Help ensure your pensions, savings and investments will provide financial security in retirement by asking 5 key questions.
As life expectancy increases, so does the length of time needed to stretch your income in retirement. Taking the right steps now can help you afford the lifestyle you want for as long as you need.
Today, most people can expect to live longer than the generations before. While this is good news, increased life expectancy comes with some downsides. Simply put, can we afford the cost of living longer?
- How much income will you need?
You need to establish if your savings and pensions will generate enough income to maintain your current lifestyle right through your retirement years, for you and your spouse. This includes planning for extra expenses such as unexpected home maintenance, as well as for potential care needs in your later years, especially if you don’t have family living nearby.
And you’ll want to allow extra funds for holidays, new cars and any hobbies you enjoy such as golf.
Remember to factor in the effect of inflation on reducing your spending power each year. Say, for example, you spend €5,000 a month. Assuming an inflation rate of 3% a year, in 10 years’ time you could need about €6,720 a month to maintain the same spending, and €9,030 in 20 years.
- How much do you want to leave behind?
If you want to leave a lasting legacy for your family or other heirs, you have to make sure you do not spend it in your own lifetime – without compromising on your own quality of life today. A holistic financial planning approach – that considers estate planning alongside your wealth management and tax planning – can prove invaluable here.
- How can you get the most from your pensions?
For most people, pensions are the key to financial security in retirement, so you need to take extreme care to do what’s right for you.
Explore all the options available for your UK pensions as a resident of Portugal. Carefully weigh all the pros and cons, including the tax implications in both countries, to determine which approach is most suitable for you. In some cases, your best approach could be taking no action at all, especially if you have a ‘final salary’ pension that guarantees an income for life.
While Qualifying Recognised Overseas Pensions Schemes (QROPS) have been a popular option for British expatriates, the UK now imposes a 25% overseas transfer charge when UK pensions are transferred overseas, though you may wish to weigh this against pensions becoming subject to UK inheritance tax from 2027.
Take UK-regulated advice to establish the most suitable approach for your circumstances, goals and risk tolerance. A specialist cross-border adviser will also guide you on alternative options to QROPS to meet your objectives and recommend personalised pension solutions.
- How can you make your savings and investments last?
You should review whether your savings, investments and assets are working as hard as they can for you and are protected from unnecessary taxation. For example, are you making the most of the tax-efficient opportunities available in Portugal or are you holding onto UK assets that attract higher taxation and maybe even provide less growth? If you are a business owner, have you started planning a tax-efficient exit strategy to get the best out of your years of hard work?
There are also currency considerations. Taking income in sterling while spending euros in your daily life makes your money vulnerable to conversion fees and exchange rate risk. Explore arrangements that offer the flexibility to hold investments in more than one currency and convert when it suits you, such as a Portugal-compliant life assurance bond.
Do not underestimate inflation here too. While it is tempting to choose low-risk investments in your later years, your capital still needs to keep pace with the cost of living, and cash in the bank is unlikely to do this. Your financial adviser can recommend a diversified investment strategy to meet your situation, goals and risk tolerance.
- How can you limit the effect of taxation?
An undesirable side-effect of rising life expectancy is a general trend for tax rises, as governments struggle to finance escalating pension and healthcare services for ageing populations.
Higher taxation can be a serious threat to your financial security in retirement. Look for compliant arrangements available to expatriates in Portugal that can significantly minimise taxation, making your money go further, for you and potentially your chosen heirs. For the best results, take personalised, cross-border advice.
Whatever your stage of life, good financial planning can help you afford the lifestyle you want for as long as you need, so you can focus on enjoying your time in Portugal.
This article should not be construed as providing any personalised investment advice. You should take advice for your circumstances.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com.
