Why the cost of care needs to be part of your retirement plan

When planning for retirement, what do you consider? How much income your pension would deliver and the lifestyle you could look forward to was probably at the top of the list. However, one important area many are overlooking is the potential cost of care.

It’s understandable why many are missing it out of their retirement plans. No one wants to think about becoming ill or not being able to live independently. You may also think ‘it’ll never happen to me’, and that could be true but as with financial planning in all stages of your life, planning for the unexpected is crucial.

During your working life, you didn’t plan to lose your job, but you may have built up an emergency fund or taken out a financial protection product as a precaution. Making care part of your retirement plan is similar and just as important.

Types of care and the cost of it

The first thing to note is that care comes in many forms, planning for care allows you to set out what your preference would be and how you would pay for it. Some of the options to consider are:

  • Support from family and friends: If you have loved ones to rely on, they may be able to help you with day-to-day needs, such as shopping or fetching medication for you. This can significantly keep costs down but there are likely to still be expenses. For instance, you may need to adapt your home to ensure it suits your changing needs later in life.
  • Care delivered in your home: In some cases, a carer can come to visit you in your home regularly if you’re able to live independently but need some support. This isn’t as expensive as a care home, but it can add up. A carer coming to visit you for two hours a day at £15 per hour amounts to £10,920 per year. You may also need to adapt your home as mentioned above.
  • Moving into a care home: If you need or choose to move into a care home, the costs can be considerable. They will vary depending on the facility and location, but according to Paying for Care, the average cost of a residential care home is £33,852, rising to £47,320 if nursing care is included.

Most people will need to pay for care, either fully or partly, so it’s important to consider how you’d cover these costs if necessary. Taking a proactive approach also means you have more choice and say in what happens.

For instance, if you find you need care later in life, but your savings have been depleted, your options may be limited and may not align with what you’d have chosen. A care home your local council will fund, for example, may not be as close to loved ones as you’d hoped or offer the facilities you want.

How would you pay for the cost of care?

If you haven’t considered how you’d pay for care, you’re not alone.

Research from Canada Life indicated 55% of over-60-year olds haven’t considered or don’t know how they would fund it. Even among those that have thought about it, there could be a gap. Some 21% said they expect to use their State Pension. But at £175.20 a week, this is likely to fall short.

So, how could you use your assets to pay for care?

Research published in the Financial Times identified three key ways those approaching over-55 would pay for care:

  1. Property Wealth: 29% of those asked said they intended to use property wealth. Equity Release products allow you to access the wealth tied up in your property, which could pay for adaptations or a carer coming to your home. Alternatively, the sale of a property can allow you to pay for a care home. While useful, using property wealth will affect the legacy you leave behind for loved ones and may not align with what you want.
  2. Pension: A lifetime of saving into a pension will have helped you build up a fund to use throughout retirement, including in your later years when care may be needed. As a result, care costs should be considered from the outset if you intend to use your pension. Taking a sustainable level of income from a pension, with the potential need to pay for care in the future, can ensure your needs are met.
  3. Savings and investments: Alternatively, you may plan to use savings and assets you’ve built up. As with the above, if you’ll also use these to fund other aspects of your retirement, you should ensure your plan considers long-term sustainability and unexpected expenses. If you’d hoped to leave savings and investments to loved ones, it may also affect your legacy.

Making care part of your retirement plan can protect you later in life, ensure your assets stretch far enough and preserve your legacy.

Understanding how to make care part of your retirement plan or how best to set assets aside for care can be difficult. We’re here to help create a solution that’s right for you and consider your retirement aspirations too. Please get in touch to discuss your retirement plan.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate Estate Planning.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

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