Author: Paul Orrey
Chartered Financial Planner & Chartered Wealth Manager
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Published: January 2025
When planning your finances for the decade between the ages of 60 and 70 in the UK, there are a number of important considerations to help ensure that you maintain financial stability, manage risks, and prepare for the transition into retirement (if you haven’t already). Below are some of the key areas to focus on:
- State Pension
- Eligibility: To qualify for the UK State Pension, you generally need to have made National Insurance (NI) contributions for at least 10 years. For a full State Pension, you need 35 qualifying years.
- Age for Receipt: The State Pension age is rising and may vary based on when you were born. As of 2024, it is between 66 and 67, and it is set to increase further in the coming years.
- Amount: The full new State Pension is currently £221.20 per week for those who qualify. If you have fewer than 35 qualifying years, you will receive a reduced amount.
- Pension Savings and Private Pensions
- Reviewing Pension Pots: As you approach retirement, it’s a good idea to review the value of your pension pots (whether a workplace pension or a private pension). You may want to consolidate them to have more control. Using cashflow to project your income in retirement can be invaluable to assist in your future planning.
- Drawdown or Annuity: If you’re drawing from a private pension, you can choose between an annuity (a fixed, regular income for life) or a drawdown strategy (taking flexible withdrawals). An annuity provides guaranteed income, but drawdown can offer more flexibility. A temporary annuity may also be an option in some circumstances.
- Tax Considerations: Pension pots are usually tax-efficient, but when you start drawing income, the amount you withdraw will be subject to income tax. Keep this in mind for tax planning purposes.
- Income Tax and Other Tax Considerations
- Tax-free Allowances: If you’re still earning income from part-time work or investments, keep in mind that you are entitled to the Personal Allowance (the amount you can earn tax-free, which is £12,570 in 2024/25). However, your allowance could be reduced if your income exceeds £100,000.
- Pension Tax Relief: Contributions to pensions still benefit from tax relief, so it may make sense to continue saving into a pension (if you’re able to), as it also reduces your taxable income.
- Taxation on Retirement Income: The State Pension will likely utilise most of your income tax annual allowance. Consequently other pension income tax in excess of an annual income tax allowance will be taxable.
- Investment Portfolio
- Asset Allocation: As you approach your 60s and 70s, your investment strategy could become more conservative as you look to more preserve capital, but still focus on maintaining growth. It is important to keep this under regular review.
- ISAs: If you have an Individual Savings Account (ISA), remember that you can still contribute to this up to the annual limit (£20,000 in 2024/25). Income and capital gains from ISAs are tax-free, which makes them an effective tool for retirement planning.
- Capital Gains Tax: If you sell assets (such as property or investments) for a profit, you may be subject to capital gains tax (CGT). The annual tax-free allowance for CGT is currently £3,000.
- Estate Planning
- Wills and Trusts: Ensure your Will is up to date to reflect your wishes, especially if you have dependents or specific wishes regarding assets. You might want to consider establishing trusts to manage inheritance tax or simplify the passing on of assets.
- Inheritance Tax: Inheritance tax (IHT) in the UK applies to estates valued over £325,000 (as of 2024), or over £650,000 for married couples/civil partners, if unused allowances are transferred. In addition, for homeowners a further allowance known as Residence Nil Rate Band (RNRB) may extend the tax-free element of an estate to £1 million. In the recent Budget, the Government announced that it plans for pensions to be included in taxable estates from 2027. Planning your estate efficiently, such as gifting, can help reduce or avoid this tax.
- Power of Attorney: It is wise to consider setting up a Lasting Power of Attorney (LPA), which allows someone to make decisions on your behalf in case you become incapacitated.
- Housing and Downsizing
- Equity Release: Some retirees consider releasing equity from their home to provide additional income or cover expenses. However, this can reduce the value of your estate, and it’s important to fully understand the terms and implications and seek professional advice.
- Downsizing: Many people in their 60s and 70s consider selling their home and moving to a smaller property. Downsizing can free up capital and reduce ongoing maintenance costs, but this comes with its own set of emotional and practical challenges.
- Renting: If you don’t want to own property anymore, renting might provide flexibility, but you’ll lose the potential for property value appreciation and may face higher ongoing costs.
- Consider Part-Time Work
- Many people continue to work part-time after 60, either for extra income or because they enjoy it. Be aware that any income you earn will be subject to tax, but if your income is low enough, you may not need to pay National Insurance.
- Lifestyle Choices
- Your financial plan should align with your goals for retirement, including how much you plan to spend on travel, hobbies, or helping family members. It’s essential to set a realistic budget for your retirement and account for the potential for inflation and unexpected costs.
Conclusion
Planning your finances between the ages of 60 and 70 involves balancing current spending with saving for the future, while also accounting for factors like healthcare, tax, and estate planning. It’s a good idea to seek advice from a financial planner to help you navigate the complexities of retirement planning, tax efficiency, and investment management. Early preparation can ensure you have a stable financial foundation as you enter retirement and beyond.
If you would like to talk to one of our Chartered Financial Planners, please contact us on 01223 233331 or email info@mmwealth.co.uk.
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Disclaimer
Opinions constitute our judgment as of this date and are subject to change without warning. The value of investments and the income from them can go down as well as up, and you may not recover the amount of your original investment.
The information in this article is not intended as an offer or solicitation to buy or sell securities or any other investment, nor does it constitute a personal recommendation.
The Financial Conduct Authority does not regulate estate planning, tax planning, inheritance tax planning, cashflow modelling, Wills or Trusts.
The information contained within this blog is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.
