix in investments as you approach retirement. Although there’s no hard and fast rule, broadly speaking as you close in on retirement age more of your wealth should move from faster-growing stocks to more stable bonds and other yield-paying investments such as income funds.
What do you see yourself doing in retirement?
This is again a very personal consideration. Many people are content to potter in the garden, nurture grandkids and play bowls at the local club.
But retirement is no longer a moment to necessarily have to slow down with your life! It is quite possible to take those trips of a lifetime, to buy the car you’ve dreamed of owning, or to buy that house by the beach.
The difference between the former and the latter is cost. Taking it easy is fairly cheap, seeing the world costs money! Both are laudable aims but how much you need to save to meet those goals is crucial to have in mind.
There is also another really important and often-overlooked consideration here. Spending in retirement tends to follow a U pattern. When you first retire you spend quite a lot (getting that new car), then as you settle down, it reduces.
But finally as you enter your latter years, your costs will start to increase again. This comes in the form of basic things like help in the garden, DIY around the house or other basic tasks. But it also comes down to a more serious consideration – care.
The sad truth is as we get old, we need more help from others to live our lives comfortably and with dignity. Care is one of the biggest underfunded social issues in the UK at the moment, so paying for it in later life must not be forgotten.
If you’d like to discuss your retirement planning and savings goals, or anything else raised in this article, don’t hesitate to get in touch.