Older people have plenty to think about when it comes to money. Retirement, pensions, insurance, bills – it can all seem overwhelming. But it’s essential that we monitor and manage our money well as we head into later life. Of course, everybody’s circumstances are different, so it’s important to work out a realistic financial plan for your situation. To help you plan for your future, we’ve put together a list of our top 10 finance tips for older people.
The UK has an ageing population. Both the government and the NHS are struggling to cope with the demand for healthcare and support. Of course, it is impossible to predict the future, but it is likely that private pensions will become more important than ever in the years ahead.
Once you retire, you will probably be drawing most of your income from a mix of state and private pensions. The State Pension is a regular income that most people can receive once they reach State Pension age. For several years, State Pension age has been under review. To find out when you will reach State Pension age, use the government calculator here. In order to claim State Pension, you’ll need to have made National Insurance contributions for at least 10 years. You’ll receive a letter from the Pension Service a few months before you reach State Pension age – this will tell you how to claim your pension.
The current State Pension is £179.60 per week, paid every four weeks directly into an account of your choice. However, the amount you actually receive may vary depending on your National Insurance contributions, any additional entitlements, and whether or not you choose to defer taking your pension.
A private pension is a way for you and your employer to put cash aside (with tax relief!) for your retirement. Most people contribute to private pensions through a workplace scheme but there are other means of doing so, such as a Self-Invested Personal Pension (SIPP).
Remember that it is never too late to start a pension. Ideally, you’ll start saving as early as possible, so the pension has more time to accrue value. However, you shouldn’t rule yourself out, no matter how old you are. The tax incentives of pensions can even benefit those who start them when they retire. By law, your employer must offer a workplace pension scheme. If you are eligible for the scheme, you’ll be enrolled automatically. However, if you don’t wish to enrol for any reason, you can choose to opt out.
When you retire, you can withdraw money from your pension pot as a tax-free lump sum (usually up to 25% of your total pension fund). You can then choose to buy an annuity – a guaranteed (taxable) income for the rest of your life. Alternatively, you can reinvest the remaining funds to give yourself a flexible, regular income in a process called pension drawdown. Finally, you can also choose to take small sums of cash from your pension pot as and when you need them. After the first 25% lump sum, all future withdrawals will count as taxable income. Charges may apply every time you withdraw money or there may be a limit on how many times you can withdraw money each year. Make sure you know all the details before making a decision.
Planning Your Pensions
Here are a few quick tips for planning your pension:
- Calculate your current monthly outgoings from your bank and credit card statements. Think about how this might change when you’re not working. Most people’s spending goes down when they don’t have to commute to work, for example.
- Work out your monthly income sources post-retirement. These could include pensions, interest, investments, savings etc.
- Look at what benefits you may be entitled to. Examples include senior railcards, VAT exemption, and a Winter Fuel Allowance.
- Decide when you want to retire and when your state pension is available. You can continue working while claiming State Pension if you want to. You can also defer your State Pension, which will give you bigger weekly payments when you start claiming it.
- A year before you retire, calculate your final pension. Contact your current and past pension providers and find out how much is owed to you and how it will be paid to you.
A little extra money can go a very long way. As we’ve already mentioned, there are several government benefits available to help with your finances. Here are just some of the most common benefits that you need to be aware of:
- Attendance Allowance – To help those who may need extra support to stay independent at home due to illness or disability. This benefit helps people to purchase equipment like a pendant alarm.
- Carer’s Allowance – A benefit to support people who provide unpaid care to a partner, relative, or friend.
- Age-Related Help – Everyone over the age of 60 is eligible for free prescriptions and free eye tests. You may also be eligible for help with other NHS costs such as dental treatment, travel costs for treatments and vouchers towards glasses/contact lenses.
- Personal Independence Payment – This is gradually replacing Disability Living Allowance. It’s a payment for people who may need help with daily activities due to a disability or long-term illness.
- Disability Living Allowance – Known as DLA, this is a tax-free benefit that helps with mobility and care costs if you’re living with a disability. This is currently being phased out and replaced by Personal Independence Payment.
- Bereavement Support Payment – This is a welfare benefit, available to those who have lost their spouse or civil partner. It is not means-tested, so anyone can claim it, regardless of their income or whether they are working.
For information about useful benefits, please visit the Citizens Advice website.
No one likes paying bills, but they can be a big worry for older people and their loved ones. From energy bills to rent or mortgage payments and food bills, there are several expenses that we just can’t avoid. Next on our list of finance tips for older people: plan for essential expenses.
Many of us will have less income after retirement, so it’s important to get the best deal possible on our energy bills. Therefore, a fixed rate energy tariff might be a good idea. Many energy companies offer discounts if you take out both gas and electric with them, but it is very important to compare prices across the energy market. There are plenty of helpful price comparison tools on the internet to help you shop around.
