According to one recent study, UK adults face multiple financial worries in 2024. These include the “rising cost of living” (49%), “paying my bills” (28%), “not having enough savings” (23%) and “not saving enough for retirement” (13%). A third of Brits expect 2024 to be a difficult year financially, and around 10% expect they will need to ask friends or family for money.
Fortunately, financial planning can help you to brighten your future, taking more control of your circumstances (rather than letting them control you). Below, our Carlisle financial planners explain how individuals can build a strategy which assists in at least three major areas of financial planning in 2024.
We hope these insights are helpful. Please contact us for more information or to speak with a financial adviser:
t: 01228 210 137`
e: [email protected]
Rising living costs
There is some good news at the time of writing. The headline rate of inflation is back to the Bank of England’s target of 2%, and has remained so for the second consecutive month. However, many households are still feeling the detrimental effects of the rising cost of living in the UK, particularly since costs soared in 2022. Prices are still rising, just at a slower rate.
Rising inflation pushed up the minimum cost of retirement by 20% on average last year, from £12,800 to £19,900 for a couple. The cost of a “comfortable” retirement lifestyle has also risen sharply, up from £37,300 to £54,500 for a couple.
The sad reality of these figures is that many people will need to draw more from retirement savings simply to maintain their living standards. However, a financial plan helps to protect retirees’ finances. It can also help prepare those approaching retirement, to ensure their goals are safeguarded if living costs rise sharply again in the future.
Expense management is naturally a good option for many retired households. Cutting back on certain discretionary costs may be necessary to sustain pension pots over the long term. Others might be able to avoid this by attending to other neglected areas of their financial plan (e.g. reducing needless investment fees without compromising fund quality).
Overcoming retirement fears
Some people fear not having enough money for retirement. Others, however, worry about outliving their pension savings. Indeed, MoneyAge identifies this as the biggest concern of financial adviser clients (71%).
In 2024-25, a British adult becomes entitled to their State Pension from age 66. Moreover, under the Normal Minimum Pension Age (NMPA) rules, pension savings (e.g. in a workplace scheme) can be accessed from age 55 (due to rise to 57 in 2028).
Given that British men currently have an average life expectancy of 78.6 and women 82.6, both cohorts might need their pensions to last for 30+ years. This duration is expected to lengthen for boys and girls born in 2020, who might live to 87.3 and 90.2, respectively.
A financial plan can help ensure the sustainability of your pensions, even over a multi-decade retirement. One idea is to consider paying off your mortgage before retirement to minimise expenses. Another idea is to maximise your State Pension entitlement.
To mitigate against outliving your pension, a robust estate plan can help. Perhaps you want to pass down your wealth to loved ones when you die. In which case, pensions can be a very tax-efficient tool since any unused funds are exempt from inheritance tax (IHT).
Care costs
In 2024, there is a good chance that you may need to receive some kind of social care (if not receiving it already) at some point in your life. Unfortunately, the cost of care is not cheap. A care home can stand at £800 per week and a nursing home over £1,078.
There is a planned “cap” on care costs for 2025. This will supposedly prevent any individual from paying more than £86,000 over their lifetime on “personal care”. The new Labour government has stated it is still committed to this cap.
Whilst offering some protection against spiralling care costs, many have highlighted some problems with the cap. In particular, some aspects of a care home service (e.g. food, energy bills, and accommodation) do not fall under the cap.
Naturally, this state of affairs can create a difficult conundrum for financial planning clients. On the one hand, an individual may want to ensure enough savings to cover potential future care costs. On the other hand, they likely wish to also avoid a large IHT liability on those savings.
Here, a financial planner can help with striking an effective balance. Whilst the process cannot guarantee no IHT liability on care savings, it can help to mitigate a needless liability whilst promoting peace of mind that you will have the resources you need to cover any future care.
Again, pensions can be a powerful “vehicle” to achieve this. The funds are generally exempt from IHT in 2024-25, and these could be used to help contribute towards paying for care (if required). However, other options might include buying a “deferred needs care annuity” or a lifetime care plan (which often works in a similar way – making a one-off payment for regular monthly payments later).
Invitation
If you would like to discuss your financial plan and investment strategy, then we would love to hear from you. Get in touch with your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.
Reach us via:
t: 01228 210 137
e: [email protected]
This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.