Should I be Thinking About the Cost of Care?

financial planning care

Who in our family may need long-term care? Do I have sufficient funds to pay for future long-term care fees? How long will I need in order to pay for a care plan? These are questions that none of us like to dwell on too much when ourselves and our loved ones are in the prime of life. However, the impact of an aging population is becoming a more prominent issue as it becomes increasingly clear that provisions for care may not always be covered by our Government. In the future, demand for care will rise. Although there has been talk of overhauling current provisions for care, at present there are no definite plans. It’s therefore crucial that you begin planning now. With effective financial guidance, you can ensure that your plan delivers.

Demand for Care to Rise

We mentioned above that the demand for long term care is due to rise in the UK. There are several reasons for this. One is an aging population.  People are living longer than ever before. Life expectancy in the UK currently sits at 81 years. In 1950, just after the establishment of the NHS, life expectancy for males was 66 years old. As people grow older, the likelihood of developing chronic health issues rises.

According to the Alzheimer’s Disease International, there were around 46.8 million people living with dementia in 2015 worldwide. By the end of this year, this number is likely to be closer to 50 million. Experts believe that this number will continue double every 20 years.

In the UK alone, the cost of dementia is expected to hit £55 billion by 2040. In many places, care provision is means tested which means that you may not qualify for Government aid or may have to cover at least some of the costs on your own. With this in mind, it is important take financial guidance and make plans early to ensure that you and your loved ones receive the care they need when they need it.

How Care is Funded

There are several options available to those who have to fund care requirements. However, the path that you choose will be dependent on your individual circumstances. Of the routes below, only the last  two allow you to prepare in advance. By looking to your current investments and savings, you can ensure that future care is taken into consideration in advance of the worst happening.

Immediate Needs Annuities

This annuity provides a regular income in exchange for a lump sum, which is paid upfront. It is an insurance policy, which can be used to fund immediate long-term care costs. Provided this annuity is paid directly to your caregiver, it is given tax-free.

Enhanced Annuity

Your pension can be used to purchase an enhanced annuity if you have a long-term illness, if you’re overweight or if you smoke. Those who provide enhanced annuities will use full medical underwriting in order to provide an accurate assessment and price. Likely candidates for an enhanced annuity are those with long-term chronic illnesses such as MS and Parkinson’s or a person who has undergone a major organ transplant.

Equity Release Schemes

These schemes allow you to obtain a lump sum as a loan which is secured on your home. This lump sum can then be used to pay for care. However, you must have paid off or have nearly paid off your mortgage in order to be eligible. It is absolutely imperative that you seek professional financial guidance before this route is taken, in fact it is a regulatory requirement of the process.

The reason for this is because there are implications regarding local authority support, state benefits and taxation obligations. It is a big consideration, which does involve your home. Therefore, other avenues should be considered first.

Savings and Investments

These are the two methods that allow you to plan in advance. Here at AGL Wealth, we don’t just take your current financial position into consideration. We look to your lifetime cashflows to ensure that you meet your goals in the future; one of which may be a provision for care. If you are of working age, you are in a prime position to plan for future care needs as you still have time to accumulate the wealth required to facilitate care.

Your investment portfolio is your opportunity to provide another income, which can supplement you throughout your life. Our cash flow modelling software allows us to plan for many different eventualities, including serious illness. Should you be concerned about your ability to fund care for you or a loved one, you should speak to your financial advisor. This way, they are well informed of your portfolio goals and can take this into consideration.

When it comes to financial matters, many problems can be mitigated with good prior planning. Funding the cost of care is a concern that will affect many of us over the course of our lifetime, so it should always be considered when setting investment and savings goals. To obtain professional financial guidance, contact one of our wealth managers at aglwealth.com