When planning your retirement, it’s enjoyable to think of the trips you want to take and the hobbies you’d like to fill your time with. However, there are other less exciting but equally important aspects of retirement that are good to plan for, including the costs of adult social care.
Being inadequately prepared for care costs could mean you have to use a larger portion of your estate to cover the expenses, which could potentially affect the financial wellbeing of your partner or future beneficiaries.
The government recently abandoned proposed reforms that sought to cap the lifetime cost of social care and raise the asset threshold for state-funded support in England.
Although they later announced plans for a National Care Service, the Guardian reports that it is unlikely to be implemented before 2028, with industry experts criticising the government for delaying the issue.
Indeed, as the previous reforms were consistently postponed by the Conservatives and then scrapped by the new Labour government, there is some uncertainty as to whether the new proposals will be realised at all.
So, with the old reforms gone and the new ones undefined and years away, read on to discover how to adjust your financial plan to prepare for care costs.
The costs of adult social care can be substantial
According to the NHS, the average costs for care in 2024/25 are:
- £20 an hour for home care
- £700 a week for residential care
- £850 a week for nursing care.
Of course, these are averages, so the costs of care could be considerably higher depending on where you live. This means that a year in a nursing home could easily exceed £44,000. So, if you or your partner require care, these expenses can quickly accumulate.
The proposed reforms to England’s care system aimed to cap lifetime care costs at £86,000 and raise the “lower capital limit” (the threshold below which you don’t need to use your assets to fund care) from £14,250 to £20,000.
Additionally, the “upper capital limit” (the point at which you’re fully responsible for care costs) was set to increase from £23,250 to £100,000. If your assets fell between the lower and upper limits, you would have been eligible for financial support on a sliding scale.
However, with these reforms now abandoned, the upper capital limit remains unchanged at £23,250 until at least 2028, though it may take several years to implement the potential future reforms. This means that, unless your assets fall below this threshold, you will need to use capital from your estate to cover care costs.
So, without careful planning, you may need to use your savings, sell assets or investments, or release equity from your property to cover the costs of care. This could leave you with significantly less to pass on to your loved ones.
A financial planner can help you prepare for care costs
Planning for care costs requires considerable preparation. Fortunately, there are several ways a financial planner can help you manage these expenses effectively while also protecting your estate.
They can use cashflow modelling to project your future finances
A financial planner can use cashflow modelling to map out your potential future finances and care costs. By incorporating known variables, such as your total asset values, alongside projected variables like potential care costs, inflation, and investment growth, they can create a map of your possible financial future.
This process allows you to comprehend how your finances may evolve, ensuring you are prepared to cover future care expenses while maintaining your lifestyle. It can also help identify opportunities to adjust your spending, savings, or investment strategies to help grow your wealth over time.
They can help you explore immediate needs annuities
An immediate needs annuity allows you to make a one-off payment in exchange for regular monthly payments made directly to your care provider for the rest of your life.
By using a specific portion of your estate to cover care costs, an annuity can give you peace of mind that the remainder will be used to support your loved ones.
A financial planner can help you explore and evaluate annuity options and determine whether this approach is more cost-effective than covering care expenses out of your pocket.
They can assess gifting options
If care costs could potentially reduce the value of your estate, gifting assets during your lifetime could help ensure that more of your wealth benefits your loved ones. It could also help mitigate Inheritance Tax on your estate when you pass away.
A financial planner can work with you to assess your gifting options, helping you achieve the right balance between providing for your beneficiaries and maintaining your own financial security.
They can help you register a Lasting Power of Attorney
Establishing a Lasting Power of Attorney (LPA) in advance ensures that your financial matters will be handled in accordance with your wishes, giving you peace of mind for the future.
A property and financial affairs LPA allows you to appoint someone to manage your finances if you can no longer do so yourself.
A health and welfare LPA sees someone making healthcare decisions on your behalf if you lose the capacity to do so.
A financial planner can guide you through the process of registering an LPA and work closely with your chosen person to adjust your financial plan as your circumstances change.
Get in touch
A financial planner can work with you to ensure you are prepared for the future costs of care or help you to find ways of managing any immediate costs you may need to cover.
To find out how we can help, please email hello@solusfinancial.co.uk or call us on 01245 984546.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The Financial Conduct Authority does not regulate estate planning, cashflow planning, Lasting Powers of Attorney, or will writing.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
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Approved by Best Practice IFA Group Limited on 16/01/2025