Monday, 26 September 2016

Managing Finances As We Get Older

I have always been a big fan of Monty Python since they first appeared on our TV screens in the late 1960s and I was therefore sad to read the recent news that Terry Jones has been diagnosed with dementia at the age of just 74 yrs. He was the one who often appeared in sketches dressed as a woman in a pinnie and spoke with a falsetto voice.


Dementia is an increasingly common problem in out modern society and current estimates show it affects around 850,000 people in the UK, many of whom are thought to suffer from Alzheimer’s disease, which can have a devastating effect on short-term memory. This has led to fears that many diy investors could run into problems in future years.

A Few Stats on Dementia

Dementia can happen to anyone and there's currently no cure.

It is estimated there will be 1 million people with dementia in the UK by 2025.

Two thirds of people with dementia are women

One in six people aged 80 and over have dementia

80 per cent of people living in care homes have a form of dementia or severe memory problems.


DIY investors who manage their own pensions and ISAs without financial advice will most likely keep a close watch on their investments to ensure their plans for income remain on track. As we are all too aware, taking too much income at the wrong time can rapidly deplete pots and leave savers short in later years.

However, whilst the majority may feel on top of things now, one big area of concern for many will be how to approach the possibility that there may come a time when they can no longer manage their financial affairs.

One option to cover such an eventuality is to appoint a trusted person - partner, relative, close friend etc. - to take care of matters on your behalf.

Lasting Power of Attorney

One of the most effective ways to guard against the possibility is to establish a “lasting power of attorney”.

The Lasting Power of Attorney replaced the previous system of “enduring power of attorney” in 2007 over fears that the old system was too easily exploited.

There are two types – one covering health and welfare, the other property and financial affairs. They can be set up through a solicitor - costs will vary according to complexity and area of the country but on average ~£1,000 - £1,500 plus vat. For those who are managing their diy ISAs and sipps, a cheaper alternative would be a diy option directly via the Office of the Public Guardian’s blog site.

I recently did this for a member of the family and found it to be fairly straight forward provided you take some time to read the various guidelines which come with the application. Once completed and witnessed the documents are returned and cost £82 to register.

Once in place the attorney or attorneys are empowered to make decisions if the “donor”, the individual whose financial affairs are at stake, is deemed to lack the capacity to manage their financial affairs.

Annuities

For those retiring at the age of 60 or 65 yrs, the standard rates offered are not such good value compared to 10 or 20 years ago. Therefore many people are choosing to go down the income drawdown route.

Pension changes introduced in April 2015 as part of the wider reforms mean any unused pension assets can be passed on tax-free if the original saver dies before reaching 75. However, standard annuities are not as flexible and wealth cannot cascade down the generations in the same way.

However, if death occurs over the age of 75 drawdown pensions are taxed as income at the marginal income tax rate of the beneficiary, or at 45pc if paid out as a lump sum.

At the age of 75 (and above), annuities start to become far more attractive and on average the rates available can be as much as 50% above the rates on offer at age 65 yrs. So 75 is a watershed moment and a good time to reassess whether the risks inherent in investing are still worth it.

Now, time for a cuppa and a read of the paper - where did I put my glasses.....


6 comments:

  1. Thx for the advice on annuities. I hope I remember it 35 years from now :-)

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    1. Cheers ATL however I am sure the landscape will have changed quite a bit in 35 yrs!

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  2. Sound advice as always:

    Something else we can and should probably consider as we get a little older is to simplify our portfolios down to a few core funds, and leave something written for our attorneys as to how these are intended to be managed in the event that we lose the capacity to continue managing them ourselves

    Hope you found the glasses ;-)

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    1. That's a good point Cigano. I have been trying to simplify my own portfolio over the past couple of years and will continue to do so. I guess it should be possible to include instructions in a LPA itself or in a separate letter to the attorney such as 'leave well alone - don't tinker'!

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  3. A sobering post, diy, thanks for posting - dementia is something that I've considered and worried a little about. My paternal grandmother suffered badly from dementia - there is some evidence that dementia is not inherited but that it is dependent on the lifestyle that you lead. She didn't drink or smoke but was a real battleaxe and was the most frugal person I've ever known - other family members would have called her 'tight'. She lived til the grand old age of 92 but the last 5 years of her life were spent with 'strangers' as she didn't recognise anyone, including her own children.

    I don't smoke but do drink, probably don't sleep enough although I do exercise regularly - I wonder if this lifestyle will stave off dementia? Who knows but yes, annuities later on in life sound ideal!

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    1. Thanks for sharing your experience of your grandmother weenie.

      Yes, I am sure lifestyle must play a big part but I would think it is becoming more common because we are living longer. However, I am not aware of any relatives with dementia but my paternal grandmother died young as did my maternal grandfather so it could be they just did not become old enough to experience the condition.

      Maybe its good for us not to know what's coming down the line!

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