The Salary Calculator

Later life money management

by Madaline Dunn

According to research, nearly one in five people in the UK are now over State Pension age (65+), and with advances in medicine and technology meaning people live longer than ever, the average person is likely to spend a quarter of their lifetime retired.

There will no doubt be different stages you go through during this later period of life, too, with each phase requiring different kinds of support. So, it’s a good idea to get your finances in order, compile a personalised checklist and get a good idea of later life money management.

Later life planning can feel a little daunting; after all, there’s a lot to take into consideration and organise. That being said, research shows that planning for later life, including later-life money management planning, is correlated with a higher level of well-being further down the line. Your later life plans can include everything from whether or not you choose to downsize and put aside money for later life care to organising your will.

In this week’s article at The Salary Calculator, we’ll guide you through the following:

• Reviewing your pension choices
• What equity release is
• Different benefits you might be entitled to
• Navigating long-term care finances
• Wills and probate
• How to watch out for scams

Review your pension choices

It’s key that you know the state of your pension; after all, when you reach later life, you’ll likely have different pension arrangements from different jobs you’ve had over the years, so it can be a good idea to consolidate them. You can use the Pension Tracing Service to track them all down. It’s advisable to speak to a financial advisor to check whether this is the best option for you.

Likewise, it’s also a good idea to see where you are with regard to your state pension. To do this, and get an estimate, simply use the GOV.UK State Pension calculator.

Look into equity release

Equity release is a way to access the value of your home (the “equity”) so that you can spend it during your retirement without having to sell your home. exists in two forms: a lifetime mortgage and a home reversion plan – one of the key differences between the two is that with the former, you still retain ownership of your home. Further, the former allows you to borrow a portion of the value of your home, and interest does apply to this. The loan is repaid either when you pass away, move into long-term care, or sell your home. There are two versions of this: an interest roll-up mortgage and an interest-paying mortgage.

The latter enables you to sell either part or all of your house, for a cash lump sum, a regular income, or both, which will be considerably less than you would have obtained if you were to sell your property. Typically you will receive between 30% and 60% of the market value of your home, as you are allowed to continue living there, and the owner cannot sell the property until you are permanently vacated, in whichever capacity that is.

See what benefits you’re entitled to

It’s a wise idea to make sure that you’re receiving all the benefits you’re entitled to as you get older; after all, everyone can do with a little extra support these days. In fact, billions in benefits go unclaimed each year.

Some benefits that you might be entitled to in your later years include:

• The Winter Fuel Payment
• Housing Benefit
• TV Licence Concessions
• Council Tax support and
• Travel Concessions.

Long-term care

Looking ahead to later life, it’s important to prepare for every eventuality, even if it may feel rather morbid, it’ll more effectively safeguard your future. This is especially true considering that life expectancy these days is much longer, with male and female babies born in 2018 predicted to live 79.9 years old and 83.4 years old, respectively. Likewise, the likelihood of becoming disabled or experiencing multiple chronic and complex health conditions increases with age. Comparatively, the time people spend in poor health has increased, and the so-called ‘healthy life expectancy’ is much shorter: 63.3 years for males and 63.9 for females.

Subsequently, it’s important to plan ahead as you will likely have to fund this later-life long-term care yourself. This might be achieved through your pension/s, any investment money you have, or through equity release. That said, you may qualify for help with this via your local authority.

Arranging your will

As you enter the later stages of life, it’s likely that you’ll be thinking more about what will happen once you’ve passed on. A part of this might be thinking about your legacy and, if you have money or keepsakes, who you might pass this on to. If you haven’t arranged this yet, it could be worth looking into to ensure a smoother process later on and guarantee that those who you wish to inherit this receive it. If you already have a will, it’s worth reviewing and updating it as required.

Here, it’s also worth checking whether or not inheritance tax will apply. For more information about that, head over here. By planning ahead, and taking the above into consideration, you can also look into lowering your inheritance tax by parting ways with some of your money, for example, through:

• Charitable giving,
• Lifetime gifts,
• Setting up a trust.

