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Why you still need emergency savings in retirement

Hopefully, you head into retirement confident in your finances and your retirement income. While your financial commitments and dependents may be fewer in retirement, it’s still important to have a safety net to fall back on when you need it most.

According to a report in Money Age, 49% of those aged over 65 describe themselves as in “excellent” or “good” financial shape. Yet just 21% think they have plenty of money set aside for emergencies, which could leave the remaining people exposed to financial shocks.

While an emergency savings account isn’t something you use day-to-day, it plays an important role in your financial security. Ahead of retirement, you may have paid off your mortgage or no longer be supporting children. So, maintaining an emergency fund may have slipped down your priorities.

Maintaining a rainy-day fund can help ensure you remain financially secure, even when the unexpected happens.

How much you should have in your emergency fund depends on your circumstances. As a general rule of thumb, it’s a good idea to have three to six months of outgoings in an easily accessibly account to tide you over when it’s needed most. As you want to be able to access these savings as soon as you need them, a cash account makes sense for most people.

Planning for unexpected expenses

Your expenses might go down in retirement, but the unexpected can still happen. From a roof needing repairs to a boiler breaking down, you never know when you might need to dip into savings to cover unexpected costs. Having an emergency fund means you can rest assured that you’ll be able to cover these expenses should you need to.

Keeping an emergency fund ready for these circumstances can help ensure your retirement plans stay on track.

Providing a safety net against market volatility

As a retiree, it’s not just unexpected costs that can affect your income. You may be withdrawing an income from investments and market volatility could have an impact.

If you’ve chosen to access your pension through flexi-access drawdown, the value of your pension can also be affected by investment performance. With flexi-access drawdown, you can take a flexible income to suit you. The remainder of your pension will usually remain invested. As a result, the value will rise and fall.

If investment values fall and you continue to withdraw the same income, you’ll have to sell more units to achieve this. This means you could deplete your pension or investment portfolio quicker than you expected, and no longer have enough to maintain your standard of living for the rest of your life.

Having an emergency fund you can use amid market volatility, such as that experienced in 2020 during the first Covid-19 lockdown, means you can reduce the amount you withdraw from your pension. This means you won’t have to sell units when prices are low. Historically, markets have recovered from volatility and investment values have risen following dips. While guarantees can’t be made, having a financial buffer can help you ride out short-term volatility and minimise the long-term impact.

Managing pension investment risk in retirement

As well as having an emergency fund to fall back on, there are other steps you can take to manage the impact of market volatility on your pension and retirement income.

Leaving your pension invested can make sense, but it’s important to understand that it does come with risks. By leaving your pension invested, you’re providing it with a chance to grow over the long term. With average retirement lasting decades, you can still benefit from long-term investment trends to help your pension go further.

If you choose this option, one thing you will need to consider is how much investment risk is appropriate for you. This should consider a range of factors, from what other assets you hold, to what your goals are. If you’re not sure how much risk you should be taking with your pension, please contact us.

Remember, flexi-access drawdown isn’t your only option when taking an income from a defined contribution (DC) pension either. If you’d prefer security over flexibility, an annuity can make sense. An annuity is something you buy with a lump sum, which then provides a guaranteed income for life. In some cases, the income delivered from an annuity can be linked to inflation to preserve your spending power. This means you won’t need to worry about investment volatility affecting your income.

Whether you’re nearing retirement or are already retired, it’s important to have confidence in the choices you make. We can help you understand what your options are and how to mitigate risks, including creating an emergency fund.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.

More people plan to work past traditional retirement age. Here’s what they need to consider

Everything you need to know about the 2021 Autumn Budget

“Employment is up, investment is growing, public services are improving, the public finances are stabilising, and wages are rising.” This is the backdrop against which Rishi Sunak presented the 2021 Autumn Budget.

Promising “a stronger economy for the British people”, the chancellor outlined his taxation and spending proposals. Here’s a summary of the key points and what they mean for you.

Firstly, though, a reminder of two important tax changes that have already been unveiled.

2 important announcements already made

Back in September, the prime minister made two headline-grabbing tax announcements.

