Keeping the focus on long-term financial planning and overcoming the signs of later life inertia

Published in Professional Adviser and Financial Investor 24

As the shoots of Spring arrive, the general rhetoric is that the worst of the cost of living crisis could be behind us, or it is at least losing some of its recent bite. However, recession or no recession, it seems likely that we will feel the pinch for quite some time.

What does this mean for the area of later life planning?

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Many in this cohort are retired and don’t need to worry about the potential of job market instability or lack of wage growth. They may also be mortgage-free, so rising interest rates are not of great concern. While volatility might see their savings dip, they can often weather turbulence, not being required to call on lump sums for house purchases, school fees, and the like. Spending is often discretionary.

While this all paints a rather rosy picture, the real sting for retirees comes from inflation, especially in the context of relatively low interest rates, something that hasn’t been an issue throughout the economic downturns of recent memory. High inflation impacts all demographics, and fuel and general living costs have a painful impact on people operating a tightly controlled (even if very comfortable) budget. At the same time, interest rates remain low, and there is little opportunity to offset the increased outgoings with higher income.

Overcoming inertia

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This environment can create short-term pessimism that results in long-term financial planning inertia – compounded by a generation that has not experienced this set of economic circumstances for a long time. For clients whom advisers believe should be considering estate planning, putting off decisions can severely impact a positive outcome for them and their families. Between April 2022 and January 2023, Inheritance Tax receipts grew by almost 10%¹. House prices have increased since the pandemic², even if they have fallen marginally of late, and so more estates will creep above the Government’s nil rate band of £325,000. What’s more, the nil rate band is frozen until 2026 and so won’t take into account any asset price inflation. At the same time, people are very conscious of the high cost of care and don’t want to lose control of their savings. The average cost of a care home is £600 per week, which rises to over £800 in a nursing home³.

Still, considering the threat posed by inertia alongside a few more positive pieces of news and data, perhaps now isn’t such a bad time to re-visit those seemingly intimidating financial plans. Household energy bills will offer some respite from the cost of living during the warmer months and inflation is widely reported to have reached a peak, falling for the third month in a row to 10.1%⁴ in the year to January, with more declines forecast to the end of the year. Your estate planning clients might remain cautious, but at the same time, begin to consider that not acting upon an estate plan holds the most significant risk of not achieving the most desirable outcome.

We have discussed this issue with financial advisers; they have shared a few tips to help overcome inertia with later-life clients.

1. Simplify goals: Your client needs to clearly understand what they want to achieve in the long term, but this can sometimes seem too challenging. Instead, break larger goals into achievable steps and highlight quick wins.
2. Present the facts: Popular news flow can paint a rather gloomy socio-economic picture, and headlines might cause your clients to shut down altogether. A simple, factual assessment of their situation, presented within the context of the broader economy, can help them to understand the most relevant benefits and risks to their financial plan.
3. Demonstrate extra value: All estate plans seek to mitigate against the impact of Inheritance Tax, but can you deliver additional value, for instance, assistance in planning for potential care needs, to your clients as part of the solution you recommend? If so, make sure you communicate this additional value to them.
4. Stay flexible: Especially in times of economic uncertainty, demonstrating where a plan offers flexibility is important and can make a cautious client feel more confident in actioning a plan.
5. Keep your client motivated: Long-term financial plans are just that – long term. Keep your client motivated and engaged by communicating with them regularly and celebrating their small successes.

¹ HM Revenue & Customs, 21 February 2023

² Propertydata.co.uk, 18 January 2023

³ Age UK, February 2023

⁴ ONS, 15 February 2023

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