Long-term care is one of the harsher realities of retirement.
No one can predict what the future might bring, but a prolonged period of ill health can quickly become expensive and stressful – especially if you haven’t planned ahead.
But whether you are saving for your own long-term care or for a relative, there are a few financial tricks which you can use to reach your saving goals faster, and ease your financial stress in tough times. Read on for our tips on how to save for long term care…
1. Research your options
According to recent research by Prestige Nursing + Care, the cost of being in a UK care home rose by 10 per cent in 2017 to an average of £33,904 per year.
However, figures can vary considerably depending on where you are based – in the east of England, residents can expect to pay an average of £40,820 a year, while people in the North-East pay £25,636 on average, per year.
It is always easier to save when you have a specific financial goal in mind. Make a few calls to your local residential homes and find out what they charge, and what you are likely to get for your money.
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2. Plan early
The sooner you start to save, the easier it will be.
For instance, if you set aside as little as £60 per month while you are in your 30s, you could accumulate more than £36,000 by the time you reach your 80s.
Conversely, if you wait until your early 60s, you would need to save around £150 per month to save a similar amount before the age of 85.
3. Look into your entitlements
There are a number of government incentives and entitlements available to help with the cost of long term care, and these can help bring your overall bill down substantially.
For instance, Attendance Allowances and Personal Independence Payments are available to any pensioners who are deemed to have significant health needs, while NHS Continuing Care funding is available to anyone over the age of 18 who needs regular medical attention.
Local authorities can also help with the cost of long-term care, although these entitlements are usually means tested.
Before you spend any of your own money on long-term care, speak to your local council and health trust about any benefits and bursaries which might be available to you.
4. Make a living will
Once you’ve made a plan for your long term care, write it down immediately and share it with close family members and your lawyer.
This plan should lay out exactly where you want to live, the level of care that you want, and how your care will be funded.
5. Look at fixed-term investments
Long term care is unlikely to be an urgent consideration as soon as you begin your retirement.
This means that you can afford to lock your long term care savings away in a fixed term account such as a 10-year bond.
Fixed term investments often offer better rates than instant access accounts, and if you shield them within a tax wrapper such as a SIPP or an ISA, you can boost your savings even further.
There has been some discussion in the House of Lords regarding the creation of a ‘Care ISA’ which would allow people to save specifically for long-term care.
6. Use your pension fund
A lot of people are happy to rely on their existing pension fund to cover any long-term care costs.
However, this can be trickier than you think, due to withdrawal restrictions, taxation laws and the sheer expense of good quality long-term care.
If you wish to use your pension fund to cover your own long-term care costs, you may need to increase your pension contributions.
It may also be a good idea to keep at least some of your pension savings in a SIPP, which allows you to withdraw 25 per cent of your capital tax-free on your 55th birthday.
You can then re-invest that 25 per cent in a fixed-term investment which can be used exclusively for your long-term care costs, thus relieving you of any tax burden and safeguarding your money until you really need it.