From April 2022, National Insurance rates for both employees and the self-employed will rise by 1.25 percentage points across earnings bands. Millions of employees and many employers will see their National Insurance contributions increase, raising around £12 billion a year for the Treasury.

This rise will be rebranded as a “Health and Social Care Levy” from April 2023, when National Insurance rates will revert to their current levels.

From April 2023, anyone who is working beyond the State Pension Age will be asked to pay 1.25% on their earned income for the first time.

In addition, Dividend Tax rates will also rise 1.25 percentage points from April 2022. The £2,000 allowance will remain, but anyone earning more than £2,000 in dividends will pay a higher rate of tax.

The economy is recovering quicker than expected

The chancellor began his speech by outlining Office for Budget Responsibility (OBR) data that expects the economy to return to pre-Covid levels at the start of 2022.

The OBR has revised their growth estimate for the UK economy from 4% to 6.5% in 2021, then forecasts 6% growth in 2022, followed by 2.1%, 1.3% and 1.6% over the next three years. They also revised down the effect of Covid “scarring” on the economy from 3% to 2%.

Sunak also said that he expects inflation to average 4% over the next year. He highlighted two reasons for this:

• As economies around the world reopen, demand for goods has increased more quickly than supply chains can meet
• The pressures caused by supply chains and energy prices will take months to ease.

“I am in regular communication with finance ministers around the world and it’s clear these are shared global problems, neither unique to the UK, nor possible for us to address on our own,” he added.

The improving fiscal position also means that the chancellor forecasts a return to spending 0.7% of GDP on foreign aid before the end of this parliament.

The chancellor also confirmed that every government department will get a real terms rise in spending each year.

Tax

While the main tax announcements have already been made, the chancellor announced several reforms:

• A new 4% levy on property developers with profits of more than £25 million, to help fund a £5 billion fund to remove unsafe cladding
• A reduction in air passenger duty for domestic flights between UK airports from April 2023. 9 million passengers will see their duty cut by half, boosting regional airports. There will also be an increase in duty for long-haul flights of more than 5,500 miles
• The bank surcharge, levied on bank profits, will reduce from 8% to 3% from April 2023. The chancellor said that this should help bolster London’s competitiveness as a global financial centre after Brexit
• The planned rise in fuel duty has been cancelled. The average car driver now saves £1,900 a year because of a 12-year freeze in fuel duty.

In a tiny technical change, the deadline for residents to report and pay Capital Gains Tax after selling UK residential property will increase from 30 days after the completion date to 60 days.

The chancellor also set out plans to reform alcohol duty, made possible because the UK has now left the European Union.

Arguing that the tax, first introduced in 1643 to pay for the Civil War is “a mess”, the main duty rates will reduce from 15 to 6 around the general principle of “the stronger the drink, the higher the rate”.

• Small Brewers Relief will be extended to cider makers and other producers making drinks less than 8.5% ABV
• The duty premium on sparkling wines will end, so drinkers will pay the same duty on prosecco and English and Welsh sparkling wine as on still wines
• A new “draft relief” will see a lower duty rate on draft beer and cider. Set to benefit community pubs, this cuts duty by 5% and represents the biggest cut to cider duty since 1923 and the biggest cut to beer duty for 50 years.

Shares in pub chain JD Wetherspoon jumped 5.5% on the news.

Finally, the chancellor announced a total of £7 billion of cuts to business rates. The retail, hospitality, and leisure sectors will benefit from a 50% business rates cut for one year, enabling businesses to claim a discount on their bill up to £110,000. This will benefit cinemas, music venues and so on.

Sunak concluded his speech by confirming that “my goal is to reduce taxes” calling it “my mission for the remainder of this parliament”.

Despite this, the OBR has confirmed that the tax burden is set to rise from 33.5% of GDP recorded before the pandemic in 2019/20 to 36.2% of GDP by 2026/27.

This is the highest level since late in Clement Attlee’s post-war Labour government in the early 1950s, when the economy was struggling after the economic shock of the second world war.

Housing

To boost the building of new homes, the chancellor announced an £11.5 billion fund to build up to 180,000 new affordable homes. He described it as “the largest cash investment in a decade, 20% more than the previous programme”.

