Reality or expectation? The cost of retirement care and how to bridge the gap

You might see your future retirement as a period of relaxation, where you have more opportunities to travel and fulfil lifelong dreams. In fact, this is likely something you’re actively planning and saving for.

However, if you need additional care in your later years, some of your plans might not come to fruition due to financial restrictions.

The costs associated with aging, particularly long-term care, can be unexpectedly high. If you’re not prepared for them, you might find that your retirement reality doesn’t quite match up to your expectations.

In fact, according to a report from Corporate Adviser, only 1 in 5 employees surveyed have considered the rising cost of care in their retirement plan.

What’s more, retirement is becoming more expensive on the whole, so even if you don’t end up needing care, it’s wise to be prepared.

Here’s what you need to know about the realities of retirement costs and long-term care, and how I can help you bridge the gap.

4 important factors affecting the cost of retirement and the care you might need

There are several factors that can add an additional burden to your finances in retirement. These could be exacerbated if you need to pay for care too.

Persistent inflation

The spending power of your money may decrease as the years go on, as inflation is likely to keep rising. The erosion of your purchasing power can pose a significant threat to your retirement savings.

As living costs rise, the value of any fixed income or savings you may have can diminish, making it increasingly challenging to cover essential expenses.

Longer life spans

Advancements in medicine and technology have led to improved living conditions and increased life expectancies. This is a positive development, but it can mean that you may need more savings than you initially thought.

For instance, you may live for five years longer than you expect, which would require an additional five years’ worth of savings to cover your lifestyle. What’s more, you may spend a few of these years in care, which means you might still need a plan to cover the costs.

Low pension contributions

If you were unable to contribute as much as you would have liked to your retirement savings when you were working, you may have less time now to boost your contributions.

Whether through financial constraints, a lack of awareness, or simply underestimating the amount you need, not preparing enough before retirement could affect your later years.

The rising cost of care

Which? notes that spending one week in a care home could cost you an average of £1,400, with prices having increased by more than 25% since 2021/2022.

Though your region and the type of care you access affects the average cost, the fact of the matter is that one year, or 52 weeks, could cost you £72,800.

According to the NHS, other services, such as home care, can cost anywhere from £15 to £30 an hour. Keep in mind that inflation will likely affect these costs, potentially increasing the hourly rates of private care over the years.

You will likely need to pay for this yourself, as your local council will work out your eligibility based on a financial assessment.

Boosting pension contributions and preparing for care costs now could help bridge the gap

Let’s tackle each of the above problems with a proactive approach, looking at ways to mitigate their effects.

Invest your money to fight persistent inflation

Boosting your retirement savings and building your investment portfolio could help mitigate the effects of inflation.

For example, you could consider increasing your pension contributions or opening a Stocks and Shares ISA, potentially helping your wealth to grow in time for when you retire.

According to Schroders, historically, equities have a higher chance of outpacing inflation than cash savings over the long term. So, when building your investment portfolio, you could consider assets that have historically outpaced inflation, such as equities or real estate. I can help you decide what strategy is going to work best for your unique financial situation.

Prepare for potential healthcare costs and protect your wealth

While you can’t always anticipate every little thing, staying on top of your health and wellbeing could better prepare you for potential healthcare costs down the road.

Fortunately, there are several actions you can take to stay ahead of the curve.

• Remain as active as possible and get outdoors as much as you can.
• Eat a balanced, nutritious diet to keep your body and mind well-fed.
• Address any health issues at the first sign by talking to your GP.
• Investigate private medical insurance for quick and efficient diagnostics and treatment.

In addition to these steps, you could look at protecting your wealth against the financial ramifications of illness and injury. I can help you with this – just get in touch.

Address any shortfalls in your savings

If you’ve fallen behind on your retirement savings, then it’s important to take action sooner rather than later.

This is something I can help you with. Together, we can develop a realistic budget that’s primed for savings, making it easier for you to hit your targets and handle any shortfalls.

From there, we can increase your savings and investments as much as possible. I can help you work out how much more you might need, and together we can explore alternate options if there is going to be a shortfall.

Access care through the NHS or your local council, if you can

It’s usually not possible to avoid paying for care if you own a home or have savings and investments. However, there are some free options to explore if you can.

You may be eligible for NHS funding if your needs are health-based. If you are eligible for NHS continuing healthcare, your care home placement will be free. This is not based on wealth but rather the type and amount of care you need.

You may also be eligible for benefits such as Attendance Allowance and Personal Independence Payment (PIP), which are not means-tested. You can use these to supplement the cost of your care.

Help secure your retirement by getting professional support

Navigating the intricacies of retirement planning may seem overwhelming but taking it one step at a time can help. More than that, with the right approach, you can potentially mitigate the financial challenges that could arise when you retire.

Here, getting help from a qualified financial planner may be constructive. I can help you assess your individual needs, develop a comprehensive retirement plan, and build a buffer into your finances to account for long-term care.

Get in touch

Knowing you’re prepared for retirement can provide a huge amount of peace of mind. So, email Marnel.Stafford@fosterdenovo.com or call 07305 970959 or 0207 469 2800 to find out more about how I can help you.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Pension savings are at risk of being eroded by inflation.

Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits.

Accessing pension benefits is not suitable for everyone. You should seek advice to understand your options at retirement.