Planning Your Future Care Costs: A Short Guide
In 2014 it was estimated that about 350,000 people in England lived in residential care, yet studies suggest that the UK will need almost 200,000 more care home beds by 2035.
Considering the UK has nearly 12 million people aged 65+, that implies that there is a strong possibility that either you or a member of your family will need care at some point in older age. Indeed, for people in this age group, their years living with significant care needs have increased by almost 100% between 1991 and 2011.
In light of these figures, it is a good idea to build some strong contingency plans into your wider financial plan, to ensure you can meet your possible future care costs.
Bear in mind that a place at a residential care home can range between £27,000 and £39,000 per annum, and the average duration for a stay is about 30 months (although you could be there for less time, or possibly much longer). Your costs are unlikely to be fully met by the taxpayer, as the system is largely means-tested at the time of writing.
In other words, you need to make plans to look after yourself and your loved ones in the event that you need care in later life. This short guide is intended to help you get started with bringing your thinking together on this subject, as you prepare to discuss your strategy with an adviser.
Please note that this content is for information purposes only, and should not be taken as financial advice which should be sought before any action is taken. To receive regulated and impartial advice regarding your own wealth and financial goals, please consult with an independent financial adviser.
Types of care
Only around 10% of people over 45 have put anything aside towards their possible future care costs, and over one third believe they won’t need long term care. The reality is that over two-thirds of us will likely need some type of care support once we are over the age of 80.
This is where it helps to have a basic grasp of the different kinds of care that are currently available. For instance, you might just need a temporary care placement in your old age in order to recover from an accident. On the other hand, you might end up needing continual, palliative care to help manage your pain as you enter your final months or years.
There are different provisions available for these different needs, and they each bring a different picture with regard to the costs and arrangements involved. Some types of care might be possible to deliver in your own home, which can bring the costs down. Your local authority will provide an assessment for you or your family member at the time when care is required, which might result in some of the costs being shouldered by the government.
In 2019-20, broadly speaking the following rules apply when it comes to state support for your care costs:
- If your capital and income exceed £23,250 then you are probably going to have to shoulder all of your own care costs.
- If they are under £23,250 then you might be entitled to funding support from the local government, but you are likely to still need to contribute towards your own fees.
- Sometimes your home is taken into consideration when the state conducts this means test.
- However, in certain cases (e.g. if you need temporary care or if your partner still lives in your home) then they might not bring your property into the equation.
Financial planning for future care costs
The sooner you start planning your possible future care costs, the better, as this generally opens up more options for you. Here are some options to consider with your financial adviser in order to cover your own care:
- Build up your own safety net. For those under the age of forty in particular, it might be more worthwhile to gradually build up a pot of care savings which compound over time, compared to paying monthly premiums for a savings plan.
- Insurance. It is possible to find a policy which can cover your care fees, but it can be challenging to locate a good deal. Typically, a more viable option would be to consider an “immediate need annuity” – a financial product which offers you a lifetime income in exchange for a lump sum payment. This income could then be put towards covering your care costs.
- Equity release / lifetime mortgage. If you own your property, have no other viable funding options for your care and would like to keep living at home, then releasing capital from your property might be a viable course. This could also lead to your means test excluding your home from its assessment, which might result in more state funding towards your care costs. However, as with the previous two options, you should always consult a financial adviser if you are considering these routes.
- Deferred payment. In some cases, your local council might agree to let you postpone paying your care fees until your house is eventually sold (e.g. when you die, when the costs would be paid from your estate). You must meet certain eligibility criteria, however, in order for this option to be viable for you.
As you can probably begin to see, not only is the UK’s care system quite complicated – it can be very daunting to even start trying to plan to cover for your own future care costs. As Castlegate, our holistic financial planning service is designed to help people navigate this landscape with confidence, armed with the best available information.
If you are interested in speaking with us about how to bring long term care planning into your wider financial plan, then we would be delighted to hear from you. Get in touch today to arrange an initial no-commitment consultation at our expense with a member of our team.