5 practical ways to plan for later-life care costs

A good financial plan can give you the income you need to fund the lifestyle you want in retirement.  This allows you to achieve goals such as travelling, engaging in new hobbies, and supporting your family.

However, you may also need to consider more practical things like the possibility of needing additional care and assistance when you are older. This may be more important than ever because the cost of these services is rising.

According to This is Money, the average cost of living in a care home was £46,000 a year in March 2023. That’s an increase of 11% on the previous year.

If you do not account for these costs when planning for retirement, you may have to make sacrifices elsewhere to pay for them.

The good news is, if you consider it now, you can incorporate it into your financial plan. So, if and when you do need care, you can comfortably pay for it without disrupting your other retirement plans.

Read on to learn why planning for care costs is so important, and five of the best ways to make sure you are prepared.

Your likelihood of needing care is growing

Life is uncertain and you cannot predict what kind of care you will need as you get older. While some people require specialist care for serious health problems, others will just need assistance with day-to-day household tasks.

Either way, the likelihood that you will need some form of care is growing because we are living longer, but not necessarily getting healthier.

Indeed, AgeUK reports that, while the number of centenarians reached its highest level in 2022, the number of years you can expect to live without a disabling condition is dropping.

This means you may be more likely to need care over a longer period and you may want to consider how you are going to pay for it. The good news is you have several options.

5 ways to plan for later-life care costs

1. Speak with a financial planner to model your future financial position

Care costs are variable and difficult to predict because you don’t know exactly what care you may need. Additionally, the average price could change in the coming years, so accounting for the cost can be a challenge.

Fortunately, we can use cashflow modelling to map out your savings and investments and “rehearse” various scenarios where you need to pay for different levels of care. This can give you some indication of what the effects of paying for later-life care could be on your wealth, so you can be prepared.

We can also help you explore your options for paying for care and help you incorporate the cost into your financial plan now.

2. See what government assistance you are entitled to

While you may have to cover the cost of care yourself, you may be entitled to some government assistance. In some cases, your local authority will cover some of the cost, but it is means tested.

Your local council carry out a “care needs assessment” to determine the total cost of your care and then consider your own assets to decide how much you must contribute to that cost. This means test considers your total capital and, in some cases, the value of your home.

Currently, you only receive government assistance if your total capital is less than £23,250, so you may not qualify.

However, there are plans to change the means test and raise the threshold to £100,000, so anybody with assets less than this may receive some funding for their care. Additionally, there is talk of an £86,000 cap on the total amount you spend on care, after which the government will cover the cost.

As such, you may be more likely to qualify for government assistance in the future if these changes come into effect. That said, the new system is still up for debate and the plans could change, so it is always beneficial to check what assistance you may be entitled to when the time comes.

You may also be eligible for “NHS Continuing Healthcare” if an ongoing health problem is your primary reason for needing care. In this case, your care home placement could be free.

However, there is a complex eligibility checklist to determine whether your care is paid for or not and each case is different, so it may not be a good idea to rely on this funding to pay for your care costs.

3. Consider later-life care cover

Later-life care cover is a protection policy that pays out if you require care, so you don’t need to rely on your own capital.

The major benefit of investing in a policy like this is that it may give you peace of mind knowing that your care is paid for. However, as with other types of insurance, you may pay into it for many years without needing to use it.

Additionally, you can’t use the funds for anything else so there is some risk involved. That said, you may be willing to take on this risk for the security that later-life care cover offers.

4. Build cash savings

You may prefer to build cash savings to pay for your care because, if you do not use all the funds, you can spend them elsewhere or pass them down to your beneficiaries when you die. However, there are some potential downsides to this option.

For example, you cannot predict what level of care you may need and how much it will cost. As such, you could end up underestimating the amount you need to save.

Also, holding large amounts of your wealth in cash savings can be a risk, especially during a period of high inflation when it may lose value in real terms.

5. Take a lump sum from your pension

Taking a lump sum from your pension may be a better choice than cash savings as you could generate returns on the money while it remains invested in your pension fund.

This may help you combat the effects of inflation and encourage continued growth until you need to access the money to pay for care.

The only potential downside is that it can reduce your retirement income if you take a lump sum to pay for care. Fortunately, this should not affect your lifestyle provided you work with a financial planner and account for this potential cost beforehand.

Get in touch

Incorporating the cost of care into your financial plan can help you prepare for the future, and we can advise you on your different options.

Please give us a call on 01276 855717 or email info@braywealth.com today.

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 do not regulate cashflow planning.

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 results.

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.

Note that protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse. Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.

Approved by the Openwork Partnership on 26/07/2023