Make your money last as long as you do: 5 questions to consider

, , , ,
Financial security in retirement

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

Help ensure your pensions, savings and investments will provide financial security in retirement by asking 5 key questions.

As life expectancy increases, so does the length of time needed to stretch your income in retirement. Taking the right steps now can help you enjoy the lifestyle you want for as long as you need.

Today, most people can expect to live longer than the generations before. While this is good news, increased life expectancy comes with some downsides. Simply put, can we afford the cost of living longer?

You can assess whether your resources are on track to last your lifetime by considering these five key questions.

1. How much retirement income will you need?

Do you want just enough each month to live comfortably in retirement, with perhaps a bit extra to afford some luxuries now and then? Would a modest income suffice so long as you have access to ‘rainy day’ or contingency funds?

If you are still working, will your pensions and savings cover your lifestyle needs, or are you planning to cut back when you retire?

Remember to factor in the effect of inflation on reducing your spending power each year. Say, for example, you spend €5,000 a month. Assuming an inflation rate of 3% a year, in 10 years’ time you could need about €6,720 a month to maintain the same spending, and €9,030 in 20 years.

2. How much do you want to leave behind?

If you want to leave a lasting legacy for your family or other heirs, you have to make sure you do not spend it in your own lifetime – without compromising on your own quality of life today.

A holistic financial planning approach – that considers estate planning alongside your wealth management and tax planning – can prove invaluable here.

3. How can you get the most from your pensions?

For most people, pensions are the key to financing retirement, so you need to take extreme care to do what’s right for you.

While you should review your options, your best approach could be taking no action at all, especially if you have a ‘final salary’ pension that guarantees an income for life. In any case, beware of opportunities to ‘liberate’ your pensions before age 55, as these are likely to be scams.

Retired expatriates have benefitted from transferring UK pensions to an EU/EEA-based Qualifying Recognised Overseas Pension Scheme (QROPS) or reinvesting a lump sum into arrangements that are compliant in your residence of residence. As well as tax efficiency, this can provide estate planning advantages and flexibility to take income in sterling or euros. However, there are many variations in products and jurisdictions that can affect the benefits.

Take personalised, UK-regulated pension advice to establish the most suitable approach for your circumstances and goals.

4. How can you make your savings and investments last?

You should review whether your savings, investments and assets are working as hard as they can for you and are protected from unnecessary taxation.

For example, are you making the most of the tax-efficient opportunities available in your country of residence or are you holding onto UK assets that attract higher taxation and maybe even provide less growth?

If you are a business owner, have you started planning a tax-efficient exit strategy to get the best out of your years of hard work?

There are also currency considerations. Taking income in sterling while spending euros in your daily life makes your money vulnerable to conversion fees and exchange rate risk. Explore arrangements that offer the flexibility to hold investments in more than one currency and convert when it suits you.

Do not underestimate inflation here too. While it is tempting to choose low-risk investments in your later years, your capital still needs to keep pace with the cost of living, and cash in the bank is unlikely to do this. Your financial adviser can recommend a diversified investment strategy to meet your situation, goals and risk tolerance.

See six tips for protecting and growing your wealth

5. How can you limit the effect of taxation?

An undesirable side-effect of rising life expectancy is a general trend for tax rises, as governments struggle to finance escalating pension and healthcare services for ageing populations.

Higher taxation can be a serious threat to your financial security in retirement. Look for compliant arrangements available to expatriates in your country of residence that can significantly minimise taxation, making your money go further, for you and potentially your chosen heirs. For the best results, take personalised, cross-border advice.

Whatever your stage of life, good financial planning can help you afford the lifestyle you want for as long as you need, so you can focus on enjoying your time abroad.

Contact us for a financial planning review

This article should not be construed as providing any personalised investment advice. You should take advice for your circumstances.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.