The top 4 money mistakes people make in their 70s and how to avoid them

The revered Irish poet and playwright Oscar Wilde once stated that “With age comes wisdom, but sometimes age comes alone”. This is seemingly true when it comes to finances.

According to a study reported by Scientific American, people on the younger and older ends of the age spectrum tend to make more mistakes that end up harming their wealth.

Making mistakes when it comes to your wealth could be particularly detrimental as you approach retirement, potentially affecting your standard of living.

So regardless of your age now, continue reading to discover four common money mistakes people tend to make in their 70s, and some ways you can avoid falling into the same traps.

1. Failing to account for inflation in your retirement income plan

Inflation increases the cost of things you buy over time. According to the Bank of England inflation calculator, goods and services that cost £1,000 in 2014 would cost £1,339 in 2024.

Failing to take inflation into account when calculating your retirement income might mean that, by the time you eventually retire, the cost of living could be far higher than it was when you first made your plan. In this instance, the money you’ve saved might not cover the expenses you previously planned for.

This is especially relevant considering life expectancies are high and could continue rising in the future. The Office for National Statistics reveals that the average life expectancy at age 65 is 18.3 years for men and 20.8 years for women.

As a result, you might need to fund a retirement that lasts for 20 years or more, and the cost of goods and services could rise considerably over this time.

A financial planner can develop a cashflow model to look at how your income needs may change in your retirement – making assumptions for inflation – allowing you to identify and address any potential shortfalls in your retirement income.

2. Withdrawing too much from your pension and risking running out of money

If you draw wealth from your pension in an unsustainable way, such as taking too much from your fund early on, there’s a chance you could leave yourself financially vulnerable later in life.

Remember that your income needs in retirement likely won’t stay the same. When you first retire, you might have more significant expenses, as you tick off your “bucket list” items.

Then, your spending might decrease as you slow down and settle into a routine. As you enter the later years of retirement, though, declining health might mean your care expenses rise.

In this case, you might end up with a shortfall later in life if you’d taken too much from your pension pot in the earlier years of retirement.

A financial planner can help you develop a bespoke and sustainable withdrawal strategy for your retirement income that is suited to your circumstances.

3. Not focusing on tax efficiency

Tax implications are another crucial factor in your retirement plan. The amount of tax you pay on pension withdrawals typically depends on your individual circumstances and other sources of income you have.

Your pension withdrawals usually count as income, and you may be liable to pay Income Tax once you exceed the Personal Allowance, which stands at £12,570 in 2024/25.

If you draw from your pension, and this pushes you into a higher Income Tax bracket, there’s a chance you could face a higher tax bill than you initially expected.

For example, if you take a significant lump sum above your 25% tax-free amount, this could push you into a higher Income Tax band and you could lose 40% or 45% of it to tax.

To counter this, it might be wise to consider using other sources of retirement income before you access your pension. Since your ISA savings are so tax-efficient, depleting these first could minimise the amount of your retirement income that is subject to tax, so you can use more of it to fund your ideal lifestyle.

Your financial planner could help you navigate the complex tax rules surrounding your retirement income.

4. Not utilising your estate plan to mitigate as much Inheritance Tax as possible

During retirement, there’s a chance you’d rather focus on the positives rather than the negatives. Regardless, it’s still vital to update your estate plan in order to mitigate any potential Inheritance Tax (IHT) charge.

As of 2024/25, the nil-rate band – the threshold below which no IHT is typically due – stands at £325,000. You may also be able to make use of the residence nil-rate band, which stands at £175,000 in 2024/25, if you leave your main home to a direct descendant.

Estate planning is an invaluable tool for ensuring that you mitigate IHT.

One of the ways you can do so is by making clever use of your pension. Since it generally falls outside of your estate for IHT purposes, you might want to use up some of your other sources of wealth first.

Not only could this reduce the value of your wealth and help you reduce a potential IHT liability, but it also means you could pass on your unused pension pots tax-efficiently.

Working with a financial planner could help you update your estate plan to ensure your loved ones can put more of your hard-earned wealth to good use.

Get in touch

Working closely with a financial planner is a practical way to avoid making critical money mistakes, and we’d love to help you.

Email theteam@fortitudefp.co.uk or call us on 01327 354321 to find out more.

Please note

This article 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, cashflow planning, tax planning, Lasting Powers of Attorney, or will writing.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.