5 money mistakes people make in their 70s

This series looks at common financial mistakes people make at certain ages - with tips on how to avoid them. Here we seek to help 70-somethings make the most of their retirement spending.

Most people in their 70s are fully retired — and have been for a number of years. As a result financial priorities should centre on utilising pensions and other savings to enjoy life today, while ensuring there are sufficient funds for the future, for themselves and their family.  

This is far from an easy task at the best of times, but stock market volatility, persistent inflation and complex tax and inheritance rules have complicated things, meaning it is easy to make mistakes that can prove costly in the long run. 

Below are some common pitfalls to look out for —with suggestions on how best to avoid them. 

1. Struggling with the art of decumulation

When it comes to accumulating pension savings the basic principles are pretty straightforward: save as much as you can, as early as you can. But it gets far more complicated when it comes to spending these savings in retirement — particularly as many people now choose to leave their pension funds invested, and take either ad hoc payments or a regular income via a drawdown plan.

Taking too much too soon risks running out of money in old age — a problem that can be exacerbated by poor investment returns.

But on the flip side, many people struggle to switch off a ‘savings mindset’ and err on the side of caution which can result in them failing to make the most of their money in retirement.

There is no simple answer to how much you can safely ‘spend’ from your pension savings each year. Much depends on the size of your pot, what other savings you and a partner might have, whether you have any guaranteed income streams as well as your health and attitude to risk.

The best thing you can do is ensure you review your finances regularly, to check current withdrawal rates remain sustainable and still cover regular living costs. If not you should seek to make adjustments at the earliest possible or explore other option such as an annuity.

The government’s Pension Wise service offers free, impartial guidance to help you understand your options at retirement. You can access the guidance online at www.moneyhelper.org.uk or over the telephone on 0800 138 3944.

Fidelity's retirement specialists can provide you with free guidance to help you with your decisions. They can also provide advice and help you select products though this will have a charge.

2. Failing to plan for inflation

Inflation rates can quietly erode your spending power over time, even at a relatively modest rate. At an annual inflation rate of 3%, the value of a £100,000 pension pot today would be worth just £73,343 in real terms after 10 years — assuming no investment returns or withdrawals. Over a 20-year retirement, the effect is even more dramatic, with the spending power of this notional £100,000 almost halving to £54,379. 

Remember, a woman aged 70 today has an average life expectancy of 88 — so many will be looking at 20-year-plus time horizons.¹

Inflation affects us all, but retirees — who are often on fixed incomes — can be hit hardest. The State Pension currently includes a provision to uprate annual payments in line with inflation. But people need to ensure other savings are similarly inflation-proofed where possible. Those buying an annuity may want to consider inflation-linked options, although these will have lower starting incomes.

Ensuring you have some exposure to inflation-beating assets, such as equities, can also help preserve the long-term purchasing power of your savings, although this can mean volatility in the short term. Savers need to take a balanced approach to reflect both these short- and long-term risks. A Fidelity Stocks and Shares ISA can help with this diversification, offering access to a range of equity and fixed income funds, as well as cash fund options.

3. Leaving estate and care planning too late

By their 70s, many people assume their wills are up to date and their inheritance affairs are in order. But failing to review your estate planning regularly — especially in light of tax rule changes or family developments — can lead to costly consequences.

For example, the government has recently signalled that pension funds may in future be subject to inheritance tax. While the full details have yet to be published, it is likely that this will change some people's retirement plans, particularly when it comes to spending ISAs and pensions.

If your assets, including the family home, are worth more than £1 million, you may be subject to this 40% tax. Making gifts to children or grandchildren can be an effective way to reduce liabilities, but you will need to survive seven years for these to fall outside your estate for IHT purposes. The rules around gifting are complex, so if you think you’re likely to face an IHT bill, seek specialist tax advice.

• Read: 5 tax hacks: how to make big financial gifts without a big tax bill

When planning your estate, don’t overlook the potential impact of future care costs. This can be one of the biggest uncertainties people face in later life — and yet many still don’t factor it into their retirement plans.

Whether it’s a part-time carer at home or a move to a residential care facility, these services can be expensive. According to Age UK, the average cost of residential care in the UK is now almost £950 a week — and this figure rises significantly for those with more complex nursing needs.

Relying on the state may be unrealistic. In England, you’re only eligible for help with care home costs if your assets (including property) fall below £23,250. Even with the proposed cap on care costs, set to come in from October 2025, significant out-of-pocket expenses may remain.

It’s worth thinking ahead. This might mean earmarking some assets for later-life care. Talk to your family about your wishes, and how these might affect future inheritance plans.

4. Ignoring the financial risks of cognitive decline

We all know some whip-smart 90-year-olds, but it’s a sad fact that our mental faculties can decline with age, potentially creating problems as we move into our later years. This makes people in their 80s and 90s more prone to financial mistakes and more vulnerable to fraud and scams.

You may not be able to stop cognitive decline, but you can limit the potential financial fallout by planning ahead. One way to protect yourself is to set up a lasting power of attorney (LPA). This appoints a trusted representative — generally a close relative — to manage your finances and property when you’re no longer able to do so. Having one in place does not give them any power over your finances while you remain fully in charge of your faculties. 

It’s also worth simplifying your finances where possible — consolidating bank accounts and investments and keeping clear records — as this can help reduce future errors.

Regular financial check-ins with a trusted family member or adviser can also provide peace of mind — and help catch issues early.

5. Prioritising others’ financial needs

There’s no doubt that younger generations face difficult financial challenges, and many parents and grandparents want to help. A recent report from Saltus Wealth Index showed that 70% of parents are helping their adult children financially. This isn’t just 20-somethings heading off on a gap year or starting their first job. The survey found parents are more likely to be helping middle-aged children in the 45–54 age bracket — while around eight out of 10 grandparents said they had provided financial support to adult grandchildren.

Clearly, there’s no early retirement for the Bank of Mum and Dad (and Grandma and Grandad). While many parents are happy to help, and may have the financial means to do so, it’s important this generosity doesn’t come at the expense of their own long-term financial security.

Many retirees may feel relatively wealthy at the start of retirement after decades of saving, but it’s important to bear in mind that this money may have to last decades — and potentially fund expensive care costs. You may want to factor gifts into estate planning, and remember that if you do ‘lend’ money, do so with the expectation that you won’t get it back.

Read more from our series:

• 5 money mistakes people make in their 40s
• 5 money mistakes people make in their 50s
• 5 money mistakes people make in their 60s

Source:

¹ ONS Life Expectancy Calculator

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.