One of the most enjoyable parts of working as a financial planner for later life clients is to help them put together a plan that not only prepares them for retirement but also makes sure they get the most out of life. However, clients often worry about having enough capital and income to cope with the escalating costs of later-life care and they also want to consider ways to pass on more of their wealth to their loved ones. Later life planning has become increasingly complicated, so I can understand their apprehension, but getting your financial affairs in order can feel like a tremendous weight removed from your shoulders. So, with that in mind, here are my top five tips for making a start on later life planning.

The first step is to get an idea of what you will need to enjoy a comfortable retirement. This involves having a realistic view of your retirement income (making sure to include life’s luxuries), your liabilities (including inheritance tax), and all of the assets that you own. Once those have been identified, we can paint a much clearer picture of what your retirement could look like and start building what we call ‘cashflow models’ designed to show the different paths available to you. For example, you may want to create a guaranteed income stream that takes care of your needs in retirement. Or you may want to set aside surplus funds that could be placed into trust or gifted to family members. When you have an idea of your retirement, we can start working out what needs to be done to help you get there.

As with most important life decisions, putting things off doesn’t help. The sooner you get advice, the more options you’re likely to have. It’s far better to plan ahead instead of waiting until you’ve reached retirement and your options have already become more limited. It also means you can get a professional opinion on some of the issues you might face instead of making decisions based on what you read about in the press.

For example, the upper capital limit for care costs is currently just £23,250. This means if you have more than this, you may be asked to pay the full cost of charges for your care services. Many people who are worried about the increasing costs of care have elected to give away large sums to their children to take their capital below that threshold. But a well-structured financial plan can help determine the most cost-effective solution than simply giving money away. For example, we can arrange insurance such as an ‘immediate needs annuity’ or ‘immediate care plan’ that can automatically cover the shortfall in the cost of care fees for the rest of a person’s life in exchange for a one-off lump sum payment.

Sometimes people worry about inheritance tax to a degree that leads them to make financial decisions that are not in their best interests. For instance, they may put the family home in the name of their children instead of their spouse because they are trying to avoid liability to future care fees, or leaving behind an inheritance tax liability. And it’s quite common for people to gift money away without recognising that once that money has gone, it no longer forms part of their retirement pot or have any further implications.

It’s worth remembering that there are several different ways (including types of investments) to reduce or even eliminate an inheritance tax liability and that a financial planner with a good understanding of estate planning will be far better equipped to plan for inheritance tax than trying to ‘do-it-yourself.’

HMRC gives everyone an annual gifting allowance of £3,000 every year – called the ‘annual exemption’, so it’s a good idea to use it while you can. You can carry over your £3,000 annual exemption to the following year if you don’t use it, but only for one year. However, it’s important to know the gifting rules so you and your beneficiaries don’t break them unwittingly. I have heard of people mistakenly thinking that the £3,000 annual limit can be used to make gifts of that amount to as many people as possible, instead of realising that limit applies to all gifts in total, and individuals can only receive gifts up to £250 annually. It takes a full seven years for a gift valued at more than £3,000 to become fully exempt from inheritance tax. So, it’s important to keep records and tell your financial planner and your solicitor about any gifts you’ve made.

My fifth and final piece of advice is to make sure that your financial planner, your accountant (if you have one), and your solicitor are all on speaking terms with one another and are able to work together to ensure your later life plan is comprehensive, and all of the options are covered. This could include wills, trusts, insurance policies, setting up a lasting power of attorney, and so on. It makes sense that each knows what the other is doing, and everyone stays informed should any plans change.

With careful planning and the right support to guide you, it should be possible to create a later life plan that will help you approach retirement on your own terms. If you’re ready to have a conversation about later life planning, you should start by talking to us. Our knowledge of the issues, and experience working with later life clients, means we can create tailored strategies designed to suit your individual needs and help you approach later life with confidence.