How To Prepare For Care Costs
It’s wise for those in retirement to factor the cost of care into your financial plans. No one can tell whether they’ll need long-term care, but the latest figures show that most of us spend the later years of our life in poor health and/or with disabilities.
The latest Health Survey for England which looked at this question, published in 2022, found that around 30% of over 65s needed help with at least one daily living task. Among the over-80s, this figure rose to over 50%. Therefore we would encourage everyone to explore their care options. Know what’s available, the support you might receive, and the costs, makes it easier for you and your loved ones if you do need care in the future.
What care might you need and how much does it cost?
Long-term care takes many different forms. While it’s common to think of a nursing or residential home, care can also be delivered in your own home by a professional carer, or more informally by a family member or friend.
The amount of care required can vary too. It could mean round-the-clock nursing care, but it could also be a daily visit to help you get up or a weekly trip to a local supermarket for your shopping. It could even be part of a package offered through retirement or sheltered housing, where you can tap into support if it’s needed.
As there are so many different types of care, and a large range of providers, costs can vary enormously. The average residential care home in England costs £949 a week – equivalent to £49,348 a year, according to February 2024 figures. An average nursing home costs £1,267 a week, or £65,884 a year. There have been some inflationary increases since those figures were compiled, and in affluent parts of North West Bristol the average will be much higher.
Home care costs are on average £25 an hour, but the amount you’ll pay depends on the type of care, where you live and when you need it. Don’t think of home care as always the cheaper option: having live-in carers can easily set you back £100,000-plus a year.
How to get help with the cost of care
To receive support for your care from your Local Authority, your assets will need to fall below £23,250. For care at home, this means test doesn't include the value of your property, but if it's residential care, the Local Authority might take the value of your home into account. Above these thresholds, you’ll have to foot the entire bill.
If you think you might qualify, contact your Local Authority. They’ll arrange a needs assessment, to determine care needs and the best way to support them, and a financial assessment, to assess eligibility for funding. Even if you're eligible, you'll usually still be expected to contribute towards the costs.
You can also claim Attendance Allowance if you are over State Pension age and have care needs because of a physical or mental disability or a health condition. It isn’t means tested. You could get £72.65 or £108.55 a week, depending on the level of care that you are assessed as needing.
The NHS might also help with care costs if you have complex health needs. In theory, NHS Continuing Healthcare can cover all care costs. Everyone with complex health needs to seek an assessment, but the threshold for being eligible for CHC is high and many people don’t get it.
Planning for future costs
While your future care costs can feel overwhelming you can treat these costs in the same way as more general retirement planning. For example, most people spend more in the early years of retirement on holidays and leisure activities, then when they slow down so does this ‘discretionary’ spending. When planning for care fees for later life, perhaps keep the expected expenditure the same as those early years so you can see what’s available for you.
A practical tip is once you’ve paid off your mortgage, you could put the amount you would have spent on mortgage repayments into a diversified investment portfolio to plan for future care costs. For example, if you paid off your mortgage at 60 and invested £700 a month for five years, you could have a pot worth nearly £108,000 by the time you’re 80, assuming investment growth of 5%. This could help pay for care.
Using your home to pay for care
As it’s one of your largest assets, your home could be part of the care funding equation. Downsizing could release additional funds for future needs. Or you could consider equity release. Equity release has fallen out of favour as interest rates have increased over the past few years, but it can still work well for some people.
It can provide an income stream or a lump sum, but it also enables you to stay in your own home. Where someone is moving to a care home, selling the home can often be the sensible option.
Some families may want to rent out the home to cover fees, but this can be risky, as rental income isn’t guaranteed and maintenance and repairs will also have to be considered.
Annuities for care fees
There are also financial products that could help with care fees. In exchange for a lump sum, a care fees annuity will pay a guaranteed amount to the care home or care provider, tax-free, for the rest of your life.
Each care fees annuity is individually underwritten, taking into account factors such as your age and health. This means they should be matched to life expectancy but, if you die prematurely, your estate could be out of pocket.
Next steps
Planning for care costs is a crucial part of later-life financial planning. Our SOLLA Accredited advisers can help you navigate your options, ensuring you have a strategy in place to cover potential care expenses while preserving your financial security.
Get expert, independent advice tailored to your circumstances. Call 0117 3636 212 or email office@haroldstephens.co.uk to arrange a complimentary consultation.