Financial planning in your 70s

Your decisions about managing your savings and investments need to be timely and efficient. Similarly, thoughts often turn to what you can provide for your loved ones, whether now or in the future, and how to arrange assets to minimise the impact of Inheritance Tax (IHT). Everyone’s circumstances differ, but certain financial priorities remain consistent in your 70s. Planning ahead ensures your longevity is matched with financial security, and finding where to begin can be the crucial first step.

Managing daily expenses and investments
By the time you reach this stage, you’ll likely be living off pension income and investment returns. With retirement often comes a familiarity with your income and expenses, yet this doesn’t mean there aren’t challenges. Recent years have shown how market volatility can disrupt even well-planned investment strategies. For example, drawing on your assets at an unsustainable rate during times of market stress can significantly erode your portfolio’s value, a phenomenon known as ‘pound cost ravaging’.

Reviewing your financial strategy routinely and ensuring the amounts you withdraw are sustainable and shielded from adverse market effects are important. However, caution is required to avoid becoming overly conservative. While market risks exist, so does the ongoing threat of inflation, which can erode purchasing power over time. Younger retirees might face another 20 or 30 years ahead, so staying partially invested in growth-based assets rather than holding too much cash can be a wiser choice over the long term.

Tax efficiency in retirement
Tax planning is vital to ensuring your savings last. Efficient withdrawals from various income sources can minimise your lifetime tax bill. For example, utilising your Individual Savings Account (ISA) allowance or capital gains allowances can reduce investment growth and Income Tax. Additionally, shifting assets into joint names, where applicable, may ease the tax burden between spouses or registered civil partners.

Understanding Income Tax thresholds and allowances is equally critical. Retirees under the Personal Savings Allowance may avoid tax on interest income. The Personal Savings Allowance for basic rate taxpayers is currently £1,000 and for higher taxpayers £500 (2024/25). Proactive planning ensures you maximise available reliefs while keeping obligations in check.

Considering lifestyle changes
Declining health or reduced mobility may lead you to reassess your living arrangements. Downsizing to a smaller, more manageable property can be practical and financially beneficial. It reduces upkeep efforts and frees up capital to boost retirement income. However, leaving a long-standing family home, often filled with cherished memories, can be a deeply emotional decision, one many understandably delay.

If moving isn’t an option, modifying your current residence might offer an alternative. Adapting your home to accommodate ageing-related needs – such as stairlifts, grab rails or walk-in showers – can help maintain independence and comfort. This forward-thinking approach can ultimately save both emotional distress and financial strain if health obstacles arise unexpectedly.

Legacy planning and Inheritance Tax (IHT)
A significant aspect of later-life financial planning is effectively organising your estate. IHT remains one of the most commonly overlooked pitfalls, with increasingly modest estates falling into its remit due to rising house prices and unchanged tax thresholds (such as the £325,000 nil rate band, fixed until 2030).

Strategies like gifting assets or placing funds into trusts can reduce the taxable portion of your estate. For instance, using the annual exemption of £3,000 per year or the seven-year rule for larger gifts can shield significant wealth from tax. Ensure your Will is up-to-date and reflects your intentions. Another key step is to include a Lasting Power of Attorney (LPA), which gives trusted individuals control over your affairs should you become incapacitated.

Preparing for rising care costs
Funding care fees is one of the most complex and expensive aspects of later-life planning. The cost of residential care homes or live-in support continues to climb. Planning for this possibility early is crucial to avoid financial strain on yourself or your family.

Setting aside specific funds or exploring equity release schemes may provide a solution, but each option requires professional advice to assess their suitability. Additionally, long-term care insurance policies could help mitigate costs, but policies must be arranged well before care is likely needed. Understanding these options can provide peace of mind for you and your loved ones.

Balancing spending throughout retirement
Spending in later life often follows a ‘U-shaped’ pattern. Many indulge in travel and hobbies at the start of retirement, enjoying the fruits of their labour. However, as health issues arise later, expenses may climb as care requirements grow. Ensuring your financial plan covers these active and dependent stages will offer greater flexibility.

The unpredictability of health means that even the healthiest retirees should plan for emergencies. Focusing on ‘living well’ and ‘preparing wisely’ will allow you to enjoy your retirement while safeguarding against unexpected turns that call for higher financial outlay.

THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.