Sunak also confirmed a £1.8 billion brownfield fund, which will help “unlock 1 million new homes”.

Savings

The chancellor announced the creation of a new National Savings & Investment (NS&I) Green Savings Bond.

These were made available to customers via NS&I on 22 October and will be on sale for a minimum of three months. These three-year fixed-term savings products will pay an interest rate of 0.65% and customers can invest between £100 and £100,000.

As with all NS&I products, the Green Savings Bonds come with a HM Treasury-backed 100% guarantee.

The Treasury also announced that the Individual Savings Account (ISA) annual subscription limit will remain at £20,000 in 2022/23. The annual subscription limit for Junior ISAs and Child Trust Funds for 2022/23 will be maintained at £9,000.

Changes to the National Living Wage and Universal Credit

The National Living Wage (the minimum wage) for over-23s will increase from £8.91 to £9.50 an hour. This represents an increase of £1,000 a year for a full-time worker and more than 2 million people will benefit.

“To make sure work pays”, the chancellor announced a change to the Universal Credit taper from 63p to 55p and promised to introduce this before December 1. He will also increase work allowances by £500 a year to help working families with the cost of living.

This enables more working families on the lowest incomes but working to keep more of their earnings. Sunak says that a single mother of two renting, and working full-time on the National Living Wage, will be better off by around £1,200.

Other spending announcements

Sunak unveiled a raft of spending commitments in areas from education to health.

• £21 billion on roads and £46 billion on railways
• A guarantee to spend £5.7 billion for London-style transport systems across city regions
• Spending on cycling infrastructure of more than £5 billion
• 20,000 new police officers, an extra £2.2 billion for courts and rehab facilities, and £3.8 billion for prison-building
• £300 million towards A Start for Life, supporting new parents, and £150 million for Early Years training and holiday programmes
• At least 100 places will benefit from the “levelling up” fund. The first round of successful bids to the fund, worth £1.7 billion, have been announced, including projects in Stoke-on-Trent, Bury and Burnley
• £500 million in funding to help people back into work in “the most wide-ranging skills agenda this country has seen in decades”. This includes careers help for older workers and builds on extra funding for apprenticeships and traineeships already announced in the spring.

Sunak also announced £205 million to transform grass-roots sport by funding up to 8,000 community sports pitches. He also committed £11 million towards the FA bid to host the 2030 World Cup.

There will also be £2 million for a new Beatles attraction on the Liverpool waterfront.

Get in touch

If you have any questions about how the Autumn Budget will affect you and your finances, please get in touch.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

Investment market update: September 2021

While the direct impact of the Covid-19 pandemic has lessened for many economies, businesses are now struggling with the indirect consequences, such as supply chain issues. From microchips to aluminium cans, firms around the world are facing challenges getting hold of the materials and goods they need.

Markets have largely recovered from the Covid-19 volatility, but global investors expect a market correction, according to a Deutsch Bank survey. Some 58% of investors said they expect a correction between 5% and 10% by the end of the year.

UK

Government announcements could have an impact on both employees and employers. An increase in National Insurance contributions (NICs) from April 2022, which will become a separate health and social care levy from 2023, will increase outgoings for both individuals and businesses. NICs will increase by 1.25 percentage points.

For business owners and investors, the government’s announcement of dividend tax rates increasing by 1.25 percentage points from April 2022 could have an impact too.

Figures suggest that UK businesses are struggling with supply chain issues caused by the pandemic, Brexit, and other factors. The IHS Markit Purchasing Managers Index (PMI) monitoring business activity fell to 55. While the reading indicates growth, it has fallen to a six-month low that has been linked to supply chain challenges.

The challenges have affected a range of industries, including construction. “Sustained and severe” supply chain issues were blamed for the PMI falling from 58.7 in July to 55.2 in August. The British Retail Consortium (BRC) suggests UK shop price increases of 0.4% in August were also related to shortages in microchips and shipping problems. The organisation added that supply chains are on the edge of coping.

Throughout the month, shortages of food, energy, and fuel have also been widely reported. While steps have been taken to reduce the impact, including the military being drafted in to help deliver fuel, the CBI warned that the labour crisis could last up to two years.

