Inflation means retirees could face an £85,000 shortfall if they need care

Published on February 8, 2023 by Blackstone

Soaring costs could mean that retirees face a shortfall if they haven’t considered the impact of inflation when planning for retirement. One of the areas you may have overlooked is how the cost of care has changed.

While needing care or support later in life can be difficult to think about, doing so can mean you’re more secure if it’s needed.

The number of people living in care homes or specialist retirement housing is relatively low. According to the charity MHA, around 4% of people aged 65 years or over live in care homes. This rises to 15% among those aged over 85. However, as life expectancy rises, it’s expected that more people will need some form of care in their later years.

So, planning for care may seem like something you can put off. Yet, if you do, it could mean you don’t receive the type of care you’d prefer. In many cases, people will need to pay for at least a proportion of their care costs, so ensuring it’s something you’ve thought about is important.

Retirees may need to save up to £470,000 to provide security in retirement

According to analysis from Quilter, inflation means workers need to save an extra £85,000 to ensure they have enough to cover a potential care home bill compared to five years ago.

To secure a comfortable lifestyle, according to the Pension and Lifetime Savings Association’s (PLSA) Retirement Living Standards, a single person would need to build up a pension of around £360,000, in addition to the State Pension. However, if care is needed, this rises to almost £440,000 for residential care and £470,000 if nursing care is required.

It could mean you need to reassess how much you’re saving for retirement.

Even if you remain living independently in your later years, your costs may rise. You may need to pay a one-off cost to adapt your home if your mobility declines. Or you could benefit from support in your home, such as someone preparing meals or helping with household chores.

3 useful questions to consider when you start making a care plan

If you haven’t put a care plan in place yet, these three questions could be a good starting point.

1. What are your care preferences?

Setting out what you’d like to happen if you need care can be difficult. However, it could help ensure that your wishes are followed if you’re not able to make decisions yourself. It could include things like remaining in your own home for as long as possible or choosing a care home that is close to your family.

Discussing your wishes with your loved ones can be useful. You may also want to note your preferences when making a health and welfare Lasting Power of Attorney, which would give someone you trust the ability to make decisions on your behalf if you lost mental capacity.

2. Are you saving enough if care is needed?

Take some time to review your pension pot and how it’s expected to grow between now and retirement. You should review if you’re saving enough to fund the retirement lifestyle you want and how the potential cost of care could change it.

Keep in mind that inflation could affect the potential costs for your retirement lifestyle and care. 

3. How could you make the most of your savings?

If you plan to start setting money aside to ensure you could pay a care bill if it’s needed, don’t forget to consider how to get the most out of your savings.

Does adding more to your pension make sense, or would a savings account be appropriate? The answer will depend on your circumstances, so it’s important to consider what’s right for you.

Creating a plan for your care fund if it’s not used

As well as preparing for a potential care home bill, you should consider what you’d like to happen to your savings if they aren’t used.

You should consider who you’d like to benefit from your estate, including any money you’ve set aside to pay for care. Depending on your circumstances, this could include writing a will, placing assets in a trust, and considering whether your estate could be liable for Inheritance Tax.

We’re here to help you understand how you could pass on your assets to your loved ones.

Contact us to talk about your retirement and care plan

If you have any questions about whether you’re saving enough for retirement and the steps you can take to improve your long-term financial security, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.

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. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts. 

The Financial Conduct Authority does not regulate wills, Power of Attorney, tax planning, or estate planning.