Plan for a happy retirement: your later-life care

Retirement planning has never been so important. With the average retirement age in the UK sitting just under 65 years old, a happy retirement these days looks quite different than it did for previous generations.

Along with more flexibility and choice over how and when you retire, your savings are also likely to need to last for longer.

According to the Office for National Statistics (ONS), the average life expectancy for a 65-year-old man in 2022 is 85. And there’s a 25% chance of living to age 92. Meanwhile, the average life expectancy for a 65-year-old woman is 87. And there’s a 25% chance of living to age 94.

If you’re still relatively young, consider this: a 55-year-old man in the UK now has a 1 in 10 chance of living to the age of 97, while a 55-year-old woman now has a roughly 1 in 15 chance of living to the age of 100.

With all this in mind, it’s easy to see how your retirement income may need to last 20, 30, or even 40 years. Accordingly, it’s also vital to consider the need to cover the potential costs of later-life care.

What kind of retirement are you aiming for?

Thanks to the introduction of Pension Freedoms in April 2015, you can flexibly withdraw cash from your pension pot or use it to provide your retirement income with far more choice than previous generations enjoyed, giving you more opportunity for a happy retirement.

This means that there are several different ways to approach your retirement:

Cliff-edge retirement

Here, you finish work at a specific age and on a set date. Having a firm retirement date in mind can make planning your finances for a happy retirement slightly easier; unless you’ve planned for the big life change, you might struggle to adjust to the sudden change and a lack of structure in your day-to-day life.

Early retirement

A fairly common life goal, research from Aviva reveals that 25% of Brits aspire to retiring at age 60.

Early retirement can provide maximum time to enjoy your wealth and life outside of work. If this is your plan, it’s important to be sure you can afford to retire early.

With more time not working, you’ll almost certainly need more money to maintain your desired lifestyle. Plus, you’ll need to know you won’t run out of money.

Flexi-retirement

This gradual approach to retirement is growing in popularity. According to an FTAdviser survey of 1,000 people set to retire within 12 months, 66% said that they planned to continue working once they had retired.

Instead of stopping work in one go, this approach means reducing your hours but continuing in some kind of paid work. This could involve working part-time, taking on a consultancy role, or stepping away from managing your own business and slowly passing control to a new management team.

If you plan to continue working in some capacity while also drawing on your pensions and other savings, you may end up paying more in Income Tax. There are also complex rules surrounding pension contributions if you start drawing from your pension savings to top up your income.

If flexi-retirement is something you’d like to explore, get in touch and we’ll help ensure that your financial plan is fully aligned with your life goals.

Carry on working

The UK has no forced retirement age; everyone is free to work for as long as they wish. While this may not be your dream, some people choose to never retire at all.

If this is your preference, you’ll need to keep an eye on your tax position, especially if you start claiming your State Pension and draw from other savings and pensions on top of your income.

What to consider when planning for your happy retirement income

Whatever your desired style of happy retirement, as you reach each phase of later life, the income you need will almost certainly change, too.

There are four stages that you’ll need to consider when thinking about your finances:

Active and busy – this is where you’re likely to have the highest expenses. With more time on your hands to spend money when you’re still relatively young and healthy, now is the time to get busy and tick items off your bucket list. If you’re taking a flexi-retirement, your income may also be supplemented by consultancy or part-time work.
Enjoying your retirement in the traditional sense – As you start to slow down, your spending is likely to reduce as you travel and socialise less. If you opt to stay closer to home and spend time with family, this phase is likely to be the lowest cost time of retirement since pottering at home and holidaying to fewer far flung destinations will typically reduce your living costs.
Later life – This is where spending on care or medical bills may rise. You may need to undergo medical procedures or recuperate after surgery. You could find that you’re also more susceptible to illness and require some level of care.
End of life – The final phase is when you plan to start passing your wealth to your heirs before you pass away and avoid as much Inheritance Tax as possible.

We can help you gain a clear understanding of how to navigate each of these phases and reduce the risk of running out of money.

This starts with understanding your life goals and knowing your number, which we can help you achieve through cashflow modelling.

By plotting the various financial inflows and outflows over your lifetime, we can work with you to establish whether you can retire at your desired age, or whether you need to put your money to work harder to achieve your goals.

Ignore potential costs of later-life care at your peril

The social care cap, supposed to come into force in October 2023, has been delayed until 2025. When it is introduced, it will cap the cost of care at £86,000. The cap only applies to the care itself, any additional costs such as rent, food, or utilities, are excluded.

While those with assets below £20,000 won’t pay for care, if you have assets between £20,000 and £100,000 you could receive help from local authorities.

Meanwhile, if you have assets exceeding £100,000 you will pay for all of your care until your assets fall below this limit.

In light of this, and increasing life expectancy, it’s vital that you factor potential costs of later-life into your financial plan.

Get in touch

Whether you choose to travel and explore the world, enjoy quality time with your family, give back to your community or even help mentor an entrepreneur, this is your time.

We’ll guide you every step of the way – helping you strike the balance between protecting your finances and enjoying a happy retirement. To find out more, please get in touch.

Email hello@firstwealth.co.uk, book a video call, or phone us on 0207 467 2700.

Please Note

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investment (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.

The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances. The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.