The cost of residential care is becoming more high profile as more of us are being hit with the realisation that our later life costs may be as expensive as any period of our lives. Whatever our age we can’t afford to ignore it, this blog explains why. 

A recent Panorama programme  investigated the growing care funding problem for both State and individuals and found that this burgeoning gap was causing considerable distress for those entering residential care and their relatives, who are often required to provide both emotional and financial support.

With the cost of residential care being as much of £40,000 to £50,000 pa (if not higher for some residential care homes in London and the South East) if we do not accept and plan for this stage of our lives it is very likely we (or our loved ones) will not be able to afford the comforts wished for when, perhaps, they are needed most.

This is not something that is relevant only to those in retirement but to anyone of working age for a number of reasons:

1. The State can’t afford to support an ageing population. Department of Health figures estimate that by 2060 one in two people will be retired.  In a study by think tank Policy exchange it is anticipated that between 2008 and 2033 the number of people over 90 will triple, the number over 95 will quadruple and the number of centenarians will be about 80,000.

 

2. Parents or grandparents who are intending to to pass on wealth to next generations will be using some (or all) of their capital to cover the cost of care. Recipients hoping to use inherited assets to provide their lifestyle goals will find the well pretty dry when it is needed.

 

3. We are all getting older; retirement can feasibly last for forty years. We need to build up liquid assets that can provide for this extra period when we are not earning any income.

 

4. Because we are living longer annuity rates provided on pensions are decreasing. It is therefore not enough to start building up pension funds in our forties and fifties because we will simply do not have enough time to accrue sufficient funds.

 

5. The rate of inflation experienced by retirees is typically higher than any other age group; the cost of residential care can increase by over 5% pa. Assets of retirees are often in savings accounts which rarely keep up with inflation. It is therefore imperative to starting building sufficient funds to support later life so that inflation does not erode capital values when they are required.

 

6. Often a spouse enters a residential care home leaving the partner at home preventing it from being used as a source of capital to fund for the residential care fees.

 

7. State benefits and many occupational schemes will be linked to the Consumer Prices Index as opposed to the Retail Prices Index resulting in annual increases in income below the ‘true’ rate of inflation.

 

The Government are consulting on solutions to this problem but to be fully in control residential care planning needs to become a significant part of our Financial Planning. Even if action is not taken directly to pay for the costs before it is required an acceptance that we need to take ownership for ourselves and our loved ones with our Financial Planning must be.

If you have a loved one in need of advice about the cost of residential care fees or you would like to understand how you can plan for it click here.

Andrew Neligan is an award winning, fee based Chartered & Certified Financial Planner who assists legal professionals achieve their dreams and goals through Financial Planning.