You may want to look into setting up Power of Attorney, too. This gives another individual/s legal authority to make decisions on your behalf, if, for example, you spend time in hospital, or you no longer have the mental capacity to make your own decisions.

If you’re in a financial position to do so, you may also want to put money aside for your funeral costs. While everyone’s preferences will differ when it comes to life celebrations and funerals, costs can really add up – these days, the average burial costs around £4,383, while cremations cost around £3,290. Here, you may want to look into pre-payment; again, it might sound a little morbid, but it will mean your family and loved ones will have less to worry about after you’ve passed away.

Protecting yourself against potential scams

Research shows that scams targeting older adults are, unfortunately, on the rise. So, it’s wise to educate yourself about some of the common scams targeting people at the moment because, with increasingly sophisticated scams, it’s easy to fall prey to them.

Energy scams are particularly prevalent right now due to the ongoing energy crisis. Many scammers are posing as Gov.uk, Ofgem, or an energy company, claiming that you have an energy rebate to claim. However, bear in mind that if you are entitled, this will be directly applied to your bill, or received by voucher.

Some other key advice is to register with the Telephone Preference Service to reduce unsolicited calls. This can be done here. Likewise, don’t open any suspicious texts, pop-up windows, email attachments or email links.

Tags: houses, Later life, money management, retirement, wills

Weighing up early retirement

by Madaline Dunn

When it comes to thoughts about retirement, many can’t wait to clock out for the last time, willing it to come as fast as possible. A third of people, for example, want to retire by the age of 60.

That said, very few believe they’ll actually achieve this. Research from Hargreaves Lansdown found that adults aged 34 and under expect to retire when they’re 63, on average, while only one in eight believes in the feasibility of retiring by age 55. For those further on in their lives, for example, those aged 55 and over expect to retire much later, 68 years old on average, and as many as one in five believe they’ll have to wait until 70 years old to retire.

Research from Canada Life has, however, found that more than two in five UK adults aged 55-66 years old have taken early retirement since the beginning of the pandemic in March 2020. Still, it’s important to note that new research finds little evidence for the so-called ‘Great Retirement’ and instead cites long-term illness as the reason for large swathes of older workers leaving the workforce.

In this week’s article, we’ll explore the following:

• The motivations behind people pursuing early retirement,
• What’s required to retire early and how to plan for it,
• The risks associated with early retirement.

The motivations for early retirement

While many view retirement as the end of one’s working life, for many, it can actually be an opportunity to pursue a new career, look into consulting, volunteering, or even get back into education and study. Others see it as an opportunity to spend more time with their family and get back in touch with themselves and their passions.

Of course, not all are looking to leave the workforce solely to enjoy their golden years. According to Dr Afik Gal, co-founder of Assured Allies, age discrimination can play a part in pushing people into early retirement. Likewise, layoffs can also be a reason for early retirement, as can declining health.

What’s required to retire early and how to plan for it

When considering taking early retirement, there are a few things that will be required to ensure the process is as smooth and sustainable as possible. To begin with, it’s worth asking yourself some questions to ensure that you’re both emotionally and financially ready to retire. Some of these questions include:

• Have I got any debts I need to pay off? When looking to retire early, it’s important to ensure that you pay off debt and avoid accumulating further debt, as far as possible. Long-term and short-term loans come with interest and divert money away from savings.
• Do I need to pay off my mortgage? If you can afford it, making overpayments on your mortgage can help you pay it off sooner rather than later, and you’ll pay less overall. That said, be sure to check whether you’ll be faced with any repayment penalties before doing this. Some advisors also warn that you might risk depleting your liquidity, so make sure to check whether it’s the right move for you.
• How much money will I spend each month, and do I have enough for daily expenses? Having a clear idea of where you are financially will help you make this decision much more easily and work out a budget for basic day-to-day living. It’s also worth noting that the figure you come to will likely increase yearly with inflation.
• How much do I require for my discretionary funds? While you may have the basics covered, it’s important to factor in the money you’ll want to spend on leisure activities, treats and holidays. If you’re in a situation where you’re just scraping by each month, you’re unlikely to enjoy your early retirement.
• Have I planned for unexpected events and emergency savings? For most, life is rarely straightforward, and whether it’s a medical emergency, a burst pipe, or, say… a pandemic, you’ll likely face a few curveballs in the years to come. It’s a good idea to have an emergency savings fund to prepare for these unforeseen events.
• What are my plans for after I retire? Experts say that it’s key to make plans post-retirement for fulfilment and mental stimulation. Do you plan to pursue a new hobby, volunteer, or study?

