There’s one easy question to answer here, and one difficult one! Sadly, the easy answer leads you on to the difficult question, not vice versa.
The time to put together your plan for care is before you retire. You won’t have the opportunity to earn the money you might need for the cost of care again, so you need to make some decisions about it, before you decide that you can afford to retire.
If you’ve retired and you haven’t planned for care, you can still do so – it’s just that you might find that you have to make some compromises and changes to your existing plans, in order to have the funds in place.
The way in which we distribute the cost of long-term care in the UK is unfair, and a failure of our political system. The amount that you pay for care depends on whether you are unlucky enough to need care in later life, and what causes you to need care. Whilst this may not be right, politicians seem to have decided to duck the issue. Nevertheless, we need to decide how best to plan for the cost of care.
Not planning for care can be a cause of stress and anxiety, and it can prevent you from making good decisions about spending and estate planning, so it’s essential to make an active decision about it.
There is some good information that can help you to plan:
- The Institute and Faculty of Actuaries estimate that 1 in 4 men and 1 in 3 women will need care in later life (women are more likely than men as they have longer life expectancy and tend to marry older men). For a couple, that means that there is more than a 50% chance that one partner will need care.
- The current cost of care with nursing in Sussex and Hampshire is around £65,000 per year, with costs being higher for dementia care. Sussex and Hampshire are more expensive than the rest of the country on average. As the Baby Boomers age, there will be more demand for care, and there seems to be little sign of an increase in supply of care facilities, so it is reasonable to expect that costs will rise faster than inflation. There is some government support in the form of Attendance Allowance and Funded Nursing Care, but most people will have to fund almost all of the fees themselves.
- The London School of Economics research confirms that the average stay in a care home lasts around 2 years 3 months, but with a wide range (the longest 10% of stays last 5 years, 9 months on average).
If you take this approach, you can work out how much you should make available, and you can adjust the figure, depending on how lucky or unlucky you feel you might be.
The money you decide to allocate for this purpose doesn’t need to be accessible at short notice – it’s very unlikely that you will need care shortly after you retire, so it can be tied up in illiquid assets. That means that the natural choice for many of our clients is to allocate their housing equity for this purpose. Alternatively, if you have a holiday home, you might rationally decide to use the value of that property for this purpose – after all, the likelihood that you will want to visit your holiday home will probably reduce as you approach the time when you might need care.
Our advice is to make sure that you have liquid assets to cover the cost of the first six months or so of care, if you make use of your housing equity to cover the cost of care. That will give you sufficient time to make decisions about how to release the equity and to sell the property, if needs be. It’s been proven that our financial literacy declines as we age, so it can make sense to have liquid funds available to enable extra time to make good decisions.
We think that the plan for care should be a part of every retirement plan. There’s no point in planning for retirement and leaving out one of the most significant items of expenditure.
Philip Wise | firstname.lastname@example.org
Managing Director and Chartered Financial Planner