When planning for retirement and calculating your sustainable income in retirement, the future implications of long term care can be a worry.
Do you save some of your capital to cover long term care costs in the future at the expense of a reduced income in retirement? If so, how much do you allocate for future long term care spending?
We know from past studies that typically, spending in retirement will decease as you get older. But the main flaw with these studies is that the people sampled are usually still living at home and therefore the studies don’t cover people currently living in care homes.
So let’s see if we can explore the chances of you needing care and what this might cost.
Your chances of needing long term care
So how much should you worry about needing long term care in the future?
Well,
- Around 4 million older people (40% of people aged 65 and over) have a limiting long-term illness or disability and it is estimated that this will rise to over 6 million older people by 2030.(i)
- Approximately 4% of the total population aged 65 and over live in care homes. Rising to 15% of those aged 85 or more.(ii)
So the chances of you going into a care home are still quite low, however the chances of you needing some kind of assistance is higher.
But of course, we are all living longer and one of the major challenges when living a longer life is dementia.
Alzheimer’s UK states that 850,000 people are living with dementia in the UK and they predict this figure will rise to 1 million by 2025.
Around 40% of the total care home population is made up of people receiving specialist dementia care.(i)
Two thirds of those living with dementia don’t currently live in residential care settings. So it’s not a given that if you suffer from dementia you will definitely end up in a care home, at least not in the early years.
The cost of long term care and how your assets are used
Costs for long term care vary greatly depending on the type of care needed and what part of the country you live in.
- In 2018/19, the average cost of a local authority-funded care home place for someone aged over 65 was £636 per week (£33,072 per year).(iii)
- A residential care home with nursing costs around £880 per week (£45,760 per year). (iv)
Interestingly, the cost for long term care is even higher if you decided to receive your care in your own home with 24 hour live in care costing around £50,000 per year.(v)
Another sad fact due to the ongoing funding issue many care homes face is that they will often charge more for the same care that is privately funded. Meaning if you have qualifying assets over a certain amount, the care you pay for will be on average 41% higher than if the local authority were paying for it.(iii)
So we are starting to see the levels of capital that might be needed if you look at long term care costs on a yearly basis, but how long typically does this expense last?
Research from Bupa (vi) found that the average length of stay in a care home was 801 days. Around half of residents had died by 462 days and 27% lived more than 3 years. At the start of entering a care home it appears you have around a 55% chance of surviving your first year. If you can get through your first year then your chances of surviving the second year increase to nearly 70% before falling back down for subsequent years.
The Dilnot Commission estimated that 50% of people aged over 65 and over will spend up to £20,000 on care costs and that 10% would face costs of over £100,000.
Paying for care
When it comes to paying for long term care much will depend on what type of care you need as some will still be provided free via the NHS. Paying for other types of care, particularly that in a residential or nursing home will depend on what levels of income and assets you have at the time of assessment.
If your savings, investments and equity in your home are above the following limits then you will pay for your own care:
- England and Northern Ireland: £23,250 (you actually start paying some contribution if your assets are between £14,250 and £23,250)
- Wales: £50,000 (residential care) or £24,000 (non-residential care)
- Scotland: £28,500
So it’s very likely that if you need long term care, you will have to pay for it.
For some, the thought of potentially losing the family home to pay for care is worrying. Especially if they have earmarked this as a future inheritance for the children.
Unfortunately it’s not as easy to just say you will give away your home to your kids while you are alive. There are rules in place to prevent ‘deliberate deprivation’. Meaning even if you have given away your home, the local authority has the power to reverse this.
Understanding the probability of you needing care in the future and what it might cost is important because whether you want to prepare for it or not, the way you think about it will impact your retirement spending.
If you plan to set aside money to cover the cost of your long term care then this will reduce your retirement spending.
If you don’t want to cover long term care or are happy to spend down your assets so that the state funds your care, then this gives you more opportunities for spending in retirement.
Either way, knowing your position at the start is key. You don’t want to run out of money before you die but at the same time you don’t want to die with too much money. You can’t take it with you!
We have been working with clients approaching and transitioning into retirement for years and have vast experience in building sustainable retirement income solutions that not only give you confidence in your retirement but also peace of mind your family are taken care of. If you would like to understand more then please get in touch for a free 15-minute consultation.
References:
(i) https://www.mha.org.uk/news/policy-influencing/facts-stats/
(ii) Laing and Buisson survey 2016
(iv) Laing and Buisson Care of Older People Report 30th Edition 2019
(v) https://www.moneyadviceservice.org.uk/en/articles/long-term-care-services-at-a-glance
Risk warning:
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.
