5 money mistakes people make in their 70s

As part of a new series, we’ll be looking at financial mistakes people are likely to make based on their age. In the first of these, we seek to help the 70-somethings…

From changes in health and unexpected events to day-to-day spending and overambitious lending, it’s critical you swerve the sort of missteps that could derail your retirement.

Every new stage of life brings new financial strategies we need to follow. However, if we fail to follow those strategies, we can cost ourselves money and worse still, jeopardise our financial security.

Here are five typical mistakes 70-somethings tend to make. And what you can do to avoid them.

You struggle with the new art of decumulation

Having spent decades working hard to build up your retirement savings it can be difficult to let go of the savings mindset and actually start to enjoy the fruits of your labour. It can be surprisingly difficult to break the habits of a lifetime. So much so that many people - to use pension industry jargon - struggle with decumulating (or spending) assets they’ve spent decades accumulating.

But now is the time to reap the rewards. Instead of hanging onto everything, make sure to enjoy what you have. Not least because there are some very good tax reasons to do so.

The 79-year-old television presenter Anne Robinson says she’s given away her £50m fortune to family to avoid inheritance tax.

When you die, inheritance tax (IHT) is charged at 40% on the part of your estate above the threshold which is currently £325,000. The threshold rises to £500,000 if your home is given to a child or grandchild. As a married couple this gives you the ability to pass on property worth up to £1m completely IHT-free. This though only applies as long as your estate is worth less than £2m overall.

Whether you can gift them that money IHT-free though, depends on the amount you give and whether you survive more than seven years after giving them the money.

Under the seven-year rule, you can gift any amount IHT-free as long as you live for at least seven years after giving the financial gift. If you die at any time within the seven years, a reduced rate of IHT applies to any amount above your nil-rate band (currently 40% within three years, 32% after three years, 25% after four years, 16% after five years and 8% after six years).

There are other ways around it though if you gift smaller sums. For instance, you can give away £3,000 per year (in assets or cash), divided between one or more people, without IHT applying at all. You can also carry forward one preceding year of annual exemption to gift £6,000 in one year.

You're allowed to give £250 per person per year to as many people as you like without IHT applying (as long as they haven't benefitted from your annual exemption).

You can contribute to someone's wedding, as long as you gift this amount before the wedding day and it actually takes place. You can give £1,000 to anyone you know, £2,500 to a grandchild and £5,000 to a child.

You can pay for the living costs of your own child under age 18, or in full time education. This includes university, but you may need to show that financial support is not excessive and only covers living costs and tuition fees.

You can also give regular amounts away that you don't need from your income, without IHT applying. You may have to show that this money was not needed to maintain your standard of living.

If you want to pass on larger sums and have it happen after your death, then you could speak to an adviser about possibly placing the money into trust.

Find out more about how inheritance tax works.

You neglect to hedge against inflation

A woman aged 70 today is, according to the ONS life expectancy calculator, likely on average to live to around 88. There’s also a one in four chance she’ll live to 94 and a 1 in 10 chance she’ll reach the grand old age of 98.

With potentially 18 to 28 years of life still ahead of her, she has every reason to be planning for the longer-term. And that means keeping an eye on inflation.

Inflation is an indication of how quickly prices are going up. As we all know, the cost of living tends to go in one direction - and that’s up. Things get more expensive and the pound in your pocket buys you less as the years go by.

We’ve all been exposed to a very costly, real-life demonstration of how much of an impact inflation can have on our money over the past few years. Data shows that those £1,000 a month living costs of four years ago would add up to £1,223 a month today.

And if you’re on a fixed income, as pensioners are, finding that extra £223 a month or £2,676 a year isn’t always easy. However, it does have to be planned for. Otherwise, all that diligent decades-long saving into your pension could all too easily result in you finding yourself short of money.

Times have been particularly tough of late and while we’re not out of the woods yet, the latest drop in inflation suggests things will get better - although we may see a few more spikes in the inflation rate along the way.

We can’t second-guess those, but it is highly likely that in 18 - and in 28 - years’ time that £1,000 won’t buy you as much as it will today.

When you consider that you could have a good few decades in retirement it’s really important that you try to keep your pension savings in line with inflation, so your money isn’t silently but slowly being eroded in value.

That might mean that cash and bonds aren’t necessarily the safer options you’d been led to believe they were. Without some money invested in stocks, equity funds or ETFs, the purchasing power of your retirement savings will likely decrease over time.

