This article was originally published in the Financial Times
FRANK spends most days ferrying his ageing parents to and from medical appointments, preparing their meals and dealing with their bills, maintenance tasks and carers.
He is also busy looking for a care home for his parents. As well as contemplating the astronomical cost of care, with quotes of up to £1,200 per week per parent, he is struggling to find a home that can accommodate them together; something he is adamant about doing.
The situation is made worse by the fact that both his parents, who are in their late eighties, have dementia and are in failing health. Frank, who asked for his name to be changed, says it is a “sad and inevitable one-way journey that they’re both on”.
He is far from alone in struggling with finding care. The UK’s population is ageing, with estimates from the International Longevity Centre suggesting the number of people aged 65 and over in the UK is set to increase from 11.2m today to 17.2m by 2040. With around three out of every four people requiring some form of later-life care, this is a situation that many of us are going to experience first-hand.
Yet research from Fidelity International1 into people’s plans to pay for long-term care shows just how woefully underprepared most of us are.
In a survey of 2,000 adults conducted for Fidelity in December by Opinium Research, 69% of those over 55 admitted they weren’t sure what their care needs might be, even though having a plan to fund potential long-term care is a fundamental part of retirement planning.
The longer we live, the greater the chances are that we will eventually need some sort of care. However, by that stage it’s far too late to start pondering how we’ll pay. That needs to be taken care of years, or preferably decades, beforehand.
Too few do so. Some 52% of over-55s haven’t thought about how they will afford the cost. Only 27% have given any thought to it and just 5% have made a specific plan, the research found.
Those within this age group who have considered how they will pay for it expect to draw on several sources: 47% said they would use their savings as the primary means of paying for long-term care, 39% said they would use pension income, 28% say they would sell their house and 24% would look to income from their savings or pension. Some 15% said they expect the state to pay.
We are just as much in the dark on costs. The research found people expect care to cost an average of £78,750, with estimates ranging from zero (with local authorities covering the bills) to more than £200,000. Government figures suggest that one in seven people are expected to face care costs of more than £100,000 and one in 10 over £120,000.
So, how should you develop a plan? The cost calculation for long-term care is uncertain but we can apply a broad rule of thumb. Assuming that the average length of time that someone needs either residential or live-in care is about 30 months, we can see that, with an average cost of £750 a week, they would need around £99,500 in total.
So how could you approach saving £99,500 to fund your later life care? It all depends on your personal situation and if you're able to invest a lump sum, or save towards it on a monthly basis. How long you have to save can also make a difference as the longer you have the easier it can feel. The value of investments can go down as well as up but assuming you can achieve investment returns of 4%, we've worked out how much you might need to save (over different timeframes) to enable you to achieve your goal.
Regular contribution investment required to generate £99,500
|Cost per month
Rounded to nearest £5. Compounded monthly. Source: Fidelity International
Lump sum investment required to generate £99,500
Rounded to nearest £50.
Source: Fidelity International
You could rely on your pension for long-term care needs, but this has implications for passing on wealth to loved ones. Depending on the type of pension you have, any unspent money in your pension pot on your death may be able to be passed to beneficiaries free of inheritance tax. If so, using it to fund care may leave little, if anything, to pass on.
It’s similar with selling your home to pay for care. Downsizing is an option, but is something better done sooner rather than later: as well as releasing cash for care, you can release money to pass on to loved ones now and reduce future inheritance tax liabilities.
Maxing out your pension contributions with a view to taking a lump sum out later for care costs is an option. However, you should be careful to segregate the money you set aside for care.
Frank has now found a care home for his parents. But he is selling their house to help cover the bills and acknowledges he is in effect waving goodbye to his inheritance.
Navigating the finances of long-term care is daunting. Taking steps early can help provide some peace of mind. It’s far better to over-prepare than leave it to chance.
1 Fidelity International, 20 February 2023. Research was conducted by Opinium Research commissioned by Fidelity International. The survey is based on a nationally representative sample of 2,000 UK adults. Fieldwork ran from 15 to 20 December 2022.
Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser of your choice.
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