Preparation for care now or in the future
People can suddenly find themselves thrust into the scenario of having a relative needing care support at short notice and not knowing how to finance this immediate issue. With prudent financial planning, these issues can be prepared for in advance. Often it is lack of understanding that causes people not to plan or to plan badly.
Paying for care
Paying for care is extremely expensive and the process of paying for care can seem daunting and complicated.
As a self funder (if you have over £23,250) you will be expected to pay for your care.
There are various options that you can consider to fund your care such as:
Paying directly from capital
This is the most common approach due to the majority of people being unaware of the alternative options of how to pay for care. There is a high risk that the capital will run out depending on how long you require care for and this happens to thousands of families in the UK each year.
Investing the capital
If you have a large amount of capital then investing it wisely may produce the income required to meet the shortfall. However for most this carries a degree of uncertainty and risk and erosion of capital is likely to occur.
If the capital erodes below £23, 250 the Local Authority are obliged to assist however their level of support can be well below amounts required by good quality care homes.
Care Fees Annuity
Purchasing a care fees annuity is a genuine alternative to meeting care costs directly from capital or investments and will pay out a guaranteed, tax free income for life. This is not the same as a pension annuity which would offer a much lower and taxable income because it does not take into account the age and state of health of the individual.
The great advantage of this approach is that it provides peace of mind as the family know the shortfall in care fee costs will be met or the remainder of that persons life.
A combination option
The final option may be to simply insure part of the fees shortfall using the care fees annuity and then use an appropriate investment vehicle to generate the income for the balance. There needs to be a reasonable amount of capital available to make this work and it is imperative that the split is correct to avoid erosion of capital.
Use of capital
Many retired people have acquired funds festering in
deposit accounts or similar savings which they leave
sitting in very low interest paying accounts. With
increasing inflation it means that this money is going
down in value each month. In addition this capital is at
risk of being used to fund care costs. With careful financial planning, alternative ideas can be considered to try and alleviate some of these issues.