Mind the gap!

NOTE: This post is more than 12 months old, and the information contained within may no longer be accurate.

Are your finances arranged in such a way that £1,000 per week for the cost of funding nursing home fees is affordable? Serious conditions, which include dementia, can result in even higher costs. The Alzheimer’s Society estimates that one in fourteen people over the age of 65 years are currently living with dementia.

Whilst planning for the potential “what if” cost of funding your own care in the next 15 to 20 years can be daunting, for many of our clients arranging for the cost of care for elderly parents or loved ones is likely to be a more immediate need. Broadly speaking, for those with assets in excess of £23,250 (England) you will be deemed to be a self-funder and have to pay for the cost of your care. Often the cost of the fees will be reduced through State Pension, Attendance Allowance and any private pension provision so the challenge is to fund the gap.

By way of an example, the average annual income for those about to retire (State Pension and private pension) is around £16,000 per year. Taking the cost of the care fees figure above, the balance required to fund the fees would be £36,000 per year.

On average a stay in a care home is two to three years although degenerative conditions such as dementia and Parkinson’s could result in a much longer stay. If you have a pot of money, which is available from the sale of a property, savings in the bank or a portfolio of shares the option exists to simply, draw down on these funds. The danger of this approach is how long will the care fees have to be funded or how long is your loved one going to live for? What is the prospect of running out of funds and or having to move a loved one or relative from their chosen home? How appalling would it be measuring your loved ones life expectancy against a shrinking pot of money! Even a four-year stay in a care home, perhaps double the average, would rack up fees of £144,000.

An alternative, although apparently little used option, would be to consider the merits of capping your personal funding liability of the care costs using a care fees annuity. According to Just, a leading care fees annuity provider, only 6% of people entering care will explore the care fees option. A care fees annuity looks to bridge the funding gap between guaranteed regular income and the cost of the care fees. In return for a lump sum, the care fees provider will pay the registered care provider a monthly payment to cover the full cost of the care resident’s fees tax-free. The monthly annuity payment can and should include escalation to match the increasing cost of care. Importantly, a form of capital protection can be added to any plan to cater for the possibility of death shortly after setting up the policy.

Discussing the options to fund a care gap should be a bespoke process. At Wingate Financial Planning, our bespoke process includes a tailored cash flow plan, needs analysis and full understanding of personal circumstances such as age, health, medical conditions. If this is something you would like to explore in detail, please contact us at Wingate.

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