When you’ve weighed up whether or not an early retirement is for you, there are a few actionable ways you can plan ahead.

Once you’ve figured out the sum of what you’ll need to survive and thrive in retirement, it is key to make an inventory of all of your assets, so you can determine where your retirement income will be derived.

You’ll need to review your pension options, too. You won’t be able to access your state pension until you reach state pension age, and if you retire early, you might be entitled to less. Likewise, it’s important to check the rules around your personal or company pension – in some cases, you may not be able to access it early, but on the other hand, if you retire due to circumstances out of your control, such as illness, you might be able to access an enhanced pension. The details will also be different regarding defined contribution pension schemes, so be sure to get your ducks in a row.

Once you’ve looked into your pension pots, also assess any investments you have, how much your property is worth, and whether downsizing could be an option. Equally, you may decide on a phased retirement or decide to take up part-time work to supplement your retirement income.

After that, experts advise you to make a savings and investment plan, and if you follow the FIRE movement to retire early, set aside 25% and 50% of your monthly income.

It’s also worth speaking to a financial advisor, who will be able to guide you through the process and help you weigh up your options.

What are the risks associated with early retirement?

Early retirement is not without its risks. From a financial perspective, it’s important to note that economic recession, inflation and unexpected medical expenses can leave you in a position you may not have prepared for.

Right now, for example, inflation is at a 40-year high, and the cost of living is rising sharply. Likewise, if your pension doesn’t stretch as far as you thought it might, you may have to re-enter the workforce, which could come with challenges, especially with an employment gap. It’s also worth bearing in mind that you might live longer than you’d expected and so, it’s a good idea to make sure you can pay for the cost of care in later life.

Aside from the financial side of things, it’s also key to note that some research suggests that early retirement can be bad for the brain. Some research, for example, has found that those in retirement have a 38% faster rate of verbal and memory loss than those still working. Likewise, the National Institute of Health estimates that a third of individuals in retirement have symptoms of depression.

Tags: early retirement, Jobs, retirement, savings

Pensions in the current climate

by Madaline Dunn

Recently, there have been lots of government budget announcements and a number of changes made in regard to pensions. These changes come alongside discussions around potential alternations to pensions in the future. With such a raft of changes, it can be difficult to know where you stand or how exactly you’ll be affected.

At The Salary Calculator, we’ll walk you through all the information you need to understand pensions in the current financial climate in a straightforward way. We’ll cover the following:

• The triple lock and discussions around its replacement
• The increase the state pension
• The pension age increase
• Upcoming changes to tax payments for retirees

The triple lock

The triple lock was a pledge made by the Conservatives in their 2019 manifesto but was broken over the pandemic. Now, despite doubts, it has been reinstated under the new budget. It ensures that pensions increase in line with either:

• The average wage increase,
• Inflation, or
• 2.5%

As such, there will be a 10.1% increase in State Pensions from April 2023.

According to experts, the government has considered scrapping it altogether and replacing it with a new system following the next election. Some commentators have also forecast that, in the future, state pension entitlement could eventually become means-tested, a model that is currently present in Australia. A means-tested pension top-up was also proposed by former Chancellor Gordon Brown back in 2002.

This kind of means-tested pension is not without its critics, though, and with recent whisperings of this kind of model being proposed, former Pensions Minister Baroness Ros Altmann claimed it would be “disastrous.” Altmann, for example, outlined: “Without a decent basic state pension underpin for everyone, the real risk is that more pensioners will end up poor in retirement and this will damage long term growth for us all.”