This is reflected in the number of businesses struggling to fill vacant roles. According to the Office of National Statistics, 13% of businesses said vacancies have become more difficult to fill when compared to last year in September. This compares to 9% that said the same thing in August. The hospitality industry in particular is facing challenges. Some 30% of accommodation and food service firms highlighted challenges finding workers.

It’s not just imports that are slowing. UK exports to the EU fell by around £900 million in July, a 65% drop. Rising exports outside of the bloc didn’t make up the shortfall.

Demand and challenges facing businesses mean inflation is above the 2% Bank of England target. Michael Saunders, a member of the bank’s Monetary Policy Committee, suggested higher rates of inflation could mean that interest rates will begin to rise next year, affecting both borrowers and savers across the UK.

In other news, Morrisons and Meggitt were both promoted to the FTSE 100. The share prices of both firms surged after attractive takeover bids, meaning they were worth enough to be included in the index. However, it could be short-lived as both firms would be delisted if the takeover bids go ahead.

Europe

Eurozone GDP figures show economies within the bloc are recovering stronger than initially thought. The GDP figure for April-June has been revised upwards from 2% to 2.2%.

Germany is also leading the way with an unexpected surge in factory orders for major goods, like ships. Official data from Destatis shows a 3.4% rise despite expectations of a fall.

US

Supply chain challenges are also having an impact in the US. While the manufacturing sector is still growing, the pace is slowing down. The PMI data from IHS Markit fell from 63.4 in July to 61.1 in August.

Another area that has disappointed, is job growth. Just 235,000 new jobs were created in the US in August, a significant slowdown when compared to a month earlier and a figure that falls short of expectations. The data would suggest the pandemic is continuing to have an impact on the labour market, with no jobs added to the leisure and hospitality sectors as concerns around the spread of the Delta variant remain.

Asia

Data from China shows that the pandemic continues to have an impact on activity and demand. The country’s service sector’s PMI data in August fell to 46.7 from 54.9 in July. The below-50 reading means the sector is contracting. Increased restrictions to curb the spread of the Delta variant have been blamed.

However, export figures suggest the outlook in China isn’t glum. Exports increased by 25.6% in dollar terms in August, according to official data. Exports reached $294.3 billion, which helped to calm the worries of a slowdown.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

5 behavioural biases that lead to investment mistakes

Investment decisions should be based on logic and fact. But it’s easy for emotions and biases to affect your decisions, and this can lead to investment mistakes.

Behavioural bias can be useful in some circumstances. It’s a way of making mental shortcuts when you need to make complex decisions. When you consider how many decisions you need to make day-to-day, being able to make quick decisions is important. However, it’s just as important to recognise when biases can be harmful, and investing is one example.

Biases may come from your past experiences, unconscious beliefs, or the way you use information. Being aware of how biases may influence you can help you reduce the risk of making a mistake. Here are five common cognitive biases that could have an impact on your investments.

1. Confirmation bias

When you’re deciding which stocks, shares, or funds to invest in, you’ll seek out information to help you make a decision. However, in many cases, you will already have a preconceived idea about whether an investment opportunity is “good” or “bad”.

Confirmation bias refers to the tendency to place a great emphasis on information that supports your existing beliefs. With so much information on your fingertips online, it’s often easy to find something that fits in with this. While placing importance on the source that supports your views, you may also disregard information that doesn’t fit your existing ideas. It can mean you end up making investment decisions based on a small sample of information without fully assessing how reliable or relevant it is. Being critical of information is crucial.

2. Loss aversion

When you think of potential investment mistakes, it’s likely that taking too much risk is what comes to mind first. Yet, taking too little risk can be just as damaging.

Previous research suggests that people are more sensitives to losses than wins. So, you’ll feel more pain from a loss than you’d feel joy from a win. In investment scenarios, it can mean you avoid taking risks even when evidence suggests it’s worth it. As a general rule of thumb, the more investment risk you take, the better the potential returns, so loss aversion can mean you miss out.

However, it’s important to take a balanced view of risk. Investment values fluctuate and can fall as well as rise. You need to consider what your risk profile is when investing. It can help you avoid loss aversion while still choosing investments that are appropriate for you.

