Midas touch
If you play your cards right, you can give money to your children and have a good time, says Garry White
Making your money count
Today’s oldies danced with flowers in their hair in the 1960s, fuelled the sexual revolution of the 1970s – as Liz Hodgkinson writes on page four.
They created world-changing technology in the 1980s. Of course their horizons extend beyond cardigans and Werther’s Originals.
Their sunset decades will be lived like their youth – challenging stereotypes. Medical science has given the most financially successful generation of older people ever the opportunity to enjoy the fruits of their life’s labour.
But growing old with suitable disgrace requires careful planning – even if that plan is to join the 24-hour party pensioners and spend, spend, spend…
Spend the kids’ inheritance
More oldies than ever are Ski-ing through the downhill section of life.
This is motivated by practical reasons or an admirable desire to live their fullest lives. If you’re healthy, fit and ambitious – why not have fun?
Financial planner William Bengen calculated that a safe rate of withdrawal to give retirees confidence their savings won’t run out. The ‘4% rule’ shows that people can withdraw 4% of their investments in the first year of retirement – and the the same amount adjusted for inflation for at least 30 years – without exhausting their portfolio.
Today, advisors use cash-flow modelling to establish an appropriate level for each individual client, but the 4% rule provides a good rule of thumb.
You can avoid spending the kids’ inheritance. You can have your cake and eat it – by enjoying your retirement and passing something onto loved ones if you create a plan. You can even give some of your wealth away, too.
Give those you love the inheritance they deserve
The chunk of your estate that goes to the taxman instead of your nearest and dearest is mitigated by proper inheritance tax (IHT) planning.
Gift money to your children as early as you can – or fund Junior ISAS for your grandchildren.
You’ll see the good your savings do – and will be around to get a thank you. You can even invest in business property relief portfolio, sometimes known as an AIM portfolio. These are generally IHT exempt after two years’ investment.
The best way to give away money to mitigate tax
The simple, heart-warming answer is charity.
You could set up a charitable trust. If you involve your children – and create a perpetual legacy, giving to causes dear to your heart – deeds of variation from inheritance can result in a tax refund. With the right planning, any legacy you leave to charity could reduce your IHT liability by 10%.
A watertight will gives you the peace of mind that your assets will pass to the people you choose in the way you wish. If you die without a will, your estate would be distributed according to intestacy rules. This can result in unintended beneficiaries and an unfavourable tax situation. Intestacy can be particularly disheartening for unmarried couples, who have no entitlement under the rules.
With things so uncertain, who needs a plan?
You do. Now is the right time to get ready for what’s coming next.
In December, the UK government’s budget deficit – the gap between spending and tax income plus other receipts – was almost £271 bn for the first nine months of the financial year. That’s a rise of more than £212 bn compared with the same period in the last tax year.
The pandemic has outstripped the damage done by the 2008 financial crisis to national finances. With no appetite for a return to austerity, the Chancellor will be seeking to plug this gap by other means. Tax rises are likely.
A time of crisis is always a good time to take stock and reconsider your plan. The uncertainty means it’s essential to get a grip on your finances now.
Preserving your assets
A trusted adviser helps your plan to grow old disgracefully. Have open conversations with your family. That way everyone knows what to expect.
Recognised wealth managers with investment strategies that consider market conditions and have metrics to support their decisions can prevent inflation eating away at your nest egg.
Telegraph journalist Garry White is Charles Stanley’s chief investment commentator