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 to cover the cost of care.
Often individuals and couples find that they haven’t saved enough money to pay for the cost of care homes. However for some life savings constitute a large portion of their care funding – the money may even have been set aside solely for this purpose.
Using savings to pay for the cost of care homes is often a preferable option compared with loans and the sale of property or other assets. Savings can be used towards the cost of care homes however you wish. This includes any savings you may have built up in a bank or building society or even cash that may be left from any pension lump sum you may have received.
You can choose to use a little of your savings fund towards the cost of care homes or all of it – this will depend on your budget and preferences. For this reason you’ll need to research the cost of care homes you’re considering and think about how large or small the portion of funding your savings will contribute may be.
It is important to carefully and honestly consider your future care requirement when you are planning on paying for residential care with your savings. It’s useful to estimate the full cost of your care as accurately as possible to see how much you’ll be able to afford, and budget accordingly. For example, you may expect your condition to remain the same, but know you’ll be in residential care for twenty to thirty years. Knowing this information and planning ahead appropriately is essential when you are going to paying for residential care yourself – especially if you plan on using savings. However it’s key to always provide for unexpected eventualities, setting a side a fund ‘just in case’. This protects you in the unfortunate circumstance that your condition worsens, and the intensity of your care increases. You may find you go from paying for residential care in a standard home to providing funding for a specialist nursing home which costs significantly more. This in turn affects how quickly your savings pot will diminish, and could mean you’re unable to afford your chosen home.
For assistance with working out the prospective cost of your care you can use our handy Care Calculator, which allows you to effectively plan for the cost of your care. This way you’ll know how long you’ll be paying for residential care and how much you can expect to pay.
Some people may have built up sufficient savings over their lifetime to pay in full for their long-term care needs. In this instance there are a couple of options available. If the funds are significant and are guaranteed to cover the cost of paying for residential care indefinitely then your financial planning is rather straightforward. It’s a good idea in this situation to speak to a specialist financial advisor who can help you to divide and store your assets safely, enabling you to put some aside for future generations of your family without losing a large amount to inheritance tax.
On the other hand, you may have ample funds but know from calculating the prospective cost of your care that these may not be sufficient in the long term. You may come to a point where you need to top up your savings with another form of funding – alternatively, it may be appropriate to use these until total assets fall within the means tested limit of £23,250. After this, your local authority may start paying for residential care for you either in part or in full. However as detailed above, you may not be able to remain in the care home you are currently in if you haven’t budgeted for a significant drop in funding.
Your choice will depend on your preference and financial situation. If you don’t yet want to access local authority funding you can explore the various ‘top up’ options available to you such as equity release or a deferred payment scheme. Again, a specialist financial advisor will be able to recommend an option that is right for you both now and in the future.
As detailed above, local authorities are prepared to subsidise or provide funding for care homes. This is only available however if you possess assets which amount to less than £23,500. This includes property, savings and investments. When your care is partially or fully funded by a local authority you may have less say over which home you are provided and the type of care you receive.
However there is a varied range of alternative options specifically designed as funding for care homes. These differ greatly and suit different individuals depending on circumstance and personal preference. We’ve created informative guides for every care funding option available – so you can find out more about each of these by clicking below:
Equity Release: This involves obtaining money tied up in your property which can then be used as funding for care homes. Equity release is not suitable however for those who wish to leave their property to relatives, as effectively the property will then be owned by the Equity Release provider.
Deferred Payment Scheme: A Deferred Payment Scheme is a type of funding for care homes offered by local authorities in the United Kingdom. It is in essence a loan secured against property. This enables an individual to delay the payment of their care until their death (or until they move homes or sell their property).
Care Annuity: A Care Annuity is provided by an insurance company who will take a lump sum from you. They will then pay your monthly care fee (tax free, if paid directly to the care provider) for life.
Investments: Investments can also be used as funding for care homes. This involves similar risks and benefits as using savings.
Property Rental: For those who wish to keep their property but would like to earn a regular income from it, money generated from property rental can be used as funding for care homes. This is perfect for those going into residential care, as it enables them to keep their property whilst benefitting financially.