3. Anchoring bias

How do you decide what a piece of information is worth? Anchoring bias refers to the phenomenon of placing too much emphasis on a single piece of information and anchoring your views to this.

Let’s say you purchased a share and evidence suggests it’s time to sell. Anchoring bias can mean you hold onto the share for longer because you’ve anchored on the higher price you bought it at. This anchoring can give you the view that the share is more valuable than it actually is. This is despite the share price you purchased it at having no impact on the present.

As with confirmation bias, being critical of the information available is important.

4. Hindsight bias

It’s natural to look back at investment decisions and consider what you could have done differently. However, hindsight bias means you attribute different levels of control to decisions depending on their outcome.

It’s a tendency to see beneficial past events as predictable. So, if you made an investment decision that’s performed well, you’d put it down to you foreseeing that the company would perform well. In contrast, you consider bad events as unpredictable, so if an investment performs badly, it’s because it was out of your control. Hindsight bias can make it difficult to objectively look at past investment decisions.

5. Bandwagon effect

Investment decisions should reflect your circumstances and goals, but the bandwagon effect means you make decisions because it appears many people are doing the same thing.

For example, after reading a news article about how everyone is investing in Silicon Valley stocks, would you be tempted to invest in opportunities within this sector? It could be right for you, but if you haven’t reviewed your current portfolio, risk profile, or the investment themselves you could be making a mistake. Speculative bubbles are often the result of the bandwagon effect.

Need help making investment decisions?

Working with a financial planner can help you reduce the impact that bias has on your investments and other financial areas. Being able to discuss your investments and why you’re making certain decisions can be all you need to highlight where bias is occurring. We can also help you understand which investment decisions make sense for you with your goals and situation in mind. Please contact us to talk about your investment portfolio.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Inflation is set to reach 4% this year. What does it mean for your spending power?

From the State Pension triple lock to the cost of living, Covid-19 is affecting economic figures. As the economy reopens, you may have noticed the price of things has risen. From your grocery shopping to days out, inflation means the cost of living is rising and could reach 4% this year.

A small amount of inflation is often seen as a good thing. Prices gradually rising can encourage demand, but higher levels of inflation can suggest demand is outstripping supply and that the economy is running into difficulties.

The Bank of England carefully monitors inflation and can take steps to keep it in check. It has a target of 2% inflation each year, but the inflation rate for 2021 could be double this.

The pandemic impacts the cost of living

According to the central bank’s latest Monetary Policy Report, inflation is expected to temporarily reach 4% in the near term. It notes that this rise largely reflects the impact of the pandemic as the economy recovers, which has led to higher energy and goods prices. However, the report adds inflation is projected to return close to the 2% target in the medium term.

The rate of inflation can seem small, even when it’s double the target. Yet, this can add up to more than you think and affect your short- and long-term finances. It means you could see your day-to-day expenses creep up in line with rising prices.

It works in reverse too and you can see the impact when looking at how the value of money has changed. Let’s say you had £1,000 in 2000. According to the Bank of England, in 2020 you’d need £1,721.35 to achieve the same spending power due to the impact of inflation.

So, inflation means your outgoings are rising, while some of your assets and income are gradually becoming less valuable. If you don’t consider inflation when financial planning, you could end up with an unexpected shortfall.

Retirement is a good example of this. If you set out the level of income you need at the start of retirement and expect to draw the same income for the rest of your life, you’re likely to find it’s not enough to maintain your lifestyle in your later years. You need to consider how the rising cost of living will affect the income you need.

Could rising inflation lead to interest rates rising?

Interest rates have been at record lows for 12 years. The Bank of England first slashed interest rates during the 2008 financial crisis, and has kept them low to support the economy ever since.

While no announcement has been made, the Bank’s latest report does hint that it would be willing to raise interest rates to reduce inflation if necessary. For some, it would be a welcome move, but it could cost others money.

For savers, rising interest rates could help their money keep pace with inflation. Current interest rates mean it’s likely that money held in a savings account has fallen in value in real terms over the last decade. An increase in rates could provide an opportunity for savings to grow in real terms.

For borrowers, it would mean outgoings rise further. The interest you pay on a mortgage, credit card, or loan, for example, will also rise if you’re on a variable rate.

