Planning for later life care

When planning for later life, often people probably think of this as saving enough for retirement or putting a will in place. But what about planning for later life care? We know at some stage we are likely to retire and for some that means passing on the wealth we have to younger generations, but needing care is not as certain. This doesn’t mean that you can’t plan for it.

Considering what your preferences would be should you need care in later life – in your own home, or moving into a care home - and having some idea of what these are likely to cost, is a good place to start. If the time comes, you may be feeling overwhelmed and vulnerable, and it will be an emotional time for your family. In some cases, someone else maybe making the decision for you. Knowing what options are available and having already had these discussions with your family can considerably ease the burden of care decisions.

Will the state help you?

Some people will get all or part of their long-term care paid for by the state; however, eligibility is limited and the rules can be confusing. In addition, the level of financial assistance will often be capped due to local authority funding limits.

Optimising your financial assets

Investing for income – rather than using bank deposits i.e. money from your current accounts or savings, you could look at investments that aim to pay out income, such as company shares. However, dividend payments from companies are not guaranteed, and the value of shares can fluctuate, meaning that you may lose all or some of the value of your original investment.

Property – if you live alone and are moving into care, you may decide to rent out your house and use the rental income to pay for your care needs, but note that any rent will need to be declared and taxed as income. You would also be responsible for paying for the maintenance of the property. Selling your property is therefore an option, especially if you live alone. If you are a couple, you may decide to sell your house and downsize to use the profits to pay for care for one or both of you.

Buying a long-term payment product

Some of the options mentioned above share the risk that the available money may run out. If this happens, the state will eventually step in, but it is likely, due to local authority budget constraints, that they will offer the minimum amount, and you could face having to move to a cheaper care home at a vulnerable time.

A solution to this is to buy a product that pays out a guaranteed monthly sum over the rest of your life time. These products are known as “immediate needs annuities” and are offered by insurance companies. In exchange for a lump sum payment from yourself, they will make regular payments to your care home for as long as you live. And paying the fees direct to the care home makes them tax free. If you move care homes, your plan moves with you. It could also be paid to your care provider if you chose to remain in your own home.

These payment products can include annual increases, with the monthly payments rising each year with the aim of covering any potential price hikes in the cost of care. They can also include a protection element, which would mean that should you pass away in the early stages of having started to receive care and using the regular payments from the product, your estate could get a partial return of the lump sum you paid up front. However, it will depend on the terms and conditions of the annuity.

The choices can be complicated and it may be the case that a combination of the above solutions is right for your individual circumstances, which will differ for each person.

Plan ahead

There are many options available to self-fund your long term care, each with its own pros and cons. We all know that we are likely to retire at some point, but estimating care needs is more tricky. Even so, just as early pension planning can afford you a more comfortable retirement, planning ahead for any potential care costs is sensible. It can give you the ability to make decisions for yourself rather than burdening loved ones at a stressful and emotional time.