10 steps to healthy finances in later life

Healthy finances in later life

Good financial management and planning can help to make things run more smoothly no matter what stage of life you’re in, but it’s never more important than later in life.

As you move into retirement and later life, your income and outgoings change. Perhaps you stop work, or at least ease off, and if you have a mortgage, you might finally pay this off. Your thoughts may turn to how you’ll pay for any long-term care needs, and providing for loved ones after you die. 

Whether you’re already retired or planning ahead for a few years’ time, there’s never a bad time to give your financial affairs a once-over. Our handy checklist for ensuring healthy finances in later life can help you get started.

1. Get day-to-day finances in order

You may have a tried-and-tested system for managing your banking and bills that’s worked well for years. But if the time came when you were no longer able to manage your own affairs, would someone else be able to access and manage your accounts easily? 

Here are a few things you can do to make your affairs more straightforward:

• 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. 
• 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.
• 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.  
• Track down any ‘lost’ assets. 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. Free online service My Lost Account is a good place to start. For pensions and other investments, try Experian’s Unclaimed Assets Register.

Read more advice on how to get your everyday finances in order.

2. Make savings and investments work harder

The savings market is usually one where loyalty doesn’t pay, with some older accounts paying as little as 0.01% interest. And don’t assume that accounts targeted at over-50s will necessarily pay the best rates as you get older – they often don’t.

• Switch and earn: Which? Money Compare can help you to find and switch to a savings account or cash Isa that will make your money work as hard as possible. 
• Make the most of tax-free interest: Since the introduction of a generous personal savings allowance, around 95% of savers no longer pay tax on their savings.
• Consider the alternatives: Rates on cash savings have been nothing to write home about for years. Investing offers the potential for higher returns over the long term, although whether this is right for you depends on your stage of life and attitude to risk. Find out how to strike the right balance between risk and return with Which? Money’s advice on investing.
• Are premium bonds still worth it? 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. If you might need to start relying on your savings for a regular income, premium bonds are unlikely to be the right option. Weigh up the pros and cons of the nation’s favourite savings product.

3. Fine-tune your pension

For most people, pensions will be a key source of income in later life. This may be a combination of the state pension and workplace or private pensions.

Make sure your entire pension pot is as healthy as possible as you approach retirement and beyond with the following tactics:

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.
• 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. 
• 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: 
  1. buying an annuity for a guaranteed regular income
  2. leaving your money invested and taking a flexible income as needed – known as income drawdown
  3. taking one or more lump sums
  4. a combination of the above.
• Pension credit could top up your state pension if you’re on a low income. It’s estimated that more than a million households could be missing out on this benefit, so check if you're eligible.

4. Set up Power of Attorney

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. 

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. Find out how to set up Power of Attorney in:

• England and Wales
• Scotland
• Northern Ireland.

5. Put an estate plan in place

Estate planning is the process of arranging the management of your property, money and other assets, during your life and after you die. It can help you to make the most of your finances while you’re alive, as well as ensuring you leave behind as much as possible for loved ones. 

Few of us, for example, want HMRC to get its hands on more of our wealth than it needs to. 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:

• Pass on some of your wealth while you’re alive by giving tax-free gifts. You can make use of a £3,000 annual allowance for tax-free cash gifts.
• 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 (2021-22).
• Funds left in a defined contribution pension can often be passed on tax-free. 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).

Put yourself in the best position to understand the rules with our inheritance tax guides.

Your estate plan should also account for the potential need to pay for long-term care (see below). For example, will you need to use your home to pay for your care in future? Or is this something you really want to avoid? 

You might be tempted to give away your wealth or property while you’re still alive, to help you qualify for local authority care funding. But this is a notoriously tricky area of financial planning, and you should make sure you understand the intricacies of transferring property and gifting assets in relation to paying for long-term care.

6. Consider the cost of care

None of us has a crystal ball to predict our changing needs as we get older. 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
• 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. 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). The reality is that most people will need to self-fund some or all of their care, so you should take account of this potential pull on your finances when planning for later life.

Paying for care in later life: a free guide from Which?

For more jargon-free information about how much care costs, the different funding options and how to get financial help with the costs, download our free guide to paying for care in later life.

7. Make a will

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. 

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. Which? Wills offers an affordable will-writing service; for straightforward estates, the process can take as little as half an hour.

8. Use your property as an asset

If you own your own home, it’s likely to be your most valuable asset. It’s natural to want to retain some of your property’s value to leave behind to loved ones, but you may also be able to use some of it to boost your finances or pay for long-term care.

Perhaps the most obvious method is downsizing. Swapping a large family home for a more modestly priced abode could net you a large chunk of money to spend, save or invest.

There are also options to free up equity in your property without moving home.

Equity release is an alternative type of loan against your property, aimed at retirees or those approaching retirement. You borrow an agreed sum and typically don’t repay interest or capital until you move into residential care or die. The outstanding debt is usually repaid through the sale of your property.

Equity release is typically expensive, though, and can come with restrictive terms, so you should take financial advice before going down this route.

9. Get the benefits you’re entitled to

Getting older triggers your entitlement to receive a range of official benefits. 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. Eligibility for some other benefits depends on your circumstances:

• 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 £89.60 a week (2021-22). 
• Pension Credit tops up your weekly income to a guaranteed amount if you’re on a low income. 
• TV licences are free for some over-75s, but from August 2020 you'll need to receive Pension Credit to qualify.

Read our guide to benefits for older people for a full breakdown of what you might be entitled to:

Benefits for older people

10. Take advantage of discounts and freebies for older people

As well as the government-funded benefits highlighted above, many companies offer retirement perks that could help your money stretch a little further. A savvy retiree can enjoy discounts at cinemas, museums and heritage sites, concessions on season tickets for sports clubs, and cut-price meals in restaurants. Even if you don’t see a ‘senior’ discount advertised, it never hurts to ask.

Don’t forget to make the most of travel discounts. Over-60s in London, Northern Ireland, Scotland and Wales qualify for free travel on a range of public transport. In England (outside of London), you’ll have to wait until you reach state pension age, and travel is only free on buses. If you prefer to travel by train, the over-60s Senior Railcard gets you a third off train fares and costs £30 a year.

Of course, you don’t need to wait until you retire to benefit from some saving tactics – take a look at our round-up of 50 ways to save money at any age.