We have recently sold our mother’s flat as she is now in a care home. We have around £100,000 to invest and we want to get the most income we can out of it, to help pay for her care fees. What should we do?
BS, via email
Care costs in the UK have soared, and the average nursing home fees are now £1,000 a week for those not receiving government help, figures from analyst LaingBuisson show.
Care fees vary, depending on the area you live in and the level of care needed, but it is very unlikely that this £100,000 will provide enough income to pay for all the costs of your mother’s care home. She will likely be receiving a state pension and may have some private pension or other income to help pay for care, but you may still have a shortfall that needs to be plugged.
There are three main options for funding for care fees, and they can be combined: living off capital, investing for income, and buying an insurance policy.
Alistair Cunningham, of Wingate Financial Planning, a financial adviser, said that it is common for the family home to be sold to free up capital for care.
With inflation having risen in recent months, and currently sitting at 2.6pc, any money left in a cash account will see the spending power eroded by inflation. This is compounded by interest rates on cash accounts being close to zero.
“If the funds are left in cash it can be assumed that the capital will erode accordingly. For example, if an additional £10,000 per year is needed for care costs, and the capital raised is £100,000 from the sale of the home, the capital will run out in around 10 years,” he said.
Investing can help to boost returns, he said.
“By investing the funds, it may be possible to slow the rate of erosion, but we commonly find that the returns are not sufficient to be sustainable indefinitely.
“In the example above it is not realistic to achieve 10pc per year total growth over the longer-term and all that might be achieved is that the capital lasts for, say, 15 years instead of 10. The problem here is that if things went wrong, due to a market crash, for example, a worse outcome may have been achieved than simply living off the cash,” he said.
The final option, an “immediate care annuity”, provides more certainty, said Mr Cunningham.
“You can give some or all of the capital to an insurance company which agrees to bear the risk of funding an income for life. This is essentially an annuity, but if paid to a qualifying care home would be tax-free.
“The main downside is that if the donor does not live long enough the estate effectively suffers a ‘loss’ over one of the two options above, but the downside of such a loss is, in my view, far less significant than the risk above of running out of funds, and needing to leave care,” he said.
The rates you will get depends on the individual’s circumstances – their age, health and life expectancy.
“Rates can be highly variable as each plan is underwritten individually, but where we use these most, for widows in their 90s, rates are often 20pc to 30pc; using the example above an income could realistically be secured of £10,000 for a cost of around £35,000 to £40,000,” he said.
Mr Cunningham also warned that those in care need to prepare for fee rises every year: “Care fees have tended to increase faster than inflation, and furthermore an individual’s needs can increase further still if their health deteriorates and then dependency (and therefore cost of care) goes up.”
This Article Was Originally From *This Site*
Powered by WPeMatico