The Freedom Kit: ‘The personal finance playbook needs to be rewritten for this new era of longevity’

Better lifestyles and healthcare suggest that the prospect of living well into our 90s is now more of a reality. The question is, though, will we have enough money to live comfortably and independently for that long?

In the UK, demographers say that half of all five-year-olds will now live to be centenarians, according to the Oxford Institute of Population Ageing. For some that evokes visions of being surrounded by great-grandchildren, regaling them with stories of old. All that comes to mind, for me, is that the personal finance and pension provision playbooks need to be rapidly rewritten for this new era of longevity.

Most pension policies have a de-risking strategy automatically built into them for people approaching their chosen retirement age. This means switching to less risky funds or bonds that may not deliver the same level of return.

If we are to live in retirement for a long time, maybe even as long as four decades, this could potentially be longer than we actually worked. It simply won’t be possible to live without a generous personal pension income, as State pension funds are already sorely stretched, with policies being introduced encouraging people to work for longer, and to defer drawing down pensions.

Pension essentials

It goes without saying that for those starting out in their careers, a private pension is a must, rather than an option. The lengthy government deliberations on how pension related auto-enrolment in the workplace can best happen and who is going to foot the bill doesn’t help either.

The prospect of living longer means that starting out with private healthcare insurance will become more important for young adults.

Two parents needing to work and earn will also be the norm, with the option of being a stay-at-home parent diminishing for most average earners. Other socio-economic factors come in here too, like providing affordable childcare and after-school infrastructure to allow this.

For the not- so-young, longer-life Duracell bunnies, we should probably now be thinking about working for longer, getting that side hustle as a consultant or contractor, or simply doing a few hours in a local business when we retire from our main career.

Consider new ways to optimise assets too, maybe renting out a room, decluttering to trading sites like Adverts or Done Deal, or joining the ‘ranks’ of the taxi drivers, if the car is in good nick.

Topping up that pension pot, or looking at higher yield savings with term deposits or State savings, would also be sensible.

Living inheritance

Inheritances in our 50s or 60s should maybe not go completely towards a new kitchen or a world cruise; but, instead, be invested for the future, in a pension pot or a suitable long-term savings scheme.

The dilemma of‘ live for today’ versus‘ plan for tomorrow’ need not be an either-or dichotomy, but some of the monies coming in should be tucked away for the future.

Skiing has become popular, as in Spending the Kids Inheritance, when we retire. But, if there is a desire to help-out our offspring, especially in these times of expensive mortgages and tough inflation, then do consider what is possible as a tax-free ‘living inheritance’.

We can gift our children and grandchildren up to €3,000 each year, tax-free, and that can be a gift from both grandparents; so, a total of €6,000 to each relative. It is completely exempt from Capital Acquisitions Tax (CAT) and is in addition to the €335,000 tax-free threshold for inheritances. Why not enjoy seeing the kids benefit from their inheritance now?

Tax balance

A financial advisor or accountant will be invaluable in planning a tax efficient retirement or advising on how best to have sufficient funds available.

It is important to draw down monies from investments and pensions correctly, to fit below the various tax allowances.

That has to be sorted out sooner rather than later though; there is no point in trying to close the stable door after the horse has bolted, and Revenue is already all over your retirement savings.

Income from your pension incurs income tax, although you can draw down a portion tax-free initially. So, using a number of savings and investment products can help manage your tax burden in retirement.

The grey market

We are living longer, and we are fitter and more active, which is great. And, due to the growing numbers of ‘cashed-up baby boomers’ or,‘ the grey market’, more products and services are being created to meet the needs of this market.

From“ Winne bagos” in which to travel the world, to equity release finance, giving access to the cash tied-up in your home, retirement can be quite the adventure.

With fintech expanding, banking services and financial planning is not as age-friendly or inclusive as it could be. It will be important to keep on top of the apps and online banking or trading options that are coming down the line, even if it means badgering the people at customer service in the bank, or pestering the kids for demonstrations.

Home care or residential care is one of the biggest growth sectors in the western world, and may also be one of our biggest expenses as we age.

The Government’s Fair Deal scheme does fund residential care, and provides a nursing home loan that is repaid based on the equity in the person’s home. Nursing home care is expensive, and, again, it does make sense to plan ahead now, look at the options, and to take financial advice on how best to fund care, in case it is needed in later life.

About Carol Brick

Carol Brick is Managing Director of CWM Wealth Management and HerMoney. A qualified financial advisor, she specialises in the area of Asset and Wealth Management. See hermoney.ie or cwmwealthmanagement.ie for more details.

About HerMoney

HerMoney provides tailor-made financial solutions to self-employed professional women and service contractors all over Ireland. With offices in both Cork and Dublin, the business is a sister company to the long-established CWM Wealth Management.