Make The Day-To-Day Work For You
Whether it’s bills, direct debits, subscriptions or just getting on top of budgets, the pros will tell you that starting with the basics is the easiest way to start putting your finances in order. “Sit down with a trusted friend or family member and carry out a mini audit of the organisations you deal with – write a list, including relevant account numbers, and keep it in a safe place along with other important records,” suggest the money team at Which?
“Set up direct debits and standing orders for important outgoings to reduce the risk of problems if you’re unable to pay a bill at the post office, or by cheque, and consider giving someone you trust the authority to manage your accounts. For bank and building society accounts, this is known as a ‘third party mandate’. Most utility companies will also let you nominate someone to manage your accounts.”
Also, spend some time tracking down any ‘lost’ assets, the team advise. “Millions of pounds are sitting in unclaimed bank accounts, savings and other accounts in the UK. If you think you could have money in an account that you’ve lost the details for, tracking it down could ensure you don’t miss out on a valuable nest egg.”
“Keeping all your financial documents in one place is a simple but effective first step,” agree the experts from The Money Advice Service. “Another is to keep a clear list of all your finances, including your spending, sources of income, debts, savings, investments or property. This kind of information will make things much easier for anyone you later ask to help manage your affairs.”
Assess Your Savings & Investments
As part of this initial process, once you’re confident your main accounts are working as efficiently as possible, move on to look at how your savings and investments are getting on. “The savings market is usually one where loyalty doesn’t pay, with some older accounts paying as little as 0.01% interest,” warn the Which? experts. “And don’t assume that accounts targeted at over-50s will necessarily pay the best rates as you get older – they often don’t.”
Online comparison tools can help you to find and switch to a savings account or cash ISA that will make your money work as hard as possible, and it’s worth investing in accounts that offer the potential for higher returns over the long term, depending on your attitude to risk. “Premium bonds have been a popular way to save for generations, but there’s no guarantee of earning anything at all, and the odds of big winnings are tiny,” say the Which? team. “If you might need to start relying on your savings for a regular income, premium bonds are unlikely to be the right option.”
Identify Possible Benefits
Not many people realise how many benefits or freebies they might be entitled to as they get older. “Some apply to all people over a certain age – such as the Winter Fuel Payment for over-65s, or free prescriptions for the over-60s in England,” explain the Which? team. “Eligibility for some other benefits depends on your circumstances. For example, Attendance Allowance is for those over pension age who would benefit from extra help with washing, dressing or eating, because of illness or disability. You may qualify for up to £89.15 a week. Meanwhile, Pension Credit tops up your weekly income to a guaranteed amount if you’re on a low income. TV licences are also free for some over-75s, but since August 2020 you need to be getting Pension Credit to qualify.”
For more information on which benefits you or a loved one might be entitled to, click here.
Fine Tune Your Pension
By the time you reach mid-50s onwards, it pays to know what to expect pension-wise – especially as they’re likely to be a key source of income in later life, whether it be a combination of the state pension and workplace or private pensions. The Which? team advises you make sure your entire pension pot is as healthy as possible as you approach retirement in the following ways:
Before you retire:
“Get a state pension forecast so you know how much you’re likely to receive. Calculate how much income you might need to enjoy a comfortable retirement. Factor in how your income and outgoings will change when you’re no longer working, and consider whether you need to pay more into your pension while you can. Remember that you may become entitled to extra benefits as you get older. Then, track down old pension pots – if you work for various employers, you may accumulate various funds over your working life. Consider whether it’s worth consolidating multiple pension pots into one.”
Once you’ve retired:
“Consider whether topping up or deferring your state pension could leave you better off in the long term and use pension freedom rules to make your funds work best for you. Retirees with a defined contribution pension (now the most common type) can often choose between buying an annuity for a guaranteed regular income or leaving your money invested and taking a flexible income as needed. Pension credit could top up your state pension if you’re on a low income.”
Make A Will
It might sound obvious, and you’ve likely already taken steps to draw up a will, but it’s worth checking everything is as relevant and up to date as it should be. “Until you have a valid will in place, there’s no guarantee that the assets you’ve built up will be distributed in the way you wish – so it’s never too early to make a will,” agree the Which? experts.
“Wills aren’t just about who gets what. You can also use a will to name an executor (the person who will ensure your wishes are carried out), name a guardian for your children and outline your wishes for your funeral. Even if you’ve already made a will, it’s important to review it regularly, especially after big life events such as the birth of a child or grandchild. You can write a will yourself or use a professional will writer or solicitor to help.”
