When planning for your retirement, have you considered if you’ll be providing financial support to loved ones?

A survey conducted by Key suggests that a third of new retirees are providing vital cash injections to children, grandchildren, or other family members. If it’s something you’ve not considered, you could face a shortfall.

On average, retirees providing financial support are giving £307 a month, adding up to almost £3,700 a year. 1 in 10 are giving more than £500 a month.

With an average retirement income of £21,633, it means some retirees are gifting a significant portion of their income to loved ones each month. If it’s something they overlooked when planning their retirement, it may deplete assets sooner than they expect.

As well as providing regular financial support, some retirees are also helping to cover major costs, including:

• New car (7%)
• University (6%)
• Property deposit (5%)

Taking a lump sum out of assets that have previously been earmarked for creating a retirement income could affect your long-term financial security.

If you want to provide financial support to loved ones when you retire, whether regular support or a one-off gift, it’s something you need to consider as part of your retirement plan.

Inflation of 9% could place further pressure on budgets

Inflation is high, and if you’re supporting both your lifestyle and a loved one’s on your retirement income, you could be hit twice by the rising cost of living.

Inflation in the 12 months to April 2022 was 9%. As well as affecting your cost of living, from rising utility bills to grocery shopping, your loved ones will also face more pressure on their budget. As a result, you may want to increase how much financial support you offer.

So, if you haven’t considered inflation when planning for retirement, you could be hit twice by the increase if you’re providing financial support. Even if you did consider inflation, it may be at a higher level than you expect, so you could still face a long-term shortfall if you haven’t reviewed your plan.

While overall inflation is 9%, some areas of spending have increased at a much higher rate. The energy price cap, which limits the amount an energy supplier can charge customers on their default tariff, increased by 54% in April, for example.

Understanding how your spending is affected by inflation is important. Speaking to loved ones to understand the financial pressures they’re facing can also help you provide support that will make a difference.

Making financial gifts part of your retirement plan

If you hope to continue supporting your family financially when you retire, it’s essential that this is part of your overall financial plan.

It means you can have confidence in your retirement income and the lifestyle that it will afford you, as well as knowing that you can continue to support the people that are most important to you.

Here are two questions to consider if you want to give financial support in retirement.

1. Will it be regular financial support or one-off gifts?

Be clear about the financial support you will offer. This will help you create an effective retirement income that reflects your needs and goals. It can also ensure that you and your loved ones are on the same page.

While you may have an idea about the support you want to offer, it’s worth exploring other options.

If you’re helping a child with day-to-day costs because they have high rental outgoings, for example, could providing a lump sum lead to lower costs and greater financial security by allowing them to get on the property ladder? In some cases, a larger one-off financial gift can make more sense.

2. Will the support you provide now affect the inheritance you leave?

If you’re helping loved ones during your lifetime, it may affect the inheritance that you will leave behind or your wishes when you pass away.

It’s a good idea to understand how your choices now will affect the value of your estate. In some cases, you may want to speak to your family about this so they understand what they can expect to inherit, as this could help them plan more effectively.

In addition, your decisions now may affect how you want your assets to be distributed when you pass away.

For instance, if you’re helping one child financially now, you may want your other child to receive a greater proportion of your estate when you pass away.

You should ensure your will reflects your current wishes and that you regularly review it.

We’re here to help you create a retirement plan that reflects your priorities, including your loved ones being financially secure now and in the future. Please contact us to arrange a meeting to discuss your goals.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning or will writing.