Care costs for living in later life can often be very steep. Yet while local authorities can sometimes help out with the cost, many try to incorporate these staggering fees into their retirement planning and pension pots “just in case”.
However, money experts Pete Matthew and Roger Weeks are urging people to avoid this common “retirement mistake”.
On The Meaningful Money Podcast, the pair explained that while it is important to think of these potential costs, particularly if you are more likely to require care in your later years such as due to chronic illnesses or disabilities, there are far better ways to do it than segmenting your pension pot.
Roger highlighted: “I’ve been in the job about 26 years and can only think of two clients who have their estate wiped out by care fees.”
Paul added: “It’s a valid worry but from our experience too many people will end up leaving too much money on the table because the cost of fees has more weight in their thinking than the probability of it actually happening.
“Worrying about care fees is a big mistake. We see so many people letting the worry about care fees affect their good years – when in most cases it isn’t a factor. ”
He highlighted that of the 11 million people in the UK aged over 65, over 4% are living in care homes. This number increases to 15% for those over 85 living in full-time residential care.
Roger continued: “You might be in care for 10 years and you might see your entire estate wiped out by the cost of it but the chances are that won’t be you. It’s about keeping this concern in the right proportion.
“Don’t compromise your today based on something that might never happen. Lots of us aren’t going to have enough money to set £100,000 aside and forget about it, let’s face it.”
The expert pointed out that, according to Age UK, the weekly cost of a care home is £800 or £41,600 a year averaged across the UK while a full-time nursing home will cost roughly £56,000.
Paul suggested that due to the extraordinary yearly fees, people look at their larger assets like their homes to cover their care needs in later life.
He said: “You can downsize because you may not need to go into a care home. Use equity release to have care in the house. Your home is going to be a part of your care fee planning.
“If there’s only one of you left and you go into full-time residential care, you don’t need the house.”
He explained that one of the main reasons people struggle to use their home like any other financial tool or asset is due to the sentimental value, but Roger noted your children can purchase the property from you which can release the value while still keeping the sentimentality.
However, Paul warned people against trying to pass on their home to their children in order to snub the system when the local authority conducts their financial assessments.
These assessments estimate how much they have to contribute towards your care and include the value of your property.
As a result, when it comes time to start receiving care some people may try to sell their home to their children and then have the assessment exclude it but Roger pointed out a major flaw in this plan: “If it’s pre-thought of, (the sale) doesn’t count. Ultimately the onus is on you to prove it wasn’t. ‘Why would you do it other than avoiding care fees?’”
