retirement
&
inheritance
An inheritance from a much-loved relative
brings with it mixed emotions. There
is great sadness, inevitably, that the
beloved one has gone, but there follows
the recognition that their legacy to you
may make a significant difference to your
life and financial security.
Before we’re faced with that moment,
we must avoid planning our future
based on the expectation of a significant
inheritance. Firstly, we have no idea
when we might get the inheritance;
we’re all living much longer, and we
may well be well into our own retirement
before we receive a legacy. Secondly,
we have no idea how much it will be —
care home fees can very quickly eat into
a potential inheritance.
Even so, we cannot ignore that the recent
phenomenal increase in house prices
(the average house price in the South
East is now in excess of £300,000*)
means that more people are receiving
a significant inheritance even when the
house is the sole legacy.
From my own experience, I know that
inheritances are imbued with emotion;
it is not always easy to decide what to
do with the money that has been left to
us. Recent statistics showed that over
60 per cent** of people who received an
inheritance saved it. Sure, these savings
may have been spent later in a flurry of
lavish excess, but my suspicion is that in
some cases this money remains saved
throughout the beneficiary’s lifetime until
80
it is once again passed on to the next
generation. The reason for this is that
for many, perhaps, the money left to you
never really feels fully your own.
But should you feel like this? Generally,
the parents and grandparents who leave
a legacy did so wishing for this money to
have a positive impact on the lives of their
children or grandchildren. They wanted it
to change the lives of the loved ones after
they were no longer around.
can afford to do so, even after receiving
a significant inheritance. However, with
thorough financial planning it can be an
informed decision, taking into account
all the potential risks. With a qualified
planner’s guidance, you may be able to
achieve outcomes you never thought
possible. The inheritance may change
your life, just as your loved one wished.
This is probably best demonstrated by a
case study.
Deciding to retire early requires a certain degree
of bravery, but many people don’t take the time
to consider whether they can afford to do so
So, how could you use the money you have
been left to change your life? One option is
to retire early. My dad died of cancer aged
64 after a lifetime of hard work and a very
short retirement, so this is a topic close to
my heart. Extra years of retirement in your
early sixties or late fifties could be some
of the best times of your life. You are still
young and active enough to enjoy yourself
and you have a lifetime of experience
behind you to be able to fully appreciate
and explore the world.
Deciding to retire early requires a certain
degree of bravery, but many people don’t
take the time to consider whether they
Mr and Mrs Jones are both 55; they
work hard and have joint net earnings
of £50,000pa. They are paying off a
mortgage, which will be fully repaid
by the time they’re 65. Between them,
they spend £30,000pa but don’t
have time to do many of the things
they would really like to. They save
£12,000pa into ISAs. They have
pension funds that are projected to
be worth £200,000 at age 65 — which
is when they think they can afford
to retire. Detailed analysis of their
expected future expenditure has
shown that £25,000pa will facilitate the
lifestyle they desire in retirement.
This is very sound thinking and if there
are no significant changes to their
circumstances, Mr and Mrs Jones will
have a very secure retirement with cash/
investments of over £150,000 — even if
they live to age 100.
However, right now, Mr and Mrs Jones
are not enjoying their jobs and they have
nowhere near enough spare time. Their
weekends are spent doing housework,
and they hardly ever spend any quality
time together. They would love to retire
as soon as possible.
Unfortunately, it is probably not going
to be possible for them to take early
retirement, as they rely too much on
their earned income to meet their
expenditure. If the Joneses took their
pension benefits and attempted to
retire at age 60 instead of 65 the
outcome is probably not the lifestyle
the Joneses desired! They would run
out of money by their late sixties, from
which point they face a very meagre
retirement. But hang on! This does not
tell the whole story…
Mr Jones’ mum died this year and left
behind a house worth over £300,000. This
was sold and the proceeds split between
Mr Jones and his sister. Mr Jones ended
up inheriting exactly £150,000.
Mr and Mrs Jones discussed what to do
with this money and decided, after much
soul-searching, that they would do the
sensible thing and stash it away. “This
is what mum would have wanted,” they
agreed. “We are being very prudent and
perhaps once we have retired at 65, we
can spend some of it.”
But the fact is, once they’re 65,
di