At UK Care Guide we understand that often the financial prospect of care can be daunting and difficult. That’s why we’ve compiled comprehensive articles on each method of paying for care to help you to make a sound decision.
In this article we explore the option of using savings and money stored in bonds and funds as investments to cover the cost of care.
If you are fortunate enough to have a significant amount of savings and investments, you could invest your money with the aim of living of the returns that your investments produce.
For many this is a great way to pay for residential care home fees, as it offers flexibility and stability for the future without any or only small loans or the prospect of selling property to finance care.
It can also be incredibly simple. In essence it involves using any savings you may have built up in a bank or building society or any cash you may have available through your pension pot to pay for residential care home fees or home care costs.
The way you invest and how you spend your money depends on how much you have, where it is situated and what you plan to do with it. You may only have enough money at present to pay for residential care home fees for a short time, but want to grow your assets through sound investments to ensure that you are covered.
Alternatively you may want to invest wisely in order to have enough money left over to leave to beneficiaries after paying residential care home fees.
Whatever your circumstance may be, you should make sure that you have enough to cover your care indefinitely. You should also make provisions for a worsening in your condition and potential nursing home care requirements in the future.
Investing your money with the hope of generating investment returns can be viewed as a risky approach. Therefore, it is important that you structure your investment carefully, looking for an appropriate balance between how much risk you can take with your money versus how much income you need from it.
As investments are often complicated and can have major risks associated with them, it’s a good idea to enlist the support of a specialist financial advisor if you are seriously considering investment as a means of generating income for residential care home fees.
The first obvious benefit of using investment income to cover retirement home costs is simplicity. If you have sufficient funds to pay for retirement home costs entirely you can simply pay each month as required.
If you invest well, you may find that the investment returns produced are the same or total more than the amount required to pay for your care. If you achieve this, you will find that not only have you been able to fund your retirement home costs, but the capital value of your investments remains.
This means that you have the opportunity to pass this on as an inheritance.
Even if you do not gain enough from your investments to fully cover the cost of your retirement home costs, you’ll still be able to make a valuable contribution each month from these funds in conjunction with other forms of finance. For this reason investment is a popular option for many who wish to self-finance retirement home costs.
Using savings and investments to cover care costs is a great option for anyone who wishes to stay in their own home, or pass their property on to relatives or loved ones. For this reason savings and investments are commonly used to pay for home care.
Before relying on investment funds to cover the cost of home care or residential care there are some risks to consider.
The first is poor investment. Without professional advice, you could find that your investment choices aren’t appropriate for you and won’t be fruitful, therefore impacting on the amount of money you’ll gain.
If your investments do not perform as required, then the capital value of your investments will be eroded as you spend that money to pay for the cost of home care or residential care. Therefore, over time you will find that you have to use more of this, as you will have a smaller capital value from which to generate investment returns.
In addition, the amount of inheritance you have available to pass on will also be falling. In particularly difficult cases you may even run out of money.
There is also the possibility that markets may slump – or a recession may occur. In this instance you could find your investments perform incredibly poorly and end up costing you money rather than contributing to the cost of home care.
Another potential risk to consider is your future prognosis, and a change in circumstances. If you calculate the full cost of your care based on your current situation but don’t make allowances for a situation in which things may change, you may run out of money.
For this reason it’s best to plan for a worst case scenario, factoring in future nursing provision into the cost of home care or residential care. Our handy Care Calculator can help you to accurately estimate the full cost of care provision during your lifetime so that you can plan ahead accordingly.
Any of the above issues could cause you to run out of money to pay for the cost of home care or residential care prematurely. This could mean that you will need to transfer to another care provider – a stressful and upsetting experience.
You’ll also then need to explore alternative options – like accessing local authority funding or selling your home. It will also leave you without the funds to leave anything to your relatives and beneficiaries.
Due to the risks involved it’s advisable not to place all funds into investment schemes – keeping some back in a high interest savings account just in case.
There are many different types of investment available – which is why it’s often a confusing and complicated prospect for anyone new to the system. The list below is not exhaustive, but highlights just a few of the options available to those looking to invest to accumulate a higher income to pay for care.
