Over the last few years, your clients will have likely had plenty to concern them. From potentially closing their business during Covid lockdowns to spiralling energy costs, it’s been a tricky few years for business owners.
Your job will likely have been to help your clients navigate this quickly shifting landscape – and, as financial planners, we’ve been doing much the same.
While some of the recent challenges facing your clients may have abated, MoneyAge recently reported the three biggest concerns financial planning clients have in 2024. Read on to find out what they are, and how seeking advice could assuage their worries.
1. Outliving their pension savings
The study reported by MoneyAge found that 7 in 10 financial advisers said that their clients’ biggest current concern is “outliving their pension savings”.
“Do I have enough to retire?” is one of the most common clients ask us. Having diligently saved throughout their working life, understanding whether they have “enough” is a key issue for many clients approaching retirement.
In recent years, factors such as rising life expectancy, soaring house prices, and higher interest rates have also contributed to clients’ concerns.
The Office for National Statistics says that the average 55-year-old man will live until age 84, with a 1 in 4 chance of living to age 92. The average woman will live to age 87, with a 1 in 4 chance of reaching age 95.
Consequently, a client’s pension savings could have to last for 20, 30, or even 40 years.
Moreover, with lenders offering longer mortgage terms and interest rates at a 15-year high, many more people are paying housing costs in later life.
Indeed, MoneyAge reports that the Pensions Policy Institute says there could be up to 3.6 million households renting while in retirement by the year 2041, 1.9 million more than today.
Paying for housing will also eat into a retiree’s later-life income, exacerbating concerns about whether they have “enough”.
One way that we can help your clients to understand whether they have “enough” to retire is by using cashflow modelling.
We can consider factors such as their assets, income, and expenses, and make reasonable assumptions about investment growth, inflation, and life expectancy to model their future financial position.
For many clients, seeing in black and white that they have enough money to live their desired lifestyle when they retire – even if inflation was high or they lived a long, healthy life – can be a transformative moment, empowering them to make positive decisions about their future.
2. Inflation and the cost of living
Over the last few years inflation and the soaring cost of living have never been far from the headlines. So, it’s no surprise that inflation and the cost of living are a concern for 64% of financial planning clients.
According to the Bank of England, goods and services that would have cost £1,000 just five years ago (in 2019) would cost almost a quarter more now, at £1,226.64.
Earlier this year, the Pensions and Lifetime Savings Association (PLSA) updated their figures detailing the annual cost of a “minimum”, “moderate”, and “comfortable” living standard in retirement.
Minimum
The cost of a minimum retirement living standard increased from £12,800 to £14,400 for a single person and from £19,900 to £22,400 for a couple.
This includes around £95 for a couple’s weekly groceries, a week’s holiday in the UK, eating out about once a month, and some affordable leisure activities about twice a week. It does not include a budget to run a car.
Moderate
The cost of a moderate retirement living standard increased from £23,300 to £31,300 for a single person and from £34,000 to £43,100 for a couple.
This includes around £100 a week on groceries, £60 a week on eating out, running a small second-hand car, a week-long holiday in Europe and a long weekend break in the UK.
Comfortable
The cost of a comfortable retirement living standard increased to £43,100 for one person and to £59,000 for a two-person household.
At this level, retirees can expect to have more luxuries like regular beauty treatments, theatre trips and a two-week holiday in Europe a year. For a couple, this includes £130 a week on groceries and £80 a week on meals out.
As you can see from these figures, the cost of all types of retirement lifestyle has increased sharply in the last year.
One of the knock-on effects of above-target inflation is that individuals will likely need to draw more from their retirement savings just to maintain the same standard of living, potentially depleting their pot more quickly.
Again, we can use cashflow modelling to help clients understand what their future income and lifestyle might look like.
For example, we can help a client to maximise their State Pension entitlement. The State Pension triple lock is a useful buffer against rising retirement living costs – the rise of 8.5% to just over £11,500 a year from April 2024 helps retirees maintain their living standard in a world of rising costs.
3. Long-term care costs
MoneyAge reported that just under half (49%) of advisers cited covering long-term care costs as another client concern.
According to a 2020 study by UCL, despite rising life expectancy, people in their 40s and 50s are likely to suffer more years of ill health than older generations now in their 60s and early 70s. This could increase the need for care later in life.
Of course, paying for care is expensive. Age UK reports that, on average, it costs around £800 a week for a place in a care home and £1,078 a week for a place in a nursing home.
For many clients, there is a fine balance to strike between “having enough to meet any later-life care costs” and “not dying with a significant estate and potential Inheritance Tax liability”.
When creating a financial plan with clients, care costs are a key consideration. Our role is to give clients the peace of mind that they will have the resources to pay for any care they may need in their retirement, while maintaining their desired lifestyle now.
Get in touch
If you have clients who are concerned about their finances, or you’d like to explore how you could work more closely with us, please get in touch.
We’re a Chartered practice with wide experience of helping clients approaching and at retirement to meet their long-term goals.
Email hello@sovereign-ifa.co.uk or call 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning, cashflow planning, or tax planning.