If you die without a will in place, The Money Advice Service warns your loved ones could face a host of problems. “Dying without a valid will is called intestacy or dying intestate. The law about exactly who gets what is different in England, Wales, Scotland and Northern Ireland, but there are some common problems wherever you live. For example, if you’re not married and not in a civil partnership, your partner is not legally entitled to anything when you die. If you are married, your husband or wife might inherit most, or all of your estate and your children might not get anything (except in Scotland). Any Inheritance Tax that your estate has to pay might be higher than it would be if you had made a will and if you die with no living close relatives, your whole estate will belong to the Crown or to the government. This law is called bona vacantia.”
Set Up Power Of Attorney
While we’re on the subject of wills, power of attorney is a crucial step at this stage of life – one which is worth taking as soon as possible. “Setting up power of attorney gives someone you trust the right to act on your behalf in many key decisions. It gives you the confidence that your affairs will be in safe hands if a time comes when you can no longer deal with them yourself,” say the Which? team.
“You can set up a power of attorney at any time, but you must be capable of making your own decisions at the time the document is signed – so it’s important to do this early. If you lose the ability to make decisions, the process is more complex, and the person who ends up acting on your behalf might not be who you would have chosen. There are a few different options, and the rules vary slightly depending on where you live in the UK.”
According to The Money Advice Service, just bear in mind there are two different types of power of attorney. “With ordinary power of attorney, you can use this to give someone a temporary right to handle your financial affairs, for example, if you’re in hospital for a while. You might need a solicitor to set this up and it will cost around £150. As for lasting power of attorney, you would use this to give a chosen individual the right to manage your affairs for you on an ongoing, indefinite basis.”
Think About Estate Planning
Roughly translated, estate planning refers to the process of arranging the management of your property, money and other assets during your life and after you die – think of it as the work and planning you have to do to ensure things like your will play out as you expect. But it can also help you to make the most of your finances while you’re alive. “Few of us want HMRC to get its hands on more of our wealth than it needs to,” explain the team at Which? “A well-considered estate plan can help to reduce the inheritance tax (IHT) bill your heirs will have to pay.
“Some legitimate tactics to consider include passing on some of your wealth while you’re alive by giving tax-free gifts,” the pros at Which? explain. “You can make use of a £3,000 annual allowance for tax-free cash gifts. You can also leave your home to a direct descendant (a child or grandchild) and they’ll benefit from an extra property allowance called the ‘main residence nil-rate band’. A couple using these rules could leave behind up to £1 million tax-free. Funds left in a defined contribution pension can often be passed on tax-free, too.
“Untouched pension savings aren’t usually counted as part of your estate when you die, so they can be ignored for IHT purposes. Make sure you nominate specific beneficiaries for your pension (it will depend on the type of pension you have, so check with your provider).”
Finally, Plan For Care
As part of your estate planning, you should also account for the potential need to pay for long-term care. “None of us has a crystal ball to predict our changing needs as we get older,” admit the Which? team. “But if you do need extra support later in life, the costs can quickly ramp up. It’s important to understand the different options available and what help is available to pay for them.
Your choices will depend on your needs but include making adaptations to your home to help you stay independent; moving to a more supportive environment where you can live independently and safely, such as a retirement village or sheltered housing; arranging professional care and support in your own home; or moving into a residential care home.”
“If you need the more dedicated, and likely costly, support offered by the last two options, there may be financial help available from your local authority or, if you have a serious health condition, the NHS,” add the Which? team. “But getting support will be dependent on an assessment of your needs and a financial means test. In most cases, financial support is only available if your assets are below a set amount (£23,250 in England, for example, but higher in other parts of the UK).”
Finally, without wanting to be too morbid, The Money Advice Service is keen people don’t forget to plan for funeral costs, either. “Funerals can be expensive, but there are ways of preventing these costs burdening your family. You can save regularly into a savings account earmarked for funeral expenses. If you have life insurance, check whether there are extra benefits if the proceeds are used to cover funeral costs. Make sure the proceeds are written in trust, so they are easily available after your death and don’t form part of your estate. Typically, with a funeral plan, you pay a lump sum or instalments to a provider who invests the cash and then uses it to cover the costs of a funeral you have chosen.”
Read The Money Advice Service’s beginners guide for planning for care here.
For more information and support around financial planning, always consult a qualified, independent financial advisor. You can also find more resources at Which.co.uk and MoneyAdviseService.org.uk.
*DISCLAIMER: Anything written by SheerLuxe is not intended to constitute financial advice. The views expressed in this article reflect the opinions of the individuals, not the company. Always consult with an independent financial advisor or expert before making an investment or personal finance decisions.