Counting the cost of care: don’t leave it too late

By April 8, 2021Investments
Senior woman in a wheelchair being cared for by nurse

With care home costs continuing to increase, and pensions struggling to keep up, it is essential to come up with a long-term investment strategy that aims to match the cost of long-term care to reduce the risk of you – or someone you love – running out of money during retirement.

A worrying number of British pensioners are struggling to pay for care during retirement, according to recent statistics. Analysis from Age UK published in 2020 revealed that, in just one year, the number of pensioners whose assets have been effectively ‘wiped out’ due to the cost of paying care home fees has risen by more than one-third. Putting it another way, care bills are wiping out the finances of 100 people in the UK every week of the year.


Care costs are rising

Anyone who has looked into the costs of long-term care, perhaps on behalf of a parent, knows just how expensive those costs can be. According to health data provider Laing Buisson, in 2019-20, the average cost of a residential care home for an older person in the UK increased to £672 a week. Or, put another way, that’s an average annual expense of £34,944. In most instances, a person’s pension will be just a fraction of that amount.

 And, for those who are in urgent need of being placed into a nursing home – offering round-the-clock care – the costs of care are even greater. Between 2019 and 2020, the UK average nursing home cost increased by 5% to £937 a week, or £48,724 a year. The fees a person can expect to pay for nursing home care are significantly higher in London and the South East.


Will you have to pay for your own care?

While healthcare is provided free by the NHS, most of us will be required to pay some or all of the costs of our own social care in later life. Local authorities will provide financial support for people whose assets and income are below a set amount, but broadly speaking, anyone with savings or assets worth more than £23,250 can expect to pay for their own care costs. Most people hope to pay for care by using income from their pension, savings, and investments or income generated by other assets, such as the sale proceeds from their main residence, or rental properties. But it’s important to make plans that determine the most cost-effective way to pay for care, which is where we can definitely help.


Optimising capital and income to pay for care home fees

At FAS, we often talk to families looking for advice on what to do when a parent or loved one needs to go into care. The first thing we point out is that when large fixed costs are being paid every month (such as care home costs of £5,000 per month), cash in the bank usually doesn’t last very long. So, instead of thinking about relying on savings or a pension to pay for care, we usually tell families that it’s a much better idea for us to help devise an investment strategy that will help to ensure all known fixed monthly costs can be covered for as long as possible.


How can an investment strategy help with care costs?

From our perspective, we know that good financial planning can make it possible to plan for care without fully eroding a person’s capital, whilst also effectively ring-fencing the family’s future inheritance. It starts with calculating the costs of care over the longer term and identifying suitable investments that have the right risk and return objectives.

By matching liabilities with income, we are able to find and recommend investments capable of growing at a rate of return that will aim to ensure the rising costs of care continue to be met. This really emphasises the importance of investing your money with the aim of generating a meaningful return, rather than leaving it sitting idle in cash. This is particularly relevant given that care costs have a tendency to rise by more than inflation each year, which means you need the income you generate from your investments to be able to do the same.


Buying care insurance

As a last resort, another area where we might be able to help is with arranging care insurance. This insurance (also known as an ‘immediate needs annuity’ or ‘immediate care plan’) will automatically cover the cost of care fees for the rest of a person’s life, in exchange for a one-off lump sum payment. Just as with pension annuities, care insurance payments can be set to provide a flat payment monthly, or arranged to rise in line with inflation. However, these types of policies are only available to those with a restricted life expectancy.



No one should be left to worry about how to pay for a loved one’s long-term care. And, with careful planning, it should be possible to structure someone’s finances to ensure care fees can be paid for as long as required, without the money running out. If you’re in this position, talk to us. Our knowledge of this complex market means we have considerable experience of coming up with tailored care funding strategies designed to suit individual needs. The sooner you get in touch, the more peace of mind you will have.


If you are interested in discussing the above with one of our experienced financial planners at FAS, please get in touch here.


This content is for information purposes only. It does not constitute investment advice or financial advice.