Whatever your dream retirement looks like – world travel, time with the grandkids, indulging in your hobbies – the run-up to leaving work can seem long. It’s only right that you enjoy your free time once you get there.
You might have meticulously planned the amount you will leave to your loved ones, or the size of the deposit you’re gifting to help the next generation onto the property ladder. Be sure to look after yourself too though, by making room in your retirement plan for the cost of later life care.
It might not be a topic that any of us wants to dwell on but there may come a time when you need care in one form or another and you’ll gain additional peace of mind in the present knowing that you’ve planned for your future.
Benefits of factoring in the cost of care
Peace of mind is only one reason for factoring the cost of later life care into your planning.
Here are some others.
1. You’ll know where the money is coming from
We’re living longer and that means the strain on the care home sector is increasing too – the government confirmed in 2017 that it currently housed 410,000 residents.
The average cost for someone in self-funded care in 2016 was £846 per week (nearly £44,000 per year). Knowing where this money will come from gives you the security that whatever later life care you might need, it’s financially covered and budgeted for.
2. You’ll be sure you’re getting the type of care you want
There are many different care options available and although the type you choose will be largely determined by the nature of the needs you have, thinking about the available options now will help you to start budgeting.
Costs associated with later-life care might include:
- Paying for residential care if you are no longer able to live independently and move into a care home.
- A move to assisted living or sheltered accommodation, giving you a level of independence whilst care is available if you need it.
- Paying for the cost of care visits whilst you remain living in your own home.
- Adapting your home to ensure it remains suitable for you and your changing needs.
3. Knowing how far your pension income will stretch
Budgeting for retirement means factoring in all your current incomings and outgoings, as well as thinking about how your cashflow will change in retirement.
You’ll need to factor in the size of your pension pots, how much State Pension you are likely to receive, as well as keeping track of any other savings and investment amounts you have.
You can receive a State Pension forecast here, and if you have any pensions that are ‘lost’, consider contacting the Pension Tracing Service.
Once you know your potential income, think about your planned outgoings – travel expenses, home improvements, money intended for inheritance – and factor in the potential cost of later life care too.
Where will the funds come from?
Factoring the cost of later life care into your retirement planning might mean using your pension pot or other assets such as savings or investments.
Here are some other options:
- Equity release
If you are looking to fund care in your own home, you might think about equity release – unlocking the cash tied-up in your house and receiving it as a lump sum.
There are two main equity release options – a lifetime mortgage or home reversion.
With a lifetime mortgage, you take a loan and receive a lump sum or regular payments, but don’t make any repayments. Instead, the accumulated interest is added to your mortgage debt and the full amount is taken from your estate when you die or enter long-term care.
With home reversion, on the other hand, you sell all or part of your property at low market value but continue to live in your home. You can receive care there, but you no longer have sole ownership and the scheme provider will take back their share of your property when it is sold.
- Care fee payment plan
A care fee payment plan (sometimes known as an immediate care plan, or an immediate needs annuity), provides you with a guaranteed, regular income.
You invest an amount of money and it is used to buy a regular income for life. Once the annuity is in payment it cannot be changed or cancelled, nor can any ‘unused’ money be claimed back.
You might consider a care fee payment plan if you have the money to invest and an urgent need to start covering care costs right away. It will likely not be the best option if you only need temporary care or if you want to reclaim a portion of the invested money in the future.
Remember to shop around, either by checking the UK Care Guide or speaking to us.
If you have any questions about the cost of later life care, please get in touch. We’re here to help provide you with confidence in your long-term financial security.
Please note: Equity Release will reduce the value of your estate and can affect your eligibility for means-tested benefits.