Why the language of retirement living is so important
Why the language of retirement living is so important
You probably talk to your clients about retirement planning every day. But talking to them about retirement living can be a harder job, often loaded with potential sensitivities. For your clients, making the decision to sell what may have been their home throughout their adult life isn’t one they’ll make quickly or easily.
According to Today’s Wills and Probate, 23% of people plan to downsize in retirement. However, once this prospect becomes a reality, the option often becomes less appealing. This is reflected in the age breakdown of respondents: 32% of those aged 18-34 said they would downsize, compared to just 14% of those over 55.
For those not interested in downsizing, the reasons cited were:
• They are too attached to their home (31%)
• It is too expensive (22%)
• They have enough money to retire (19%).
So, where does this leave financial advisors? With just under a quarter of households considering changing their living arrangements, it’s likely you’ll need to discuss property plans with some of your clients.
Even for clients not invested in the idea, it’s important to show them the full range of retirement and later-life possibilities.
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Taking an empathetic approach and reframing your language can change clients’ views on their living arrangements |
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Shifting your approach from pure pragmatism into one of empathy and understanding is crucial. That almost a third of survey respondents felt such a strong emotional attachment to their property reflects the power of a “forever home” in many people’s eyes. While staying put may be a workable arrangement for some of your clients, changing needs in later life often require a rethink. Likewise, clients may already know that moving is part of their plan but still feel conflicting emotions when the time comes. As their financial advisor, it’s important to understand your clients’ retirement goals and identify financial pathways to achieve them. Reframing some of the language associated with moving can paint a brighter picture for your clients, helping to turn a painful and emotive decision into a positive one. The concept of “rightsizing” has been around for a while now, replacing the negative connotations associated with downsizing with a more confident perspective. Rather than an immediate focus on a smaller property to save costs, rightsizing looks at matching a new property with your clients’ needs, hopes, and lifestyle expectations. Retirement living can carry certain assumptions or expectations. You may find, if you raise the possibility with your clients, they shrug off the idea. An independent retirement community (IRC) is often mistakenly conflated with a care home and associated with elderly or sick residents. Your clients may also worry that a move into an IRC will mean a loss of independence – but as the name suggests, this is very much not the case. As your role is to explore the financial possibilities open to your clients, you will need to explain the truth behind these misconceptions. IRCs by no means represent a loss of agency and control: in fact, they’re more likely to enhance it. While care options may be available, the move is designed to support your clients’ wellbeing and offer a fulfilling later-life experience with greater independence and opportunity. Understanding the emotion involved in selling a family home, and reflecting this in your conversations, can be transformative for your clients. It can turn nerves into confidence, shifting an intimidating decision into a positive one – and opening up a future they can look forward to. |
The surprising Inheritance Tax benefits of retirement living
Estate planning – and Inheritance Tax (IHT) in particular – has been under the spotlight recently. With upcoming changes meaning that unused pension income will be included in the deceased’s estate for IHT purposes from April 2027, many of your clients will need to adjust their financial plans.
The chancellor has already frozen IHT thresholds until 2030, and it remains to be seen whether this freeze will be extended in the November Budget. For 2025/26, the nil-rate band is £325,000, with IHT applied at 40% above this amount.
As you’ll know, various scenarios, such as the death of a spouse, could raise an individual’s IHT threshold. Much of your strategic planning in this area may focus on lowering the value of a client’s estate to minimise their IHT liability.
With the FCA’s recent focus on retirement income advice and its expectations under Consumer Duty that advisors take a holistic approach, it’s crucial that you understand every option available to your clients.
Deferred fees can help to reduce an estate’s value for Inheritance Tax purposes
A lesser-known but advantageous aspect of independent retirement communities is that many include a “deferred fee” (DF) financial model.
These are charges applied when the resident moves out or after their death.
Different facilities will have different structures, but in general:
• Occupants will pay a slightly lower upfront cost, with the deferred fee then deducted from the resale value of the property
• This fee is usually applied as a percentage – up to 35% of the property value – and is generally capped after a set period
• Deferred fees cover the upkeep of communal areas, infrastructure, and building maintenance, and replace regular charges.
Your initial thought may be that this will be detrimental to your clients, as it will impact their capital. However, HMRC classifies this deferred fee as a deductible expense, thereby lowering the estate’s value for IHT purposes.
As an example:
Your client buys a retirement property for £700,000.
After their death, the property is sold for £1,000,000.
The deferred fee is 30%, which amounts to £300,000.
Therefore, the estate will receive £700,000 from the sale.
Essentially, this model removes £300,000 from the scope of IHT.
Thus with additional planning this could be put into a discounted gift trust (DGT) for example, assuming they have other funds, and gifted to their children, thus utilising the DF.
As you talk to your clients about their estate planning, this is an example of a win-win scenario. Moving to an independent retirement community (IRC) allows them to maintain control over their lives.
From a wellbeing perspective, they will be part of a vibrant community, with high-end facilities, communal spaces, dining options, entertainment, and socialising opportunities.
Financially, the move will free up income, allowing them to make the most of their retirement. For advisors who work with clients and their children, there may be questions from the younger generation about how this could impact their inheritance.
Explaining that the deferred fee could lower their IHT bill – rather than reduce their likely inheritance – is often reassuring for the whole family.
