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Is it that time already? It only feels like five minutes since you graduated. Then you landed that job; got married; moved house; the children came along; next the grandchildren. Now someone is asking when you’re thinking of “winding down”.
By no means everyone will find themselves in this situation. But if you have spent very little time contemplating what you might do when you hang up your boots and head for retirement, it may be high time to rectify that, for the sake of your relationship as well as your finances. If you have avoided planning ahead, you could easily find yourself blindsided by differences with your partner over retirement plans and expectations.
Picture this: you have always dreamt of travelling the world but, when the time comes, your partner wants to stay at home to help out with the grandchildren. Or you want to continue working for another 10 years but your other half is looking forward to putting their feet up and living off your combined savings. Or, heaven forbid, one person splashes the pensions tax-free cash on a one-off indulgence — a fast car or luxury cruise — while the other looks to squirrel away money in conservative savings bonds.
“The biggest mistake that people make is a lack of communication. If couples aren’t aware what each other wants this is storing up problems which are likely to escalate as retirement comes closer,” says Patrick Connolly, certified financial planner at financial advisers Chase de Vere.
FT Money outlines eight questions to help bring your retirement plans into focus. The key is to discuss, and agree, these aspects with your loved ones well before you clear your desk.
1 When do you want to stop working?
Those retiring today are likely to have a sharply different idea of what it entails from those of a generation ago. Many couples will find their lifestyle and roles will evolve over time, rather than being a single transition from full-time work to full-time play.
While some people cannot wait to leave their working years behind, others want to continue for as long as they are physically and mentally able. “If you tend more towards the former and your partner the latter (or vice versa), you can see how conflict could arise,” says Paul Reeves, retirement specialist at financial planners Gale and Phillipson. “This is especially true if the job in question and the ultimate retirement destination are miles apart.”
According to Hargreaves Lansdown, the average couple has around a two to three-year age gap, but if one of you wants to work later in life or phase in retirement, while the other is looking to spend quality time in the garden, you could easily find five to 10 years when one of you is working and the other retired. This has ramifications for your finances.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, says: “If you’re going to have a gap between retirements, you need to plan for it. How will you manage the household finances during this time? Will the higher earner contribute more to subsidise the lifestyle of their retired spouse?” She adds that the latter may also need to prepare for the phase that follows this. “Once they have spent a decade building a retirement around their own needs, how will they adjust when their spouse retires?”
2 What do you want to do when you retire?
Without a plan to fill seven days a week, retirement can be something of a challenge, especially for ambitious people who have spent their adult lives working. “There are plenty of ways to enjoy a fulfilling retirement away from work, whether through extra time with the family, volunteering, pursuing a hobby, or travel. But do plan ahead to avoid drifting later,” says Tim Bennett, partner at wealth manager Killik & Co.
What if you are the sort of person who hates the idea of giving up work? One wealth manager at Killik summed up why he has not retired, aged 70: “I don’t like gardening, I can’t play sports, I already travel with work, I have no ambition to run a vineyard and I am hopeless at DIY.” He is far from alone.
Experts suggest people consider what their ideal day in retirement will look like. List your top three priorities and ask your partner to do the same. If your top priority is travelling the world, but your partner’s is golfing with friends, you may have some issues to thrash out.
3 How much will it cost?
Start by adding up all of the money you spend now, remembering to include leisure spending such as eating out and holidays, as well as household bills, mortgage repayments and commuting costs. Next, imagine what you will spend when you have stopped work. Think about whether you will have repaid the mortgage, whether your children will still be living at home and how your transport costs will change when you are no longer heading to work every day.
Mr Reeves says the amount of money needed in retirement is a function of what you are going to do and where you plan on doing it. Make sure the plans you make with your partner are compatible with your financial resources. If not, do you need to change them, work longer or have a phased retirement?
The first step is to decide what your lifestyle will look like, says Ms Coles. “If you don’t have this conversation, there’s a risk that one of you will be saving for a retirement that involves caring for grandchildren and volunteering in the community and the other is expecting to travel the world,” she explains.
Experts also suggest making a financial plan to see you through retirement. “Having put a lot of effort and sacrifice into saving for retirement, don’t stop once you get there,” says Mr Bennett. “Money management is every bit as important at this stage as it ever was. So make sure you put together a budget, set aside a rainy-day fund, plan for big items of future expenditure and then put the rest of your wealth back to work.”
4 Where will the money come from?
Two-thirds of couples have no idea what their combined retirement income will be, according to research from Prudential, which also revealed that a quarter of couples admit have never discussed retirement income plans with their partners.
Stan Russell, retirement expert at Prudential, says: “ Conversations about finances are never easy, especially if you have not even told your partner how much you earn. It is extremely important to discuss your finances, however, as it is essential to know where you both stand so you can plan for a comfortable retirement.”
Working out how much money you will need in retirement, however, feels like it requires “a pensions calculator, a drawdown calculator and a crystal ball”, says Ms Coles. Not only do you need to know how much money you will get through each year in retirement, you also need to know how many years it is likely to last.
Retirement income will typically come from several different sources, including personal savings, investments and a pension. How you tap those accounts and when you claim state pension benefits can greatly affect how long your money lasts and what benefits your partner may be entitled to if you die.