Stocks and Shares ISAs: In effect this is a savings account that allows you to deposit a certain amount each month (prior to the recent introduction of the government’s personal savings allowance, which has changed the provision of some ISAs).
Instead of simply earning interest, the money you deposit will be invested by your chosen bank into stocks and shares. These are long-term investments – usually held for five years or more. Share prices can go up and down and although the funds are monitored you may end up with less than you initially invested.
Hedge Funds: A complex strategy which involves investing in a product or company which is believed to generate a significant return using various software and formulae to determine an outcome.
Venture Capital Trusts: This involves investing in smaller companies to generate an income from their shared success.
Individual Shares and Equities: Large companies offer the opportunity to purchase shares. The potential for return is great, but the risk is significant. You can purchase as many shares as you like in whichever company you choose, weighing up the risks and potential return.
Tracker Funds: These funds closely mirror the activity of market indexes like the FTSE100. When the going is good, profit can be made – but if markets slump you could end up with less than you started with.
Investment Bonds: Investment Bonds enable you to put a sum of money away for a certain amount of time. As many common forms of Investment Bonds are payable upon death those funding care would need to choose a product which allows you to specify a medium-term payment date.
The money will be stored for a minimum of five years – usually sums of between £5,000 and £10,000 are eligible. Some types of Investment Bond guarantee profit – or assurance that you will not lose money through investment.
Expert advice is needed for any investment option, as all can carry significant risk if they are not properly executed or maintained. Most professionals advise a blended approach of carefully monitored investments which can be regularly reworked rather than simply investing a large lump sum in one area at once.
If you have significant sum available to pay for care fees there are a couple of alternative ways you can use it to ensure you’re covered now and in the future.
The first of these is Care Annuity. This involves handing over a lump sum (either all or some of your savings or investments) to a third party, who will then pay your care fees monthly. This is a good option for those who need peace of mind knowing that they are covered for care fees in their chosen home indefinitely.
The second is simply using savings without investment to cover care fees. Although this doesn’t guarantee any additional income it does eliminate the risks associated with investing and can be used to subsidise care fees in the future.
Yes, investment options are suitable for nursing home costs. It is worth considering however that nursing home costs are generally greater than the costs incurred through standard residential care provision.
This means that your money will go a lot further if you are accessing residential care compared with if you are covering nursing home costs.
As explained above, it’s worth considering nursing home costs even if you are not expecting to need nursing care. This way you can be sure that your funds will be sufficient to provide adequate care for a lifetime rather than only in the short term.
Planning for nursing home costs reduces the likelihood of running out of funds and having to rely on local authority support or the sale of property to get by.
If you are thinking about ways to fund your care home fees, and in particular using income from your investment, then we recommend you speak to a specialist advisor. This is an accredited, qualified person who has specific experience in assisting individuals who want to invest their money to pay for care home fees.
They are also an independent party – so they won’t try to sell you any product in particular and only have your best interests at heart.
A specialist financial advisor will be able to:
– Advise you on any alternative options that are available (and may be more appropriate for you)
– Advise you on the level of income you may expect from your investments both in the shorter and medium term, enabling you to plan for future care home fees
– Advise you on how much investment risk you should take with your capital and what impact this will have on the income that is paid (and your ability to cover care home fees)
– Advise you on your inheritance planning and how you can efficiently pay over to your family any excess money that is left on your death
– Clearly explain the tax implications of any investment income you receive
– Manage your money on an on going basis to take the worry away from you
Whilst using a financial advisor doesn’t eliminate the risks attached to investment completely, it does significantly reduce the likelihood of poor investments and negative equity situations.
Additional information about paying care home fees can be found here on the UK Care Guide website
The assistance of a financial advisor is essential when choosing investment as a method of funding care. However it’s essential that you have access to someone experienced who will be able to look after you and your money properly.
We suggest choosing financial advisors who are fully accredited, registered and qualified with a track record of success for previous clients.
Word of mouth referrals are always preferable compared with online testimonials, as this way you can really get a feel for how they can help and can trust the information you’re given. You can find a link to a directory of financial advisors here.