Remember that no matter the supplier you choose, it is the same gas and electricity, delivered through the same pipes and cables. The only difference is the customer service and the price! There’s also usually an additional discount if you pay by monthly direct debit.
Paying by direct debit also ensures that you know exactly what you are paying every month. The Money Saving Expert website is a great place to visit every now and then to see all the latest offers, alongside great hints and tips from Martin Lewis.
It’s also worth noting that the government offers a Winter Fuel Payment, between £100 to £300, to help with the cost of energy bills through winter. The Cold Weather Payment is an extra help during the coldest months for people receiving certain benefits.
How to Reduce Energy Bills
- Turn off your lights when you’re not in the room – Lighting accounts for 19% of the average household’s electricity bill.
- Turn down the thermostat – Reducing your room temperature by 1ºC can reduce bills annually by around £85. Remember, however, that staying warm enough is essential for good health and keeping healthy should be your top priority.
- Home Insulation – Loft insulation alone can save you around £175 per year. Some energy companies even offer free loft insulation as part of the ECO scheme.
- It’s the small things that count – Remember to close your doors and to turn the TV off whilst you’re not in the room.
For more money-saving tips, check out our Q&A with Pounds and Sense founder, Nick.
Investments can be a good way to secure yourself a steady income or a lump sum after retirement. This can help to relieve any financial constraints. Pension freedoms from 2015 allow anyone over 55 to take control of their savings and manage them how they wish. Here are some important things to know about investments for older people:
- Risk – Keeping your money in a savings account is a safe bet, with little risk involved, but the interest rate won’t generally beat inflation. In other words, your savings will gradually be decreasing in value in real terms. Looking to invest some of your money may be a risk, but it could lead to more valuable income. Remember: the greater return you want, the more risk you’ll usually have to accept.
- Types of Funds – Low-risk bonds such as Gilts issued by the government can bring you a steady interest rate over several years. A greater risk comes with Equity Income Funds, which are investments in shares in companies like Barclays and BT. These can increase your income through dividends payments. Advisers recommend a balance of low and high-risk funds where you can invest as little as £1000.
- Diversify – It is wise to spread your money between different kinds of investments. This helps to reduce the impact of an underperforming investment. For example, in shares, you can spread your investments between large and small companies, UK and overseas markets and different sectors such as industry and finance.
Investments can be tricky business but luckily there is help out there. Money Saving Expert is always a good source of helpful material.
Power of Attorney is a legal document that allows a representative (chosen by you) to make decisions on your behalf if you become unable to do so.
There are three types of power of attorney. Ordinary power of attorney is only valid while you still have the mental capacity to make your own decisions. If you need someone to act for you temporarily, such as during a hospital stay, or you need someone to access your bank account on your behalf, an ordinary power of attorney would be suitable.
Lasting Power of Attorney
Lasting power of attorney (LPA) is split into two categories – one for financial decisions and one for care decisions. When you set up an LPA for financial decisions, you can decide whether to let your representative use it while you still have mental capacity or not. Otherwise, it will only come into effect once you no longer have mental capacity.
There are also enduring power of attorney documents (EPA), though these were replaced by LPAs in 2007. However, existing EPAs are still valid.
Making a Will
If you only take one thing away from this article, it should be this. We can’t overstate the importance of making a will. It’s something that adults of all ages should consider, especially if you have children or other dependents. Your will determines where your finances and assets go after you die.
Lots of people put off making a will as it can be an uncomfortable issue. However, if you pass away without leaving a will, your estate will be subject to the rules of intestacy. This means that the government will distribute your estate, possibly not in the way you would want. For example, only spouses, civil partners, and some other close relatives can inherit under these rules.
To make a will:
- Consult a specialist solicitor.
- Include property, savings, investments & personal items.
- Clearly state how you wish your estate to be divided.
- Appoint one or more executors of your estate. They will make sure your requests are met.
- They will also deal with inheritance tax if it applies.
Talking about funerals can be uncomfortable and upsetting. What’s worse is that they are also quite expensive and can put a lot of strain on people. Funeral costs in the UK have been rising steadily for several years.
According to the Money Advice Service website, the average cost of a burial funeral is £4,321. In some cases, the person who has died will have already paid for their funeral. Alternatively, they may have left money as part of their will specifically for the ceremony.
Fortunately, help is available if you cannot afford to pay. If you’re on a low income and receive certain benefits, you will be eligible for the government’s Funeral Payment Scheme. This will give you monetary help for:
- Burial fees and exclusive rights to burial in a particular plot.
- Cremation fees, including the cost of the doctor’s certificate.
