24th Nov 2015
Later Life
It is never too early to start making plans for our later life. For most of us, retirement is accompanied by a reduction in our income and we are all too aware that, as we grow older, we are also more likely to suffer from ill health, which can have a dramatic effect on our financial situation.
Many of us will need to find funds to pay for our care as we get older, at a time when our income is limited. In order to shield our loved ones - and the assets that we have accumulated over many years of hard work - from the effects of this, we need to take proactive steps to create a protective framework. As this article will demonstrate, there are various strategies that can be employed to achieve this.
Retirement Planning
As we approach retirement it is important to work out, as best we can, how our finances are going to be affected. This means that we will need to work out the income that we will receive, from our state pension and/or private pension and any interest and returns on our investments, from our retirement date onwards. We will then need to list our items of regular expenditure in order to assess whether our post-retirement income will be enough to cover these. If it looks as if our income will be insufficient to pay our everyday expenses we will need to either reduce our spending or find an alternative source of funds, such as a part-time job. Either way, the simple process of working out whether our retirement income will be sufficient to meet our needs is an essential part of our later life planning.
Equity Release
One way of reducing our spending in retirement is by clearing some of our debts and an effective way of doing so is through equity release. In this type of arrangement a home owner of 55 or over can release a tax free lump sum from the equity in their home. For many of us, one of the largest items of expenditure is our monthly mortgage payment. This can be eliminated from our budget by using the lump sum from an equity release loan to pay off the balance of the mortgage. There are usually no monthly repayments for an equity release loan, as the interest is added to the loan and only paid off when the house is sold or the house owners die. Depending on the amount of equity in the house, it may be possible to use an equity release loan to pay off other debts to further reduce the household expenditure, making our retirement years free from unwanted financial pressures.
Making a Will
Those of us with dependents should also consider how they will be affected when we pass away. If we want to make sure that we retain as much control as possible over what happens after our death we will need to make a will. In that way we can ensure that our estate is distributed in the manner that we want it to be. This is especially important if we are living with our partner as an unmarried couple or have step-children, neither of whom would normally receive anything from our estate if we die without making a will. We can also appoint the person or people that we want to administer our estate and, finally, we can use our will to minimise the inheritance tax that will be paid out of our estate, preserving as much of it as possible for our loved ones.
Prepaid Funeral Plans
The cost of funerals has risen steadily over the last few years and is likely to continue to do so in the future. A pre-paid funeral plan is one means of protecting us against these ever-increasing funeral costs by enabling us to make an up-front payment to either a funeral director or a prepaid funeral organisation. The cost of our funeral is “frozen” at today’s prices, providing us with a degree of certainty about the amount that will have to come out of our estate to cover our funeral costs. As with all financial products, it is important to check exactly what is included in the funeral that we pre-purchase, as some plans include items such as the funeral service, the hearse or the chapel of rest, whilst others do not.
Prepaid Probate
To reduce the amount of money that our estate is liable to pay in probate charges, we may wish to consider a prepaid probate plan. This is an alternative means of paying for the administration of our estate, rather than employing a bank or a solicitor, both of whom tend to charge a percentage of the estate regardless of the amount of work that they do. Prepaid probate plans are normally based on an assessment of the complexity and amount of the work that will be required to administer the estate and are frequently far cheaper, especially for high value estates. Furthermore, they provide us with certainty as to the amount that our estate will be required to pay to fund the costs of probate.
Lasting Powers of Attorney
As we age, there is a possibility that we will suffer from an illness that will affect us so severely that we are no longer able to take decisions for ourselves. We can protect ourselves against this type of situation by making a lasting power of attorney. This is a document that allows us to appoint a person (or persons) to assist us with making decisions or to take decisions on our behalf. There are two types of lasting power of attorney, which cover health and welfare and property and financial affairs. Health and welfare powers include issues such as medical care, accommodation and everyday personal care. These powers can only be used if we no longer have the mental capacity to make decisions for ourselves.
Property and financial affairs powers can be exercised as soon as the lasting power of attorney is registered, with the permission of the donor, and include managing bank or building society accounts, paying utility bills and selling property. Making a lasting power of attorney is simple. All that is required is to select an attorney (or attorneys) complete a simple form and register the power with the Office of the Public Guardian. A fee of £110 is currently payable. We must have the mental capacity to make our own decisions at the time the lasting power of attorney is made. By making a lasting power of attorney, we are thus able to appoint a trusted friend or relation to take care of our welfare and finances if we become incapable of doing so through mental incapacity.
Summary
Growing older need not spell financial hardship, nor is it inevitable that the older we get the more our hard-earned assets will dwindle. Careful, early planning and the implementation of one or more of the above strategies may go a long way towards making our later life more comfortable – for ourselves and our loved-ones.