Whether an interest rate rise is good for you will depend on if you’re a saver or borrower.

How can your savings beat inflation?

While rising interest rates could help savers maintain their spending power, it’s unlikely large rises will happen any time soon. It’s far more likely that the Bank of England will make gradual increases to the interest rate, and it could take years for it to be on par with the rate of inflation.

If you want to maintain or grow your spending power, your money will need to work harder. There are several ways of doing this, and, in some cases, investing your money can provide a solution.

Investing does come with risks, and values can rise as well as fall. However, historically, investment values have risen, despite short-term volatility, and it can be a way to increase the value of your money in real terms if returns outstrip the pace of inflation.

When investing, it’s important you set out what your goals are and consider your risk profile. You may be tempted to invest money held in your savings account, but if it’s part of your emergency fund, it should be readily accessible and investing likely isn’t the right option for you.

Whether you’re a professional or a retiree, inflation has an impact on your finances. If you’d like to discuss what you can do to manage the impact of inflation, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Why you should consider involving your family in your financial plan

When you consider your financial plan, who do you involve? Often, it’s done independently or with a partner, but there could be advantages to making your wider family part of the process. If it’s not something you’re already doing, here are five reasons to involve children, grandchildren, and others in your plans.

1. It could encourage younger generations to consider their own financial plan

First, it could be beneficial to them. Being involved in your financial plan can mean they start thinking about their own long-term financial security.

While still working, it’s common not to think about retirement, even though the decisions professionals make, even early in their careers, can have an impact on the retirement they enjoy. Seeing the decisions you need to make about retirement and how to create an income could make them more engaged with the process and set them on the path to greater financial freedom. It could also mean they consider things they may have overlooked before, such as the need for financial protection, or when to choose investments over savings.

2. It can help you understand how to help your family reach their goals

You may know what your loved ones are hoping to achieve, but do you know the details? After talking through their goals, you may want to lend a financial helping hand and that could change your own financial plan.

According to an FTAdviser report, just 13% of parents over the age of 60 plan to pass on wealth to their children during their lifetime. However, in some cases, a gift now can have a far greater impact on their life than an inheritance will have.

Helping children and grandchildren to buy a home is a common example. With many of the younger generation struggling to save a deposit, a financial gift now could provide more security in the short and long term. If you knew this was a goal of your child, would you reduce their inheritance to provide a gift? By talking through their plans, you have an opportunity to understand how your wealth can have the greatest impact.

3. Discussing inheritances can lead to better financial decisions

The FTAdviser report found 72% of parents plan to pass on wealth to their children after their death. However, two-thirds said they rarely or never discuss inheritance with their children.

Talking about inheritance can be difficult and can bring up many emotions. Yet, it can help your loved ones plan their own futures more effectively. If they believe they’ll receive a greater inheritance than they actually will, they could be more reckless than they otherwise would be. Honest conversations about investment could also provide them with clarity and confidence about their future.

With more time to think about how they’d use an inheritance, your loved ones could make better financial decisions when they receive it.

4. It can improve your later-life plans and provide confidence in them

Later-life planning is an important part of creating a long-term financial plan. Yet, 4 in 10 parents have not discussed their later-life plans with their children. Again, it can be difficult to think about how your lifestyle and needs will change in your later years, but it is important.

It can provide both you and your children with greater confidence and ensure your wishes are carried out. The FTAdviser report highlights that a third of adults aged 30–59 with at least one surviving parent are worried about the prospect of managing the finances of their parents if they can no longer do it themselves. By involving them in the financial planning process sooner, they will be in a better position to make decisions on your behalf should they need to.

5. It can help you create an effective estate plan

Almost 80% of families do not have any estate planning strategy in place. Of those that do, less than half of parents said their children knew exactly what the plan was. An effective estate plan can help you ensure that loved ones benefit from your wealth when you pass away.

It may include discussing Inheritance Tax or how to make provisions for grandchildren who are too young to manage an inheritance themselves. Involving family in this process can help you understand concerns they may have and create a solution that suits your wishes.

