As retirement approaches, many people begin to consider how their lifestyle—and their finances—will evolve. While it’s common to assume that spending will decrease once the daily commute and work-related expenses disappear, recent research suggests the picture is more nuanced. Understanding these patterns is not only essential for retirement planning but also has significant implications for wills and inheritance tax (IHT).
What the Data Tells Us About Retirement Spending
According to a comprehensive study by the Institute for Fiscal Studies (IFS), retirees’ spending habits remain relatively stable in real terms throughout retirement. In fact, spending tends to increase slightly up to around age 80 before levelling off or declining modestly, for example:
- Retirees born between 1939–43 increased their weekly spending from £245 at age 67 to £263 at age 75.
- Spending on holidays and leisure tends to rise in early retirement, while costs like food and motoring decline.
- In later life, spending on household services and care increases, reflecting changing needs.
This data challenges the traditional assumption that retirement spending drops significantly. Instead, it highlights the importance of planning for a steady or even rising need for income—especially in the early and later stages of retirement.
Why This Matters for your Will
With spending remaining steady and life expectancy increasing, many retirees are choosing to preserve their pension pots for longer. However, this strategy is now being re-evaluated in light of upcoming changes to inheritance tax.
From April 2027, defined contribution pensions will be included in the taxable estate for IHT purposes. This means that pensions, once a tax-efficient way to pass on wealth, could now push estates over the £325,000 threshold, triggering a 40% tax liability.
Should You Review Your Will with our Will Solicitors in Sheffield More Often?
Absolutely. Whilst we would always recommend you review your Will every 5 years, the ever evolving financial landscape makes regular will reviews more important than ever.
Here’s why:
- Changes in the Law: With pensions soon to be included for the purposes of IHT and thresholds frozen until 2030, more estates may be liable for tax.
- Asset Rebalancing: As spending patterns shift, so too might the value of different assets in your estate. A will written 10 years ago may no longer reflect your current financial situation.
- Trusts and Flexibility: Including discretionary trusts in your will can provide flexibility, allowing trustees to adapt to tax rules at the time of your passing.
- Gifting Strategies: Lifetime gifts can reduce IHT liability, but they must be made at least seven years before death to qualify for exemption.
How We Can Help
Our will solicitors in Sheffield specialise in wills and estate planning tailored to your unique circumstances. Whether you're newly retired or entering your later years, we can help you:
- Review and update your will in line with current legislation.
- Explore trust structures and gifting strategies to reduce IHT.
- Ensure your estate plan reflects your evolving financial needs and family dynamics.
Final Thoughts
Retirement is a time of change—not just in lifestyle, but in financial priorities. As spending habits shift and tax laws evolve, keeping your will up to date is one of the most effective ways to protect your legacy and provide for your loved ones.