Three tips for saving towards the cost of care

The award winning wealth management and investment experts Killik & Co have opened a new space on Devonshire Road – House of Killik Chiswick. The Chiswick Calendar is pleased to share their guest blogs on how best to plan and save to acquire the wealth to achieve your goals.

Killik & Co won “Best Discretionary / Advisory Wealth Manager’ in the 2023 FT Investors Chronicle Awards.”

Families usually know they should save to cover the cost of care in later life, but how much do you need to save and what else should you consider?

When we help families to factor the cost of care into their financial plans, their main questions are usually about how much it will cost and whether they have saved enough. These questions often go hand in hand with queries around estate planning as they seek to gift to loved ones or causes they care about and ensure their wishes will be recognised when they die.

While these can be helpful questions to ask, it is also critical to consider the tax implications of your plans – especially if you plan to transfer wealth before you go into care or leave an inheritance for your loved ones.

In this article, Phil Sole, Relationship Manager at House of Killik Chiswick, shares three key tips for saving towards the cost of care.

Know the average cost of care in the UK

The Money Advice Service estimated last year that a typical nursing home in the UK costs £45,000 per year, rising to more like £65–75,000 per year in the south of England. Their research also found that 25% of those who need it will stay in nursing care for an average of 3.5 years, with residential (non-nursing) stays for that same top quartile averaging 4.25 years. In addition, 24-hour care at home costs over £50,000 per year on average. What this means is that any family saving to cover the cost of care could be looking at a total bill of around £200 – 300,000 per person, to be paid from net income (i.e., income after tax), regardless of whether they pay tax at the basic, higher or additional rate.

Understand the amount you will need to contribute

Another important consideration is how much of this cost you will need to cover yourself and how much help you can count on from your family. If your existing home will be unsuitable as you age, your budget will need to factor in moving costs, and you will need to identify the best time to move. You may also need to sell your home or other assets to make up any shortfall. While the State offers some support for the cost of care, this is usually for those with no other alternative, while local authorities may also provide support if your assets total less than £23,250 (in England). With this in mind, starting conversations with family and friends early is essential to understand how you will fund the cost of care and ensure there are no surprises.

Consider the impact of tax on your plans

Each family member requiring care should ensure they have a plan for managing their estate by drawing up wills and lasting powers of attorney so their wishes will be honoured in the event they lose the capacity to make decisions, or upon death. A comprehensive financial plan is especially important for those considering downsizing or transferring wealth, as the amount of Inheritance Tax (IHT) due on their estate may result in less money being passed to loved ones. While gifting can form part of an effective strategy for mitigating IHT, this only applies if you survive for seven years after making the gift. In addition, some older pensions are not as tax efficient as newer types like Self-Invested Personal Pensions (SIPPs) and could be considered as part of the estate upon death. Understanding how your assets would be treated upon death could impact how you view these assets during your lifetime and their usefulness in meeting the costs of long-term care.

More ways we can help with saving towards the cost of care

Saving towards the cost of care requires careful consideration, which is often due to the complexity of estate and tax planning. Seeking financial advice can be particularly helpful for families who would like to ensure they can afford to cover this cost and any other significant expenses. In addition, our clients often share that they gain greater peace of mind when we use Lifetime Cashflow Forecasting to model different financial scenarios for them so we can assess whether they will have sufficient funds to meet their goals and identify areas where there may be shortfalls.

Whether you are seeking assistance with understanding how much you will need to save towards the cost of care, transferring wealth to the next generation or ensuring your finances are arranged in a tax-efficient way, we have a team of experts, that are specialised in a broad range of financial areas, including investment management, wealth planning, tax, trusts, wills, lasting power of attorney and more.

To learn more about how we can help you to save, plan and invest for your family, please come and speak to Phil at House of Killik Chiswick on Devonshire Road or email chiswick@killik.com. The first initial meeting would be complimentary.

Please be aware that as with all investments, your capital is at risk and you may not receive back the same amount that you invest. Please note that tax treatments depend on personal circumstances and the rules may be subject to future change.

If you have any questions about this article, or wish to discuss your financial circumstances, please do not hesitate to contact Relationship Manager, Phil Sole and House & Community Coordinator, Emma Walker.

We welcome all Chiswick residents to House of Killik, no appointment necessary.  Pop in for a chat and a coffee at 13 Devonshire Road – we look forward to meeting you soon.