Five unpleasant truths about ageing

Ageing isn’t easy. Many choose not to think about it, yet there are unpleasant issues you need to deal with. Our Money Saving Expert Martin Lewis is here with his five unpleasant truths you can’t ignore.

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1. You’ve a significant chance of developing dementia

If you lose your faculties, don’t assume relatives can walk into the bank and access your money – not even if it’s just to pay for your care. If you’ve not prepared, and your family have to take charge of your affairs, they will need to apply to take over via the Court of Protection. This is a nightmare for many families that can drag on for many months, with costs of around £400 and legal fees that can be in the thousands.

So consider getting a Lasting Power of Attorney (LPA) while you have the mental capacity, where you nominate a trusted friend or relative to look after your affairs. This doesn’t mean you’re giving up control there and then, you can choose for it only to come into effect when you’re no longer capable.

For help, see Martin’s full lasting power of attorney guide.

2. Are you hurting your spouse by looking after the family finances?

It’s easy to feel you’re helping your loved one by doing the fiscal chores – allowing them to make the common boast: “My other half deals with all the finances, I don’t know anything about it!” Yet if you were hit by one of the three Ds – death, divorce or dementia – it could lead to financial misery for them on top of the grief.

I suggest the senior money half openly creates a financial factsheet. A simple structured list naming all product providers, from roadside recovery to investments, boiler cover to bank accounts. Keep it somewhere safe, but don’t put too many security details in just in case.

Then arrange a kitchen table briefing every few months (or more frequently if you’ve financial difficulties and need to budget) where you update the list and discuss the latest changes.

3. Don’t assume your debts will die with you

It’s often said your debts die with you, but unfortunately that’s an oversimplification. If you die penniless and in debt, no one left behind needs to assume any responsibility for those debts unless they were joint.

But if you had assets, your estate is expected to settle those debts from them and your beneficiaries can be liable if assets are distributed without paying the debts off. So if you leave a £200,000 house, for example, but owe £50,000 on credit cards, then your estate can be pursued for the debt, and to get the house your family may need to pay for it.

The law is complex, so if this affects you, speak to a lawyer, or talk to the Citizens Advice Bureau. The basic point is: don’t over-borrow and think it’ll disappear when you’re gone.

4. If you need to release equity from your home, downsize sooner, not later

Those in their sixties living in large homes with kids who’ve long left the nest often plan to downsize – for many the cheapest way to spend your house’s value. Yet it’s commonly put off.

When that happens people explore equity release products – loans sold as a way to spend the value of your home while you still live there. But at 6% to 7%, interest rates here are far higher than most mortgages. And more significantly, as it’s usually paid from your estate or the sale of your house on death, you often don’t make any repayments, which means that, unlike a mortgage, you’re subject to vicious compounding. So do explore downsizing earlier.

If you must do it, unlike downsizing, leave it as late as possible, and if you can, do it bit by bit. Also ensure the provider is a member of the Equity Release Council – this trade body’s members at least promise your estate will never owe more than your house is worth.

5. It pays to know when you’ll die

As announced in the Chancellor’s Budget this month, from 2015 those aged 55 and over will be able to take 25% of their pension savings as a tax-free lump sum and can then draw on the rest when needed, albeit taxed at their income tax rate. This means many won’t touch an annuity - the product used to convert pension pots into a regular income until you die.

But the decision of what to do with the cash in the new pension world will remain complex.

While financial freedom of choice is a great boon for the savvy, for the mass who are typically scared of finance, there’s a dual worry. Some will splurge too soon and leave themselves with nowt for their dotage; just as many will nervously keep it in their current account, never spending, depriving themselves of the benefit out of over-caution.

The unpleasant issue of “how long have I left?” is a question we all need to get more comfortable discussing.