Are people holding on to too much of their wealth? The Financial Conduct Authority’s Christopher Woolard certainly thinks so, suggesting that retirees have an over-reluctance to spend, thanks to ‘unrealistic expectations’ about their chance of survival. (This could be quite a dry blog post…)
He explained; “Far from blowing their pension savings on Lamborghinis and lavish holidays, we’re seeing people penny-pinching because they’re trying to make their pot last for longer than is probably necessary.” (I did warn you, but it does get cheerier!)
It’s a disheartening situation; there is a lot of information in the public domain about longevity, underestimating your life expectancy and the fear of running out of retirement income, but is reality proving to be the opposite?
It’s all about balance
No, you can’t take it with you, but you might be planning to leave a legacy to loved ones. A wonderful intention, but if you don’t plan appropriately your estate could fall foul of Inheritance Tax (IHT): the current threshold is £325,000.
There are exemptions and it depends on your circumstances, but in basic terms, a 40% tax on your estate over this amount could cost your beneficiaries dearly. Consider this; Bristol still has some of the highest rising property prices in the country. Your home could be worth more than you realise and your estate liable for IHT.
Whilst lifespans continue to increase over time, we recently had a rude awakening from the Office for National Statistics (ONS): Between 2011 and 2016 the UK experienced a dramatic slowdown in improvements in life expectancy, at birth and at age 65, for men and women. They explain; “As people have been living longer we have seen steady increases in life expectancy for many decades. However, since 2011 these increases have been slowing down across the four UK countries.”
Understanding your true life expectancy is one of the key elements of retirement planning. This won’t just affect the value of your pension and other investments required to provide a sustainable income, but also the age you are able to retire.
Enjoying your retirement to its full potential is obviously appealing; travelling, home improvements, perhaps a new car, you could be gifting wealth to loved ones and charities close to your heart.
Rather than passing wealth on in your will, which we strongly recommend is in place and up to date, you could be making gifts in your lifetime; helping children or grandchildren get on the property ladder or build a family of their own. You could witness and enjoy the positive impact of your generosity first hand.
Appreciating your wealth
Of course, all of these influences; your wealth, aspirations and health are absolutely personal to you. There is no one-size-fits-all solution, understating your objectives and making a realistic retirement plan requires careful management.
Retirement planning is so much more than product recommendations. At Sovereign we use cash flow planning to help you visualise your financial future, projecting your wealth into the short, medium and long-term; planning for every conceivable opportunity and situation.
The reality is, not only could you be spending more in retirement, you could be able to retire sooner than you think! If you would like to spend more time with family or set off on a new adventure, we are here to help you make it a reality. On 27th September at 18:30 (so you’ve got chance to leave work and travel) Sovereign are running a free, no-obligation retirement seminar. Our chartered financial planners have already helped people retire up to five years earlier, you could be the next.