Make sure your money lasts as long as you do: five questions to consider
Today, most people can expect to live into their 70s and beyond. While this is good news, increased life expectancy comes with some downsides; can we afford the cost of living longer? Assess whether your resources are on track to last your lifetime by considering these five key questions.
- How much income will you need?
Do you want just enough each month to live comfortably in retirement, or extra to afford luxuries now and then? Would a modest income suffice so long as you have rainy day funds? Remember to factor in the effect of inflation on reducing your spending power each year. For example, if you spend €5,000 a month and inflation is 3% a year, in 10 years’ time you could need €6,720 a month to maintain the same spending, and €9,030 in 20 years.
- How much do you want to leave behind?
To leave a lasting legacy for your family or other heirs, you have to make sure you do not spend it in your own lifetime – without compromising on your own quality of life today. A holistic financial planning approach – that considers estate planning alongside your wealth management and tax planning – can prove invaluable here.
- How can you get the most from your pensions?
Pensions are often the key to financial security in retirement, so take extreme care to do what’s right for you. While you should review your options, your best approach could be taking no action at all, especially if you have a ‘final salary’ pension that guarantees an income for life. In any case, beware of opportunities to ‘liberate’ your pensions before age 55, as these are likely to be scams.
Retired expatriates can benefit from transferring UK pensions to an EU/EEA-based Qualifying Recognised Overseas Pension Scheme (QROPS) or reinvesting funds into Spanish-compliant arrangements. As well as tax efficiency, this can provide estate planning and currency flexibility. Take personalised, regulated advice to establish the most suitable pensions strategy for your circumstances and goals.
- How can you make your savings and investments last?
You should review whether your savings, investments and assets are working as hard as they can and are protected from unnecessary taxation. For example, are you making the most of the tax-efficient opportunities in Spain or holding onto UK assets that attract higher taxation?
There are also currency considerations. Taking income in sterling while spending euros exposes your money to conversion fees and exchange rate risk. Explore arrangements that allow you to invest in multiple currencies and convert when it suits you, such as a Spain-compliant life assurance bond.
Do not underestimate inflation here too. While it is tempting to choose low-risk investments in your later years, your capital still needs to keep pace with the cost of living, and cash in the bank is unlikely to do this. Your financial adviser can recommend a diversified investment strategy to meet your situation, goals and risk tolerance.
- How can you limit the effect of taxation?
Rising life expectancy generally brings higher taxation, as governments struggle to finance pension and healthcare services for ageing populations. A specialist adviser with cross-border experience can recommend arrangements available to expatriates in Spain that can significantly minimise taxation, making your money go further, for you and potentially your chosen heirs.
Whatever your stage of life, good financial planning can help you afford the lifestyle you want for as long as you need, so you can focus on enjoying your time in Spain.
This article should not be construed as providing any personalised investment advice. You should take advice for your circumstances.
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