The latest figures from the Office for National Statistics (ONS) confirms that UK life expectancy at birth continues to rise. Living longer means a potentially longer time spent in retirement, but it could mean spending more years in ill health too.
This makes factoring the cost of later-life care into your retirement planning more crucial than ever. A good plan can provide ways to fund care, while also including a contingency for what could happen to the money if you don’t need it.
Here are just some of the ways you might fund your own later-life care. But first, a look at the types of care you might need, and their potential costs.
The type of care you need, and its cost, will be governed by your circumstances
Independent living or home care
If you can remain in your own home, you might have family and friends nearby. Loved ones can provide emotional and physical support, as well as giving you a network of trusted individuals to help with daily basics like food shopping and collecting prescriptions.
This could help to keep your care costs down, but even with loved ones around you, you might need to pay for care visits too.
The price of home care varies depending on where you live, but will likely cost £20 to £30 an hour. Two hours of domiciliary care a day could cost around £17,000 a year.
You might also need to factor in the potential cost of home adaptations. These could help to ensure your safety and that your changing needs are met.
Assisted living
The type of care you require might mean you need to move into assisted living or sheltered accommodation. This would allow you to maintain your independence while knowing that help was on hand should you need it.
You’ll need to buy or rent sheltered accommodation and pay for additional support on top. These costs will vary depending on the area, the scheme, and the level of support that is available.
Moving to a care home
If you are no longer able to live independently you might need to consider moving into a care home. Residential care is expensive, although costs can vary wildly depending on location and whether you receive full-time nursing care.
Which? reported earlier this year that the average cost of UK residential care in the UK in 2019/20 was £672 a week, just shy of £35,000 a year.
2 ways you might pay for your later-life care
- Using the value locked up in your home
You might consider unlocking the wealth tied up in your home. Equity release allows you to take out a loan secured against your property. You can then take funds as a lump sum or take smaller amounts over time.
With a lifetime mortgage, you don’t make any repayments, but the mortgage debt and accumulated interest are subtracted from the value of your estate when you die or enter long-term care.
If you think you may need to enter a care home in the future, a lifetime mortgage will therefore not be the best option.
A home reversion plan requires you to sell all or part of your property. You can continue to live in your home, but you no longer have sole ownership of it. The loan provider will take back their share when the property is sold.
Equity Release reduces the value of your estate and can affect your eligibility for means-tested benefits.
- Using pensions or investments
Pensions, and investment products such as ISAs, are tax-efficient and that makes them a great way to put money aside for potential later-life care costs.
You’ll receive tax relief on contributions to your pension. You also won’t pay Income Tax on the interest you receive on a Cash ISA and there’s no Capital Gains Tax to pay on returns from a Stocks and Shares ISA.
Unused pension funds can be passed on tax-efficiently on death in some circumstances. ISA holdings that you don’t need to use for care could be heavily taxed.
You’ll need to think about the likelihood of the funds being needed and potentially leave an untouched pension to last.
Get in touch
If you are worried about a potential pension shortfall or would like to discuss any aspect of your long-term financial plans, please get in touch and find out how our team of expert planners can help you.
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it. Equity Release will reduce the value of your estate and can affect your eligibility for means-tested benefits.