Keeping some of your savings invested in growth investments – such as funds that invest in company shares – can help your savings keep pace with inflation. There is risk involved – the value of shares can go up and down – but it's important to keep in mind that you could be using your retirement savings for the next 20 years or more. If stock markets do go down, there can still be time for them to recover, although this is not guaranteed, and you might not get back what you invested.

Learn how to make your pension pot last.

You still prioritise your (grown-up) children’s needs

Boomerang kids are on the rise, with - depending on which statistics you choose to believe - as many as one in 10 or even one in eight 25-34-year-olds are back home living with their parents. But it may be even worse.

Among the richest, the help being given is greatest. The latest Saltus Wealth Index Report shows that 70% of parents are still helping their adult children financially - and those with offspring aged 45-54 are stepping in even more - with 84% giving financial support. And it doesn’t end with their kids. Some 79% of those surveyed are supporting their adult grandchildren. They have handed over, on average, just under £10,000 to them over the past 12 months.

While many parents wouldn’t think twice about helping out their children, or indeed grandchildren, whatever age they are, you have to be careful that you don’t jeopardise your own financial security by being too much of a ‘soft touch’.

And, if you do ‘lend’ money, do it on the expectation that you won’t be getting any back.

You don’t have an emergency fund in place

A boiler breakdown, unexpected car costs, medical bills. Life has a way of throwing us curveballs and if you find yourself hit with unanticipated expenses, it pays to have the resources at hand to handle them.

When you are working and have a family and/or home to support, it’s typical to keep between three and six months’ expenses in a savings account, so you have easy access to money, should you lose your job or face an unexpected expense. The problem here is that retirees tend to think this no longer applies to them.

However, while you might not have the worry of redundancy hanging over you, that doesn’t stop your boiler packing up or your car failing its MOT. Being prepared for unexpected costs is essential at any age.

Stashed into a cash account, so you have easy access should you need the money in a hurry, this cash buffer will also grow nicely in a high interest account or cash ISA.

Any money you hold in cash at Fidelity also earns interest, which you can find more about here.

Without an emergency fund the risk is that you could be forced to rely on credit cards, an expensive loan or, if you’re already drawing from your pension, dip into that more than you had planned. None of these are ideal and could have a seriously detrimental impact on your long-term financial security.

You haven’t prepped for diminished capacity or later life care

First things first, if you still haven’t got a lasting power of attorney (LPA) in place for your finances and your healthcare, you should make that a priority.  Arguably it is as, if not more, important than a will.

Having a lasting power of attorney in place enables a designated loved one, or someone else you trust, to help you with financial matters and even make decisions about your healthcare if you become incapacitated. Once you need one it’s often too late to set it up. So get yours in place as soon as you can.

Next to tackle is the issue of longevity, with more of us living a good deal longer than the traditional three score years and ten. It’s good news if those extra years are illness-free, but a very different story if we are one of the estimated three in four people who will require some form of later life care.

And later life care isn’t cheap. Government figures suggest that one in seven people is expected to face care costs of more than £100,000 and one in 10 over £120,000.

Of course, the cost calculation for long-term care is uncertain. No one knows if they will need it or for how long, but we can apply a broad rule of thumb. Assuming that the average length of time that someone needs either residential or live-in care is around 30 months, we can see that, at an average cost of £750 a week, you would need around £99,500 to cover the costs.

Assuming then that you can generate returns of 4% a year, you need to put away £670 a month over 10 years. If you have a lump sum to invest, assuming the same rate of return, you would need to leave £66,750 invested for 10 years, to accumulate the same sort of sum.

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: Fidelity International, May 2024. For illustration purposes only, assuming annual growth rate of 4% which is not guaranteed.

You could rely on your pension for long-term care needs, but this has implications for passing on wealth to loved ones. Depending on the type of pension you have, any unspent money in your pension pot on your death may be able to be passed to beneficiaries free of inheritance tax. If so, using it to fund care may leave little, if anything, to pass on.

It’s similar with selling your home to pay for care. Downsizing is an option but is better done sooner rather than later. As well as releasing cash for care, you can release money to pass on to loved ones now and reduce future inheritance tax liabilities.

So, what are your plans? Being in your 70s doesn’t mean it’s too late to plan for long-term care. And, as with most things, it’s far better to be over-prepared than leave it to chance.

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. 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.