- Up to £700 for funeral expenses, such as funeral director’s fees, flowers or the coffin.
- Travel to arrange or attend the funeral.
- The cost of moving the body (within the UK) if it’s being moved more than 50 miles.
- Death certificates or other documents.
7. Finance for Care
Care is a very expensive business. Our next finance tip for older people is to get a headstart on the costs of care. Planning for care isn’t easy, as you can never know what might happen in the future. That might be why just one in 10 people over 45 in the UK have set aside money to help pay for potential care. What’s more, 40% of us don’t think we’ll need to set money aside, according to research done by a financial planner. In fact, a study in 2015 found that 85% of older people (aged 51 to 75-years-old) had no financial plans in place for their own care. This worrying statistic suggests that lots of us aren’t ready to think about our most important needs until it is too late.
In fact, it is worth noting that nearly 80% of older people will need some sort of care by the time they reach 80. Working out how to put money aside can be challenging, but if it helps us stay independent in our own homes, it will be worth it. This is why we recommend a personal alarm, as it’s an affordable way to get reassurance and peace of mind, both for you and your loved ones. Personal alarms ensure that you can get the help you need in an emergency.
People are living longer on average than ever before. Therefore, it is more important than ever to plan ahead. Some care costs are jaw-dropping! The average cost for residential care is £29,000 and that is only for two years – while nursing care can make those bills even steeper.
Life insurance can become more complicated and very expensive as we get older. Travel insurance also becomes more expensive the older you are. With so many different providers giving different special offers and using strange jargon, insurance can be a bit of a headache.
So, why does insurance get more expensive as you get older? Well, in an insurer’s eyes, you’re more likely to make a claim the older you are. A life insurance policy is there to protect your family and any loved ones who depend on your income after you die. Payouts from these policies can be used to pay off outstanding loans and mortgages. They can also help pay for funeral costs.
There are specific policies available for over-65s, although your eligibility may depend on your overall health. Similarly, many travel insurance providers have age limits on their policies. You can take out pensioner’s travel insurance, which may cost more but will offer better cover in key areas such as medical treatment.
You can find out more about over-50s insurance, read this guest blog by Jack from Shepherds Friendly.
Our finance tips for older people aren’t all doom and gloom! Next, let’s take a look at ‘fun money’. It may not be top of your priority list when talking about personal finance, but we all deserve to enjoy the things that make life special. After a lifetime of working, why wouldn’t you want to relax, enjoy yourself, and discover new places?
Lots of retirees are seeking adventure, so you might want to think about money for a holiday. Planning ahead and searching for places you would like to visit can be a good start. Perhaps you should write a bucket list with a few dream destinations.
When planning a holiday, there are specialist websites you can turn to for advice and inspiration, such as Silver Travel Advisor and Trip Advisor.
It may not be a holiday you want. Perhaps you want some time to see the family, visit old friends, or maybe see the local sights in your area. Getting out and about is a great way to keep yourself active and prevent any feelings of loneliness, which can be a big problem for some older people.
Families are more spread out than ever, with work and other obligations taking loved ones further afield. The financial freedom to go and see family, maybe by bus or train, is very important to most of us. There are several senior travel cards available, such as a senior railcard, that give you cheaper fares, so you can save on travel costs.
When planning a trip, consider the following:
- Money exchange rate – If you’re going abroad, what will you get for your sterling?
- Excursion Costs – How much will activities cost you?
- Food & Drink – Is it all-inclusive or do you need to pay?
- Insurance – Make sure you are covered or you could end up spending thousands on medical care.
- Transfers – Do you have a free transfer, or will you need to buy a bus ticket or pay for a taxi?
To finish off our finance tips for older people, we would like to recommend getting a life-saving personal alarm. Having an alarm will help you to continue living independently in the comfort of your own home, potentially avoiding the distress and expense of moving into a care home. A personal alarm also gives you and your family peace of mind that somebody will help you if you are ill or suffer a fall.
Our personal alarms are available on different price plans, to suit a range of budgets. The standard pendant alarm is available on the Monthly Plan, which costs £12.49 per month, and the Annual Plan, which costs £119 per year. Alongside the regular MyAmie Pendant, we also offer a Fall Detector on an Annual Plan for £189. Finally, we have the brand new GO GPS Alarm, which offers unbeatable peace of mind both at home and on the go. The GPS Alarm is available on an Annual Plan for £244. All alarm plans are subject to a one-off £35 set-up fee.
For more information on purchasing one of our life-saving personal alarms, speak to one of our friendly advisers on 0800 999 0400. Alternatively, complete our contact us form and we will get back to you as soon as possible.
Editor’s Note: This article was updated on 7th June 2021.