“The glory days of final salary, guaranteed pensions for most employees are long gone,” says Mr Bennett. “As a result, affording a comfortable retirement has become a lot harder. Annuity rates are at near record lows and anyone taking a drawdown approach needs to ensure that their hard-earned money purchase pot will last over what could be a 20-30 year retirement.”
Whether one or both partners work, leaving full-time work at 60 or 65 will not always be affordable, warns Mr Bennett. “A better strategy is to forget the old-fashioned ‘carriage clock’ moment when you’ll walk off into the sunset and, instead, plan for the point at which you will switch from net saving to spending and how you will manage any income shortfall.”
5 What are the tax considerations?
Planning retirement as a couple can also have significant advantages over planning as an individual, including maximising the tax benefits of pension contributions, holding assets in the name of the person who pays the lower rate of tax and making tax-efficient gifts either in lifetime or on death.
“Couples who don’t talk and make joint plans risk losing out on making the most of the pension saving tax relief available between them, not using their full allowances in retirement may also end up with unrealistic expectations of what their savings combined are worth,” says Mr Russell.
There are some clear tax traps to avoid in retirement. These include being careful not to breach the pensions lifetime allowance limit, making sure you use your annual personal savings allowance, minimising inheritance tax on your estate and gifting assets in lifetime.
Paul Ayres, head of private client services at BDO, says: “All assets and funds that remain in your estate at your death could be subject to inheritance tax — so if you don’t need them it makes sense to give money and assets to the next generation during your lifetime.”
6 Where do you want to live?
Do you want to stay put when you retire or move to another house, region or country? “Too often we take family and friends for granted,” warns Mr Reeves. “If you’ve lived in the same house, in the same town for 30 years, how would you really feel about moving to a new house further away? Would you be close enough to friends and family? How often will you be able to see them?”
Parting with the family home is an emotional decision as well as a financial one. “One way to unlock capital is to sell what may be a large family home and trade down to something smaller. “ Downsizing may make practical sense to you — freeing up a lump sum for retirement and cutting maintenance and running costs,” says Ms Coles. “However, if your spouse can’t imagine leaving the family home, you’ll need to know about this sooner rather than later and factor it into your plans.”
Mr Bennett also makes the point that far from downsizing your property you may want to keep the space to host children and grandchildren.
7 What do you have on your bucket list?
The regrets of our youth are typically based on things we have done, while regrets later in life revolve around things we have failed to do, says Mr Reeves. He suggests clients make a list of anything that you or your spouse wants to do, see or accomplish before you die. “Be as intentional as possible, so you can both spend your remaining years in pursuits that bring meaning and satisfaction,” he says.
A survey from Sun Life found that five out of six people over the age of 50 say they still have things to tick off their “bucket list”. Almost half of those questioned agree there is still much for them to accomplish in their lives.
This highlights the importance of planning, says Brewin Dolphin, a wealth manager, whose own survey found that more than half of people plan their lives only days or weeks ahead. It has launched a campaign to ask people to write letters to their future selves to help them describe their long-term life goals and plan for them.
Liz Alley, head of financial planning operations at Brewin Dolphin, said: “Knowing how the other person visualises your future together is key.”
The bucket list
Most popular things the over-50s plan to do
- Ride a gondola in Venice
- See the Northern Lights
- See a volcano
- Travel somewhere alone
- Learn a language
- Take a helicopter ride
Taken from Sun Life survey
8 Are your retirement plans compatible with your partner’s?
Once you have asked yourselves the questions above you will need to assess whether there are any major differences between yours and your partner’s plans and start trying to reconcile them.
The key issue for most couples is their state of mental and physical health in later life, closely followed by their financial resources. If you don’t have enough money to retire, but have good health, you can still work part-time to enjoy life before it’s too late.
Jason Butler, a financial wellbeing expert and an FT columnist, says “Evolution is far better than revolution when it comes to adapting to later life. Couples that successfully manage that change, just like everything that came before, communicate with each other regularly, honestly and clearly. Planning for later life isn’t rocket science. Be clear what you both want out of life, reconcile any disconnects or differences and develop a flexible plan to achieve it.”
Will you still be paying off your mortgage at 70?
One in seven UK homeowners say they will still be paying off their mortgage at the age of 70, according to a new research.
The study by Aegon found 14 per cent of those surveyed were expecting still to be making payments on their home at retirement age and more than 40 per cent said they expected still to be renting at 70.
Steven Cameron, pensions director at Aegon, said a combination of homeowners getting on the housing ladder later, higher house prices and longer borrowing terms were the main factors.
“Paying off your mortgage in time for your 70th birthday is now far from a given,” he said. “Inflated property prices mean those getting on to the property ladder are doing so at later ages and are borrowing more for longer. Those left with an outstanding mortgage on their property face the prospect of either budgeting mortgage payments into their retirement or alternatively continuing to work.”
The survey also revealed that more than one in four people think they will be working either full or part time at age 70, with women slightly less likely than men to think this despite their greater longevity.
“It’s clear that people no longer expect to retire at as early an age as their parents, and the state pension age is not the defining ‘retirement moment’ at which they stop work,” said Mr Cameron. “For some, working beyond the past ‘traditional’ retirement age will be a lifestyle choice, but for others who put off planning ahead, it could be a financial necessity to cover living costs.”