The increase in the state pension

As per the triple lock, pensions will rise in line with September’s Consumer Prices Index (CPI) measure of inflation. So,

From April 2023, payments will be as follows:

• £203.85 a week, up from £185.15 for the full, new flat-rate state pension (for those who reached state pension age after April 2016).
• £156.20 a week, up from £141.85 for the full, old basic state pension (for those who reached state pension age before April 2016).

Increasing the pension age

The UK is currently in a recession, and the Treasury is frantically searching for ways to raise money. One of the proposals that would reportedly raise billions is increasing the pension age. As per current legislation, the retirement age is to rise to 67 by 2028. By 2039, this is set to increase further to 68. However, ministers are pushing to increase the pension age to 68 by up to six years earlier in 2033.

Some experts say that if this goes ahead, those who are currently in their 50s will receive £10,000 less when they retire.

New Work and Pensions Secretary Mel Stride has now confirmed that the outcome of the State Pension age review will be published before May 2023 – so a final decision is coming soon. Stride was recently grilled on potential upcoming changes to pensions in the Spring budget. When asked whether or not the portion of people’s lives spent in retirement should shrink (currently at one-third), he said he couldn’t be drawn on what his thoughts are “at this stage” and questioned whether John Cridland’s (who led a previous review of the state pension age in 2017) was right in his calculation of one-third.

WASPI – Women Against State Pension Inequality, meanwhile, has called for the government to introduce fairer policies. Jane Cowley, director of Waspi, for example, said that the government needs to “look less at average figures” and “take greater account of the lives of people in economically disadvantaged areas.” She added: “Often in these areas there is a drastically lower life expectancy and very few years spent in good health during retirement.”

Likewise, Angela Madden, chair of Waspi, said: “Ministers need to recognise that while we are living longer, people in their late 60s and early 70s tend to be in declining health.” Adding: “It isn’t right to expect everyone to work full-time till they drop.”

Upcoming changes to tax payments for retirees

According to reports, if the UK Government increases State Pensions by 10.1% next April, although 12.5 million people would see a boost, another 500,000 could be included in the “tax net.”

Former Liberal Democrat pensions minister and partner at pensions specialists LCP (Lane Clark & Peacock), Sir Steve Webb, explained that this is because of the freeze on tax thresholds, coupled with the increase in pensions.

Elaborating on this, Nimesh Shah, the chief executive of Blick Rothenberg, on the BBC Money Box podcast, called this a tax increase “by the back door.” He continued: “Everyone uses the word stealth tax increase. They didn’t want to increase the headline rate in the run-up to the next general election.” Shah said that this is an example of the fiscal drag effect: “Someone’s wages go up but they are paying more income tax because of those frozen allowances. The state pension is increasing by 10 percent which is great news but pensions are now going to get dragged into income tax.”

 

Tags: cost of living crisis, pension, pension age, retirement, state pension

New tool for those thinking of retiring

by Admin

If you are thinking of retiring soon, you might be wondering what kind of effect taking your pension would have on your take-home pay. This is not quite as simple as it might sound at first – the deductions from your pension income will not be the same as those on your salary. For example, you might be paying into a pension with some of your salary, which of course you would not do with income from a pension. And National Insurance is not deducted from pension income, whereas it is deducted from your salary if you are below state pension age.

With this in mind, I have combined a few options from the Two Jobs calculator (which shows you the take-home pay if you have two income at once) and put them in the Two Salaries Comparison Calculator (which compares two incomes side-by-side). Now, you can enter different options for the two different incomes you are comparing (e.g. different bonuses or overtime) – and you can also tick a box on the “Additional Options” tab to indicate that one or other of the incomes is a pension. This income will then not have National Insurance deducted from it – so you can enter the details of your employment for the first income and the details of your pension in the second income, tick the box to say the second job is actually a pension, and the calculator will deduct NI only from the first income.

If you are thinking of retiring, or just investigating a new job which would have a different salary and different deductions, try out the Two Salaries Comparison Calculator.

Tags: income tax, national insurance, pension, Pensions, retire, retirement, The Salary Calculator