We would all like to leave our loved ones an inheritance when we pass. Unsurprisingly, financial planning to ensure family members are left in the most comfortable position forms a key part of many conversations with clients.
But the world is changing and it is becoming more and more difficult for some to guarantee a comfortable legacy for their loved ones due to challenges posed by their own needs and those of their family during their lifetime.
Future retirees face a very different reality to the retirees of today and, with people living longer, retirement and the responsibilities of retirees are shifting substantially.
Recent research we’ve undertaken delves into these challenges further, revealing how these pressures are hindering many people’s ability to pass on funds after death.
By 2029, there will be 963,000 families with more than one retired generation – an 18% increase from the 813,000 multi-retiree families that exist currently
While seven in 10 UK adults (68%) believe it’s important they leave an inheritance, future retirees must contend with a wide range of economic factors, such as mortgage and rental costs, which pose challenges to doing so.
For instance, 13% of those approaching retirement anticipate still having mortgage payments to make when retired (up from 4% of retirees today), while 16% expect to still be renting when they reach retirement.
All these issues go against the ideal retirement situation we envision for clients, where individuals have fewer outgoings and avoid touching savings earmarked to be left to pass down.
Another factor increasing pressure on the next generation of retirees is the need to financially support other generations also in retirement. In fact, our research revealed the number of families with more than one generation retired at the same time is rapidly rising and, by 2029, there will be 963,000 families with more than one retired generation – an 18% increase from the 813,000 multi-retiree families that exist currently.
While 65% of current retirees expect to pass down property to their family through inheritance, this figure drops to just 45% among those yet to retire
Naturally, this will place a strain on our clients’ finances and over half (55%) of future retirees expect to provide financial support to other generations in their retirement. Unsurprisingly, one in 10 foresee the requirement to financially support other generations reducing the amount they are able to pass on in inheritance.
Added to this, with younger generations living at home longer, finding it harder to get onto the property ladder and grappling with the significant cost of higher education, many are turning to the bank of Mum and Dad for more support than previous generations.
This, again, takes funds away from any legacy that could be left. While in these cases, it may not mean they miss out, as they will be benefiting while their parents are still around to see it, it will still have an impact, forcing future retirees to dip into emergency funds, leaving them more vulnerable to increased costs of living when they do reach retirement.
Unsurprisingly, future retirees are feeling less confident in their ability to implement inheritance plans.
Unsurprisingly, future retirees are feeling less confident in their ability to implement inheritance plans. A quarter don’t feel confident they have the right plans in place
A quarter (26%) don’t feel confident they have the right plans in place versus 14% of current retirees and, overall, the next generation is a third less likely to pass down assets. While 65% of current retirees expect to pass down property to their family through inheritance, this figure drops to just 45% among those yet to retire. Meanwhile, 60% of current retirees plan to pass down cash savings, contrasting with only 40% of future retirees who share the same intention.
Although some external pressures can’t be accounted for, we can prepare clients to best tackle these issues by helping them to develop a retirement plan that takes into account not only their ideal retirement situation and the assets they would like to pass down, but also the other generations that may need to be supported and other factors such as healthcare costs and long-term care costs.
By working with them to develop a good, flexible and robust financial plan early on, we can help navigate the complexities well before they reach retirement and facilitate greater opportunity to build wealth over time, without them having to making unnecessary sacrifices along the way and putting off retirement indefinitely.
Claire Trott is divisional director, retirement and holistic planning, at St James’s Place
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