Growing old is inevitable, so planning is essential
We are all living longer, thanks to medical advances and an increased standard of living. It's estimated that someone turning 65 today has almost a 70% chance of needing some form of care. Care costs can of course be incredibly expensive, and trying to arrange and fund care for a family member typically needs to happen at a very sensitive and emotional time.
In the 2014 Care Act, the government said it was introducing a cap on care costs for every individual, and scheduled this to begin in April 2016. However this has now been delayed until at least 2020. When you also consider that a large number of people - especially in the south east - are unlikely to qualify for means-tested benefits means that planning for care is becoming a critical issue.
If your savings and assets are above £23,250, you will normally be expected to pay for the full cost of long term care yourself.
One of our clients approached us as one of their family members had recently suffered a stroke and unfortunately now required full-time care. Even though the family member was in their late 80s, it still came as quite a shock and presented our client with genuine challenges and concerns. Their main worries were:
- How are we going to fund the cost of care?
- What if we run out of money; what are our options?
- How can we make the money last as long as possible?
The first thing we did was to make sure that they were receiving all the appropriate benefits from the state such as Attendance Allowance, and this immediately reduced the financial burden. We then used the power of attorney document, along with a letter of authority, to obtain a breakdown of their assets from their banks and mortgage providers. The assets came to a total of £250,000.
The client's relative wished to remain in their property and were keen to receive care within their home. Once we had established the cost of care we calculated that their assets would fund approximately 7 years of care, after which point they would either have to sell their property or obtain a form of equity release.
"Having gone through this with our family member, it is a real eye opener and makes us want to start planning for ourselves in case we need care in the future."
We discussed a whole host of options with our client, including investing the money in cash or low risk investments to achieve a better return, and we also obtained a quote for an immediate needs annuity.
The immediate needs annuity ended up costing the client approximately £180,000. This annuity would guarantee a set level of income for their rest of their life, and they would still have £70,000 left over. By including a guarantee period of three years, it also meant that if the relative was to pass away within the three year period, it would continue to pay the same level of income until the end of the three year period.
It was decided that even though the care costs could rise in the future, the option of running out of money all together in 7 years versus having a guaranteed income for life and £70,000 retained in the bank account was much more appealing.
This gave our client the complete peace of mind they were seeking, and provided the family with options in the future. They can now focus on their relative's health and wellbeing rather than worrying about the financial stresses of the situation.
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