When should you start planning for care in later life?
Care in later life can be expensive. It’s not unusual for care homes in our region to charge £5,000 per month, with nursing care costs on top of this.
Care at home is usually more expensive, and few of us have enough space to house a full-time carer.
And, as the baby boom generation moves towards the age when they will start to need care, the basic rules of supply and demand suggest that prices will rise further.
Successive governments have failed to address the issue and Teresa May’s “Dementia Tax” was even less popular than her approach to Brexit.
But it’s not all bad news!
Only around one-third of us will need an extended period of care, so there is a fair chance that you won’t have to pay for care in later life at all. And the average stay in a care home is less than three years.
We know that it’s unlikely that we will need care in later life but that the financial impact can be huge; it’s a bit like the risk of a house fire – we know that it’s unlikely that our house will burn down, but we know that the financial impact would be devastating. In this type of situation, the received wisdom is that an insurance policy should provide the answer.
But it’s not possible to insure against the cost of care in later life. No insurance companies offer cover. I won’t dwell on why that’s the case, but at the moment, you can’t insure this risk.
That leaves us with two options – ignore the risk and hope it will all be ok, or plan for care.
It’ll be no surprise that a Financial Planner doesn’t think that the first option is a good idea!
Planning for care in later life presents an additional, unique issue. When we are saving up to cover a liability (e.g. to pay off a mortgage or for a retirement fund), we can redirect some of our earned income to build up a fund for this purpose. However, most of us aren’t working in the years immediately before entering care; in fact, care is usually first required about 20 years after we stop earning.
Logically, then, we should have put the funds in place for care before we stop work.
Or should we? After all, many of us enter retirement with an expectation of inheritance, and if our retirement income is drawn down from retirement savings, it’s likely that our available funds will grow in value (I’ll explain why in future posts!).
The answer to the question “When Should I Start Planning for Care in Later Life?” depends on your personal circumstances.
If your income in retirement is fixed (e.g. it is made up of final salary pensions and the state pension), and you don’t expect to inherit, then you need start planning before you enter retirement.
If your income in retirement comes mostly from investment-linked pensions and other savings, or you do expect to inherit, then you may be able to put off the decision.
Failing to plan = Planning to Fail
This adage applies to care in later life, in the same way as it does for our financial objectives.
Your plan doesn’t need to be particularly complicated. But you do need to think about who you would like to provide the care, whether you would prefer care at home or in a home, and where you might want to live (if you’re going to be near your children, you may need to plan to move home at some point).
For some, the answer will be to let the equity in their home cover the cost of care, if it is needed, and for others, excess pension funds may be required. For others, retirement might need to be deferred while a care fund is established.
Your retirement income plan won’t be complete if it doesn’t set out how you will cover the cost of care in later life.