If you’d like to involve your family in your financial plan, we can help. Whether you want to be open about the inheritance they can expect to receive in the future or get a better understanding of how you can financially support their goals, please get in touch.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning.

7 steps to take when you receive an inheritance to make the most of it

Receiving an inheritance can be life-changing. It could provide you with the financial security to pursue your dreams or make significant changes to your lifestyle. However, it can be overwhelming, and you may worry about making the “wrong” decision that could impact the rest of your life.

According to a report in Your Mortgage, 11.6 million people in the UK have received an inheritance in the last 10 years. For more than half of beneficiaries, the inheritance was left by parents, and a fifth received an inheritance from grandparents. The average sum left by parents is £65,600, while grandparents leave £24,200 on average.

If you’ve received an inheritance, here are seven steps that can help you understand how to get the most out of it.

1. Understand the probate process

The first thing to do is make sure you understand the process and what you’ll inherit.

In some cases, the process can be time-consuming and complex. For instance, if the deceased has not left a will or they have complicated assets, it can take more time. In rare cases, a will may also be contested. Make sure you know what the timescales are and any potential issues. The executor of a will can help you with this.

If your benefactor’s entire estate is worth more than £325,000, Inheritance Tax may also be due. This could reduce the inheritance you receive.

2. Take a step back

When you receive an inheritance, you may feel like you need to make immediate decisions. But taking a step back can give you the space to think about what you want and consider the long term. Making immediate decisions may mean emotions have an impact.

It’s not uncommon for beneficiaries to worry about how their benefactor would want them to use the inheritance too. It can result in conflicting decisions and may mean you make choices that aren’t right for you. If you have the means to do so, leaving your inheritance largely untouched, until you have a plan is a good idea.

Under the Financial Services Compensation Scheme, your money is protected when it’s held in a UK-authorised bank, building society, or credit union if it fails. So, you don’t need to make quick decisions to ensure your money is safe.

Under normal circumstances, up to £85,000 is protected per eligible person per financial institution. Up to £1 million is protected for six months from when the amount is first deposited for certain qualifying temporary high balances, which includes inheritances. If your inheritance is higher than this, you should spread it between several accounts with different financial institutions.

3. Review your current financial situation

By reviewing your finances now, you can understand where the inheritance will have the biggest impact. It provides a baseline to start making changes to your finances and lifestyle. Going through your statements now can help you take stock of your situation. For example, do you have debt that the inheritance could help you pay off? And how much do you have saved in your pension?

4. Set out what you want to achieve

Setting out your goals and priorities can provide some direction when you’re deciding how to use an inheritance. Think about the lifestyle you want and how an inheritance could help you achieve that.

You may want to spend more time with your family, and the inheritance can provide you with the financial security to reduce your working days. Or you may hope to retire early, so adding an inheritance to a pension can help you towards this goal. Your aspirations should inform the financial decisions you make.

5. Speak to a financial planner

From tax liability to investment risk, there are a lot of things you need to consider when deciding the best way to use an inheritance to help you reach your goals. A financial planner can help you create a blueprint that will enable you to get the most out of your money, with your goals in mind. Financial planning isn’t just about calculating how much you have either; it’s a chance to understand how your decisions will affect your overall lifestyle now and in the future.

If you’ve received an inheritance and would like to talk about your plans and options, please contact us.

6. Schedule a review

While setting out a plan is great, things do change. Whether it’s your finances that change or your wishes, scheduling regular reviews and taking time to think about what you want is important. It can help make sure everything stays on track and you’re not faced with any unexpected surprises. The frequency of reviews will depend on your circumstances but, as a general rule, once a year is a good idea.

7. Plan your own legacy

Having benefited from an inheritance, it’s worth setting out your own legacy. When you pass away, who would you like to benefit from your assets? The decisions you make about your estate could impact the lives of your loved ones. Think carefully about how you’d want your assets distributed and then write this into your will.

Even if you already have a will in place, you should review it. As your circumstances have probably changed over time, your wishes may have to, too.

We understand that receiving an inheritance can be a confusing time when you’re expected to make decisions. If you’d like to talk to a financial planner about your plans, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

The Financial Conduct Authority does not regulate will writing, tax planning, or estate planning.

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