How to pay for care home costs?
Financial Advisers can offer financial advice on care home fee planning for yourself or an elderly parent. Contact Richard Porter, independent financial adviser, St Albans, Hertfordshire on 01727 845500 for a free initial consultation.
In this case study Richard Porter, IFA, St Albans, Hertfordshire reviews how to pay for care home fees. The case study is part of our ‘The value of an independent financial adviser’ series.
Richard Porter is an independent financial adviser and works with clients in Radlett and St Albans. Richard is a member of our St Albans financial planning team and offers financial planning advice to anyone looking to cover the cost of care home or nursing home fees in the future.
Case Study - How to pay for care home fees?
Richard Porter met Mr V from Radlett, Hertfordshire. He wanted financial advice as his father, Mr V senior was 84 and in good health but suffering from dementia. Mr V and his wife had hoped to look after Mr V senior in their home but they realised that his dementia was worsening so the family considered it best that he was looked after in a local care home.
Mr V senior had just sold the house he owned in Radlett which was worth £600,000. Below is the estimated cost for Mr V senior to be looked after in a local care home.
The total cost of the care home:
Cost of care home - £950 p/w = £49,400
Newspapers & food - £30 p/w = £1,560
Ad hoc expenditure clothes/toiletries - £25 p/w = £1,300
Total cost of care home = £52,260 per annum
Less pension Income and allowance £10,500
Additional income required £41,760
Amount required each month to fund the care home = £3,480
Richard Porter, independent financial adviser, St Albans, Hertfordshire said:
‘When I sat down with Mr V and worked through the costs of the care home and his father’s pension income and allowances it was obvious that there was quite a significant shortfall. The family had just sold Mr V‘s home to pay for the care home costs but the difficulty was deciding how best to pay for his care. We make sure that when we advise clients on funding the cost of care home fees we consider that they or their parents may live longer than they expect. We offer a robust financial solution that should cover the care home costs until they die.’
How Richard Porter, IFA St Albans, added value with his independent financial advice for care home fee planning
- Offered Mr V’s family a number of financial solutions to pay for the care home fees
Purchase an immediate care annuity so the family know that the care home fees will always be paid. Various alternatives were available:
No indexation, pays out £3,600p/m but no protection for early death. Cost £202,402
No indexation, pays out £3,600 p/m but 50% protection on early death. Cost £223,435
Indexation (rises in line with RPI - retail price index), pays out £3,600p/m but no protection for early death. Cost £222,878
Indexation (in line with RPI), pays out £3,600p/m but 50% protection on early death. Cost £248,720
(50% protection means that if Mr V passed away before 50% of the initial premium had been paid out the provider makes up the difference).
Invest £150,000 in an annuity with no indexation or protection.
Invest £280,000 in an investment bond that allows 5% withdrawal per year.
Annuity p/y provides £2,700p/m
Investment bond provides £1,166p/m
Richard Porter, independent financial adviser St Albans continued: ‘Mr V’s family chose the second option as it gave them security that they should be able to pay their father’s care home fees and it was low maintenance and an easy to manage option. Purchasing the annuity gave the family a level of guarantee but setting up the investment bond provided flexibility as it could be used to top up the income required to the necessary level but also offered potential death benefits to the beneficiaries. The annuity and the bond option provided slightly more monthly income than was required. The income required could also be reviewed each year in case the care home fees increased. The family was pleased to set up an investment bond as they could draw 5% income tax efficiently. Not all the sale proceeds of their father’s home were invested so the family could earn interest on the remaining cash and the proceeds would always be available to invest if necessary.’
Key considerations for anyone looking to invest to pay care home fees
• Discuss future financial costs openly with your independent financial adviser and other family members
• Use cash-flow planning tools to plan for different eventualities and worst case scenarios
• Be receptive to using flexible and tax-efficient investment products in your financial planning
• Consider that you or your family could live longer than you expect and plan for this accordingly
Mr V is now living nearby his family in a local Radlett care home. The family are happy that the annuity and bond should provide the necessary income to pay for the care home. Mr V and his siblings will continue to meet Richard Porter on an annual basis to review the performance of the investment bond.
Please note The Financial Conduct Authority does not regulate tax or estate planning. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
Other case studies in 'The value of an independent financial adviser' series:
Mark Bowen, independent financial adviser, St Albans - Reviewing your defined benefit pension scheme,
Deb Nolan, independent financial adviser, Leeds / Bradford – Understanding your financial entitlements.
Simon Prestcote, independent financial adviser, Barnet, North London – Generating an income following a property sale.
Neil Homer, independent financial adviser Stafford - Modelling different financial planning scenarios.
Simon Armstrong, independent financial adviser St Albans - Investing the proceeds of a business sale
Richard Porter, independent financial adviser, St Albans – Generating tax efficient retirement income