Once you get to retirement, this requirement for income becomes more important. However, to put matters as simply as possible, there are broadly only two things that we can do with our assets.
Firstly, we can spend them. This is the simple one. We take money from our assets to provide us with income in retirement. This income may come from a pension plan, other investments, rental income from a house or other sources such as holiday lets. However you choose to take it, your assets provide you with money to spend. But if you don’t spend it all, then the other option is to give it away.
Whether you like it or not, you will give all your assets away. You may choose to do so in a managed way whilst you are alive, or you will do so upon your death. In our experience, most people don’t spend enough in retirement and this has been backed up by a survey from the Institute of Financial Planning (July 2018) which confirmed that most people aged between 70-90 only spent 31% of their wealth.1
Many people are so concerned about their money running out that they spend too little and give too little away whilst they are alive. This therefore leaves too much in their estate on death.
The problem with this is that without some serious planning, you may find that the money you have saved so diligently gets distributed in a way that suits nobody.
1 Institute of Financial Planning (July 2018)
Whilst planning for your own death can feel a little uncomfortable, once you come to terms with the fact that you are going to give this money away, it is surely better to manage the situation and understand the implications.
So, let’s go back to the three factors listed at the start and understand how planning can make a difference.