Boredom and work ethic
Once you have stopped regular work, it is important that you continue to exercise your mind as well as your body.
You need new challenges to stimulate your brain and stay alert (sudoku and crosswords are not good enough substitutes) or you will degenerate into drinking too much cheap red wine by the pool in your Spanish villa or just sitting at home in front of your TV set in your slippers and dressing gown.
Some of us are born workaholics and soon get bored with nothing to do. Maybe it was my Quaker upbringing, but after retirement from practice I felt that I wanted to put my business experience and knowledge as a veterinary surgeon to use for animal welfare and conservation and made a personal decision to work half my retirement time earning extra income and the other half on voluntary animal charity work.
Tax advantages
Setting up a small business or company has income tax advantages as it allows you to retain your self-employed status or become a company director. You can then register for VAT and offset business costs such as motoring and travel, subsistence for meals, employment of spouse, telephone, fax and computer, stationery and use of office at home against the future profits of the business.
Capital and income
The assessment of your future financial needs must also allow for the investment of your assets to provide sufficient income and protection against inflation to supplement your pension and other sources of income. I am of the firm opinion that you should take good financial advice for your investments but always remain in control and maintain a balanced portfolio of equities, property and government bonds.
Avoid paying high commissions to intermediaries and utilise tax-efficient opportunities such as self select ISAs and Index Linked National Savings products, rather than investing in risky financial products that appear to offer high returns but can end in disaster.
Preparing for the end
Write your Will
You need an up to date Will to ensure that your money will be distributed as you wish because if you die intestate it will be the State that decides for you. Your Will can make arrangements for the care of your spouse, bequests to selected people or charities, appoint guardians for young children, help in the avoidance of inheritance tax and plan your funeral arrangements.
It is possible, in addition to your Will, to leave letters of instructions of personal matters such as the distribution of your personal affects within the family, the details of your funeral service such as the choice of hymns to be sung and the type of reception after the funeral you want for family and friends.
You may also decide to write a “living will” in which you set out for your family what you want to happen if you are severely injured or your health seriously deteriorates. You can appoint your spouse or a family member and give an advance directive to withdraw medical treatment in certain circumstances.
You also have an obligation to your named executers and family to make life easy for them to obtain probate and sort out your financial affairs by ensuring that your will and records of bank accounts, insurance policies, pensions, property, shares and other assets are well documented and accessible.
Inheritance tax (IHT)
We have all seen the sticker on the back of a caravan that says, “Spending the kids’ inheritance and enjoying it.” It is not a crime to draw on a little capital to help out with boosting your income in old age.
We would all like to pass on some of our hard-earned savings and assets to our children and grandchildren and I consider that we have a responsibility to take simple measures to reduce the amount of payment of inheritance tax to the Chancellor on our death.
There are some basic actions that should be taken to minimise this tax and assist your executors and trustees to obtain probate and sort out your financial affairs. These are:
- equal division of assets between married couples;
- full utilisation of nil rate band for IHT for both spouses;
- make lifetime gifts (PETS) – subject to seven-year rule;
- regular lifetime gifts out of income;
- discretionary Will trust;
- exempt investments, e.g. AIM shares and small businesses;
- Deed of Variation of Will.
Medical insurance and long-term care
You can take out medical and critical illness insurance but this becomes more expensive as you get older. If you have substantial assets and with the backing of the NHS, which will always provide prompt emergency treatment, it is worth considering self insurance for medical treatment.
Three or four thousand pounds saved each year for 10 years plus compound interest adds up to a useful sum.
Clinical depression and dementia in old age is a real worry. There are now 700,000 people with dementia in Britain and one in three people will end their life with some form of dementia. How do you pay for long term care? For those who require constant supervision, the cost can be £3,500 a month and these costs are rising faster than inflation.
With the inevitability of old age, remember the fridge magnet which says: “Be nice to your children, they choose your nursing home.”
Special annuities can provide extra income but when the annuitant dies the capital stays with the insurance company. There are equity release schemes to raise money from your property, but this is an expensive option and in old age it may be more sensible to sell the property and live in rented accommodation.
It usually falls on relatives to make the arrangements for long-term care and it used to be most important to take out an EPA (Enduring Power of Attorney) which allowed those granted the power to exercise control over the elderly individual’s finances once they were physically or mentally incapable of managing those assets themselves.
However, since 1st October 2007, it has become more expensive as the Enduring Power of Attorney has been replaced by two types of Lasting Power of Attorney (LSA): one for property and finances, and the other for personal welfare including the appointment of someone as a healthcare proxy.
Summary
Many of the readers of this article will live to be one hundred years old and spend a third of their life in “retirement”. Just like starting a new business, careful planning is required to ensure that this period of your life is one of fulfilment where hobbies, travel and sporting interests can be enjoyed.
As you get older it is also a time of mental and physical challenges. This may mean that some couples in their early retirement may have to care for each other. With the modern day “extended families” which occur through broken marriages and two working parents, you may find that as grandparents you are also asked to help and support the upbringing of your grandchildren. With greater life expectancy you may also have responsibilities to help as carers for your ageing parents.
We have all been privileged to belong to a great profession and have benefited materially during our working lives. This period of retirement gives us an opportunity to make a further contribution to local communities, the profession and the welfare of animals.
