My Financial Life – Heading into your 70s

AJ Bell’s Money Matters campaign was launched three years ago with the aim of helping women navigate the massive gender investment gap.

This is the first in a series of articles looking at the particular challenges women face at different stages in their financial lives.

You might think that by the time you reach your 70s, most of your life’s financial decisions are behind you, but actually this decade is a hugely important one, and 75 is a milestone that requires special consideration.

Women currently in their 70s are part of a generation where a whole lot changed for women’s rights. These were the women who joined movements like Women’s Lib, demanding equal pay and opportunity. Thousands went to university, and there was a boom in employment for young, single women.

My mum is from this generation; she embraced flower power, became an air hostess and built up a small private pension pot. They are the baby boomers and the first to have to properly navigate pension freedoms. Those additional choices have given people opportunities to make their pension pots work better for them.

While they do still have the option of buying an annuity, a guaranteed income, with their pot, they also have the option of leaving the money invested and drawing down what they need when they need it, an amount that can fluctuate extensively.

At 75 my mum is energetic and vital; she travels all around the world visiting family and friends, and she enjoys taking her grandchildren out to rock climbing walls and swim centres.

It’s a lifestyle that is quite expensive to maintain, but she’s already aware she won’t want to continue that level of activity into her 80s, so she’s been able to budget accordingly and enjoy her chunk of tax-free cash to fund this part of her retirement.

And 75 is a financially important milestone. If you die before you reach 75, your pension can be passed onto your loved ones without any income tax charges, so it makes sense to spend ISAs and other investments before spending your pensions.

But once you reach 75, things change and beneficiaries will have to pay income tax on what they receive, so if you’ve not taken advantage of your tax-free cash before, then you could end up leaving HMRC an unintended gift (though remember you can still access what’s left of that 25% at any time).

But overriding all that is the fact that pensions are free from inheritance tax and other investments are not. So, if you think IHT is going to be an issue, do make sure you think carefully about your estate and investments.

Your 70s is a really important decade and one which you have probably spent a lot of the previous years working towards.

It’s likely to be the first full decade when you need to live off your investments, though more and more people are working at least part-time.

Investment decisions are likely to favour income funds, those that pay substantial dividends and allow investors to leave the majority of their pot untouched.

Making sure whatever you’ve amassed lasts for as long as you need it, is enough to cover any care costs you might need in the future, and that there is money left to be bequeathed to loved ones can become overwhelming, doubly so if you have to cope with the loss of a partner or spouse.

Many widows find themselves having to deal with complex financial issues whilst they are grieving, something that’s made especially acute by the gender investment gap.

Drawdown gives people more flexibility and whilst annuities guarantee an income for life, people considering buying one should think carefully about inflation protection, their health and their beneficiaries.

Making whatever pot of money you’ve managed to amass work as hard as it can for you is especially important for women who, on average, have significantly smaller pots of cash than men despite the fact they live longer.

Your 70s should be a fresh and exciting page but it isn’t always straightforward. The key is to act smartly and act early, think of your finances in the same way you think of your body; healthy habits don’t have to be onerous but small actions can make a huge difference!

My financial life 70s check list

1. Check benefits – are you getting everything you are entitled to?
2. Keep up with your finances – if your needs change, will your finances give you the flexibility you need?
3. Plan ahead – make sure you’re aware of your partner’s finances and have your own estate in order.
4. Remember the tax man will still come calling – with the state pension getting ever closer to the personal allowance threshold, planning when, how much and where you take your income from becomes increasingly important.
5. Don’t get stressed – there is a lot of help out there to make sure you enjoy the retirement you deserve.