Why you need to plan for potential care costs now

Long Term Care

If you’re thinking about your retirement, it’s important to consider all possibilities. Here is why you need to plan for potential care costs nowIf you’ve started planning for your retirement, you’ve probably realised that there are a lot of things to think about. However, one major thing that you may not have considered is the possibility of needing care.

As the average life expectancy for the UK increases, it becomes more likely that people will need care at some point. While nobody likes to think of this possibility, it’s important to be prepared in case it ever happens.

When you retire, it can be comforting to know that you have enough wealth to support yourself, whatever the future may bring. Here’s why you need to plan for potential care costs now.

You will only get help for care costs if you have less than £23,250 in assets

If you should need later-life care, your local council may contribute to the cost but only under certain circumstances. In England, the amount of help you can receive depends on the value of your assets:

  • If you have more than £23,250 in assets, then you are not eligible to receive any financial help from your council.
  • If you have between £14,250 and £23,250 then the council will pay some of your costs, but you’ll need to contribute the rest yourself.
  • If you have less than £14,250 then the council will pay for care. However, this may be dependent on your level of income.

As you can see, you will only receive support if the value of your assets is very low, so in all likelihood you may have to cover the costs yourself.

The cost of care largely depends on what you need and where you live in the UK

According to a study published in FT Adviser, only around one-fifth of Brits have made any provisions for the cost of care if they ever need it. This is a concerningly high number, as this expense can make a significant dent in your wealth if you haven’t planned for it.

Typically, the cost will depend on two major factors: what sort of care you may need; and where in the country you live.

The type of care you receive is an obvious contributing factor. According to figures from a 2020 report, the average cost of staying at a residential care home in 2020 was £34,994 a year. However, this rose to £48,720 if you need nursing care too.

The cost of care is also highly dependent on where you live in the country, as some regions are more expensive than others. Here, we can use the Cost of Care calculator from price comparison site Which?.

For example, let’s assume that you need to stay in a residential care home. You also own your own home, live with a partner, and have more than £23,250 in savings.

Here in Nottingham, that care would cost you around £40,111 a year. However, if you were in the same situation and looking for the same care in Guildford, it could cost you as much as £62,275 a year.

If you haven’t planned for these costs, the expense could seriously impact your retirement goals as you may deplete your savings faster than expected.

Working with an adviser can help you know how much to put aside for the cost of care

Since everyone’s lives and needs are different, it can sometimes be difficult to give a one-size-fits-all answer to the question of “how much should you set aside for care?”

That being said, a useful tool to get a rough idea of how much you will need can be the Cost of Care calculator that we mentioned earlier. However, if you want a more accurate picture, you may benefit from working with a financial adviser, who can help you to analyse your finances and lifestyle. This can help you know how much to set aside.

They can also help you to understand how the cost of care might affect your income in retirement. For example, if you choose to take a lump sum from your pension to cover the cost of care, this may impact your desired lifestyle. To know if it will, strategies such as cashflow modelling can help you.

With this, your adviser can help to show you how your income will change over the years. By having a more accurate picture of your finances, you can better understand how much you can afford to set aside, without jeopardising your retirement plans.

An adviser can also help you to make a plan for what to do with this earmarked wealth in case you don’t need it. If you want to leave it to your loved ones as inheritance, it’s important to ensure that your will is up to date.

This is where working with an adviser can help you, as they can make the process faster and easier, giving you peace of mind to know that your estate will be distributed according to your wishes.

While nobody likes to think about the possibility of needing care, taking a proactive approach can help to put your mind at rest.

Get in touch

If you want to know more about how working with an adviser can help you to plan for the cost of care, get in touch. Please email info@investmentsense.co.uk or call 0115 933 8433.

Please note:

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.