Often the options can appear overwhelming – and for those planning on using savings to fund the cost of care a combination of the above may be required. This is why it’s key to obtain as much information as possible about each option and to fully understand your financial situation before you make a solid decision.
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Before seriously considering any funding option you’ll need to be aware of care home prices. Care home prices vary – but on average they cost between £450 and £650 per week. The cost of a nursing home can be greater – on average the cost of nursing home care can fall between £700 and £1000 per week. The type of care you receive may influence the cost – for example, specialised nursing care and a care home set up purely for those suffering from dementia may have different types of care on offer, and therefore the care home prices differ.
Facilities also have a role to play in the variation in care home prices. Now some residential homes include shops, hair salons, gyms and gardens – and naturally the cost for this type of establishment is often way above the average care home prices.
When choosing your care home you’ll have to weigh up the facilities available and provision for your personal preferences against the cost. As explained above, you should also think about whether this is a care home you can remain in long-term. If the cost is not sustainable, you could find you’ll have to move into a less favourable establishment at a later date – and this could be upsetting and disruptive.
The first and most popular benefit of using savings for care home funding is that it is very straightforward. You simply use the funds you have available to you to use directly for care home funding. The other benefit is freedom – you remain at liberty to leave some assets and in particular property to relatives and loved ones.
However, if you do have cash to pay for your care, you will need to consider some possible drawbacks. These include loss of disposable income and inheritance funds, and the possibility that you’ll run out of money for care home funding.
Most people have nurtured their savings for items and investments (such as cars, property and antiques) maintenance work (an extension to the property, conservatory or new roof) and experiences (such as holidays, days out, flying lessons). Many use savings accounts to top up their pensions and any benefits they receive. Often, the last eventuality they saved the money for is care home funding.
This can make parting with cash from savings very difficult. For this reason some may prefer to keep their savings intact and use their property or other assets instead to pay for care. This is also true of those who wish to leave a cash lump sum behind for relatives – and worry that they may not have sufficient funds left to do so.
Lastly, if you use your savings for care home funding you may not be able to leave any monetary assets behind in your legacy. Again this can be troubling for anyone who wishes to leave money to family or friends. These are all important future issues you’ll need to consider and discuss with relevant parties before going ahead and opting to fund your care partially or fully with your savings.
You do need to think about how you invest your money during the years of independent care home funding, as you want to make sure that its value keeps up with inflation over the years. A specialist advisor will be able to help you find a suitable investment option.
In addition to the risk that what you have in savings does not keep up with inflation, you need to make sure that you can cover all the costs of the care. If in the future your assets fall below £23,250, and you are currently living in a residential care home, your local authority may not agree to fund the care home that you are currently in. In that case you will need to find a different care home or have a third party pay the additional costs. If your assets fall below £23,250 you will not be able to provide any additional care home funding yourself.
One additional and very important factor you’ll need to consider is how your finances will be controlled should you lose the mental capacity to take care of them yourself. This is very important, as without proper provision in place you could find you’ll need to move care home and won’t have a say in how your remaining savings are spent. The best way to plan for this is to set up a Lasting Power of Attorney. This enables trusted family members or friends to take care of your finances for you should you lose capacity to do so yourself. You can find out more about Lasting Power of Attorney, how to get one and why it is important in our informative guide here.
Firstly, consider all options available to you carefully. Although possessing savings to pay for care is a positive position to be in, how you plan and act now could affect the amount you have left over this period of time both for care provision and inheritance.
This is why we recommend that you speak to a specialist advisor when considering care funding options. This should be a qualified and accredited financial planning with specific experience in sourcing and protecting funds in order to pay for care. They will able to:
– Advise you on the alternative funding options that may be available
– Advise you on where you can invest your money to help ensure that it keeps up with inflation and is sufficient to pay for your on going care costs
– Advise you on your inheritance planning and how you can efficiently pay over any excess money that is left on your death
– Manage your money on an on going basis to take the worry away from you
Once you have acquired all the information you need, you can then make a sound decision that is right for you.