In our second blog in this series we talked about giving away money, once you have estimated how much money you needed for the rest of your life. In this blog we look a little more at this, in particular considering healthcare costs.
To understand how much money we need for the rest of our lives is not easy. How long we will live for is unknown, but at least we can make some estimates based on current average life expectancy. Typically we would assume a longer-than-average life expectancy to be prudent (the longer you live the more money you should retain), to take account of the generally above-average healthy lifestyle our clients tend to enjoy, and of course the general trend of increasing life expectancy. We default to assuming clients live to age 100.
In terms of estimating costs, analysing where your money goes now, and how that might change over the years, is a good starting point. We use a detailed spreadsheet of costs broken down into various categories, but there are plenty of ‘budget planners’ and similar online that can help you kick off the process. How you might spend your money is a big discussion in itself, as we are always keen to ensure that clients prioritising the things that are really important to them, something which often requires a bit of thought and work.
What is really difficult to take account of is any care costs we might require in later life – in a home or at home. And it is worth noting here that we are assuming that you are accepting of, or want to, pay for care, and we are not considering ways of reducing assets so that the local council pays for care. That said, it is easy to become overly focussed on care costs and important that these are kept in context. To bring out this point, in a survey in 2016 by Laing and Buisson, 4% of the total population aged 65 years and over, rising to 15% of those aged 85 or more lived in care homes. Therefore, the majority of individuals do not go into a care home.*
And while the average cost of a care home is approaching £50,000 per annum in the UK, the sad reality is that that average stay in a care home is round 2.5 years (LSE study), albeit the study states that there is a “considerable tail of long stayers”.*
So, the likelihood of requiring care is relatively low, and the likely stay in care is short. Furthermore, as there is a push for care at home, this might be able to be provided by family, and in any event the cost of care at home is typically less than in a care home. That said, many a client has expressed to us that they “don’t want to be burden on the family” and so you may wish to allow for some care costs.
The message we want to get across is that healthcare costs are a possibility and, if you want to allow for these, we can take account of them. However, what you may not want to do is to dramatically alter how you live your life now based on the fear of something which has a relatively low probability.
At Carbon, we often cover this topic with our clients and look to provide reassurance that even if care is required, it is affordable. Furthermore, we look to strike a balance between this and other objectives, such as helping family out with gifts and having the confidence to do the things they love whilst fit and able.
In the fourth and final blog we talk more about how to balance Inheritance Tax planning and your required costs.
The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice. You are recommended to seek competent professional advice before taking any action. Tax and Estate Planning Services are not regulated by the Financial Conduct Authority.
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