After you're retired |
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Financial planning for old age By Kirstie Redford
It's certainly difficult to broach subjects like ill health, death and money with a loved one. But by making preparations sooner, rather than later, it's possible to save a lot of stress in the long run. So whether you are worried about Equity release As house prices have risen sharply over the last few years, many people have considerable assets tied up in their property. But this does not mean they have oodles of spare cash. Equity release plans can give you access to a proportion of the money tied up in your home, and for this reason they can be appealing. Whatever type of plan you opt for, the value of your property - and therefore the value of any inheritance you can leave - will be drastically reduced. Downsizing and freeing up the equity that way will always be a more cost-effective solution. If you've lived in the same house for a long time it can be a distressing move. However, Equity release plans have improved and can give people back the choice to stay put. Many people who feel the pinch in retirement rule out both equity release and downsizing because they one day hope their children will inherit the family home. Other children are happy to offer financial support - whether a cash lump sum or help with bills. Inheritance tax High house prices also mean that more families are burdened with Inheritance Tax (IHT) when a parent dies. IHT is paid on all assets above £300,000 (2007/2008). This includes everything you own, including property, savings, possessions and investments, less what you owe. There are a number of exemptions that allow you to pass on amounts during your lifetime without any IHT being due. Most gifts made more than seven years before death are exempt of IHT. Certain gifts, such as wedding gifts up to £5,000, gifts to charity and annual gifts up to £3,000, are also exempt. Parents may want to take advantage of these tax breaks to avoid higher bills later. It could make sense to gift money to children now to help out with immediate costs, such as childcare, university fees or towards a deposit on a house. Alternatively, if they don't want to lose control of their money, it can be held outside the estate in a trust. It is also important to make sure that all family members have made a will and that it is up to date. It is sensible to review your will at least every five years, but all too often people fail to make changes following the birth, death or divorce of relatives, leading to some difficult conversations for those left behind.
Power of attorney It is also a good idea to urge family members to make a 'letter of wishes' through their solicitor, which specifies the finer points of the will, such as where family heirlooms should be passed. While at the solicitor's office, it is also sensible to arrange an enduring power of attorney (EPA) - a legal process that gives the right to someone else to manage your financial affairs should you suddenly become very ill or mentally incapable. A change in law this April will see the EPA replaced with a new process called lasting power of attorney, which will do the same job as an EPA, but also give the named people control over decisions made about your health and welfare. One of the hardest subjects to talk about is considering how long-term care costs would be met should a family member need care in the future. The average weekly cost for a single room in a residential care home is £403 and for private nursing care, a single room costs £581. With limited state help available, meeting these costs over the long term is difficult for most people. It's important to understand that financial security in old age is the best way to ensure that dignity, well-being and independence are kept intact. Some people may have already made plans to fund long-term care. Some people may have already made plans to fund long-term care. Up until a couple of years ago, insurance plans were available that paid out a pre-agreed monthly benefit if you needed care in the future. Due to low demand and expensive claims, all of the main providers offering this insurance have now withdrawn their products. However it could be that someone in your family has one of these policies filed away, which could provide peace of mind. Local authorities If there is no insurance in place to meet costs, you need to consider other ways of funding future bills, should they occur. There is some help towards costs available from local authorities, but this is subject to means testing. In England, if your total savings, investments and property are worth over £21,000 you will not be eligible for local authority funding. So if you are a homeowner, you are unlikely to qualify. If someone else is living in the property, the means test may not take the value of the house into account. This includes your spouse or partner, a relative aged over 60, an incapacitated relative or a child aged under 16. If you do have to pay for your own care costs, there are some non-means tested state benefits that you are entitled to. The main benefit is Attendance Allowance, which pays out between £41.65 and £62.25 a week, depending on how much care you need. If you receive care in a nursing home then you may also be eligible for the Registered Nursing Care Contribution, which pays between £40 and £133 a week direct to the nursing home, which should offset the amount against the cost of care. But most people still have to foot massive bills and need to make sure that the money they do have is working hard to meet them. "You'd be surprised by how many people put a substantial sum in a bank account for a rainy day that earns them a measly interest rate of 2% or so. Having any more than £30,000 in cash is wrong - it should be working harder for you," says Wright. Investing or saving If there are substantial sums hidden away in savings accounts, it is worth talking to an independent financial adviser about your investment options. "You don't have to take on a particularly high risk to see substantial returns. Investing in the commercial property sector has been a popular choice over recent years and although returns are not as big as they were, you can still expect to get returns of around 7% to 8%," Wright adds. 'Immediate needs' annuities should be considered if a family member needs to fund care bills right away. For an initial premium, calculated in relation to your life expectancy, these plans pay regular, pre-determined sums of money direct to the care provider to help you pay fees. Exploring long-term care funding options can be a difficult step, but may help family members to prepare emotionally, should they need care in the future. Take the bull by the horns and get talking.
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