How to prepare for future care costs

While long-term care is unlikely to be on your retirement bucket list, it’s wise to factor the cost of care into your financial plans. No one can tell whether they’ll need long-term care, but the latest figures show that most of us spend the later years of our life in poor health and/or with disabilities.

The latest Health Survey for England which looked at this question, published in 2022, found that around 30% of over-65s needed help with at least one daily living task. Among the over-80s, this figure rose to over 50%. “We’d encourage everyone to explore their care options,” says David Broome, Technical Advice Support Officer for Social Care at Age UK.

“Knowing what’s available, the support you might receive, and the costs, makes it easier for you and your loved ones if you do need care in the future.”

What's on this page: 

• What care might you need and how much does it cost?
• How to get help with the cost of care
• Planning for future costs
• Using your home to pay for care
• Annuities for care fees

What care might you need and how much does it cost?

Long-term care takes many different forms. While it’s common to think of a nursing or residential home, care can also be delivered in your own home by a professional carer, or more informally by a family member or friend.

The amount of care required can vary too. It could mean round-the-clock nursing care, but it could also be a daily visit to help you get up or a weekly trip to a local supermarket for your shopping.

It could even be part of a package offered through retirement or sheltered housing, where you can tap into support if it’s needed. As there are so many different types of care, and a large range of providers, costs can vary enormously.

The average residential care home in England costs £949 a week – equivalent to £49,348 a year, according to figures from health market analysts LaingBuisson. An average nursing home costs £1,267 a week, or £65,884 a year.

Age UK puts an average figure of £25 an hour on home care, but how much you’ll pay depends on the type of care, where you live and when you need it. Don’t think of home care as always the cheaper option: having live-in carers can easily set you back £100,000-plus a year.

• Read more about how much it costs for pay to care.

How to get help with the cost of care

To receive support for your care from your local authority, your assets will need to fall below the means test threshold. This is £23,250 in England and Northern Ireland; £35,000 in Scotland and £50,000 in Wales.

“Above these thresholds, you’ll have to foot the entire bill,” explains Sarah Coles, Head of Personal Finance at Hargreaves Lansdown. If you think you might qualify, contact your local authority. They’ll arrange a needs assessment, to determine care needs and the best way to support them, and a financial assessment, to assess eligibility for funding.

You can also claim Attendance Allowance, if you are over State Pension age and have care needs because of a physical or mental disability or a health condition. It isn’t means tested. You could get £72.65 or £108.55 a week, depending on the level of care that you are assessed as needing.

In Scotland, Attendance Allowance will become Pension Age Disability Payment from Spring 2025. It is paid at the same rates as Attendance Allowance. You should already apply for Pension Age Disability Payment rather than Attendance Allowance if you live in Aberdeen, Argyll and Bute, Highland, Orkney or Shetland.

The NHS might also help with care costs if you have complex health needs. In theory, NHS Continuing Healthcare (CHC) can cover all care costs. Broome encourages everyone with complex health needs to seek an assessment, but he adds that the threshold for being eligible for CHC is high and many people don’t get it.

Planning for future costs

While your future care costs can feel overwhelming, Amy Grace, Director and Chartered Financial Planner at Five Wealth, recommends treating the costs in the same way as more general retirement planning.

She uses cash flow modelling with her clients to forecast their future financial position and determine whether any additional planning is required. “Most people spend more in the early years of retirement on holidays and leisure activities, then when they slow down so does their spending,” she explains. “Where a client is concerned about care fees, I keep the expenditure level so we can see what’s available.”

Ammo Kambo, Senior Financial Planner at RBC Brewin Dolphin, offers an additional tip. “Once you’ve paid off your mortgage, you could put the amount you would have spent on mortgage repayments into a diversified investment portfolio,” he says.

“If you paid off your mortgage at 60 and invested £700 a month for five years, you could have a pot worth nearly £108,000 by the time you’re 80, assuming investment growth of 5% after charges. This could help pay for care.”

Using your home to pay for care

As it’s one of your largest assets, your home could be part of the care funding equation. Downsizing could release additional funds for future needs. Or you could consider equity release. Grace says equity release has fallen out of favour as interest rates have increased over the past few years, but it can still work well for some people.

“Equity release can provide an income stream or a lump sum, but it also enables you to stay in your own home,” she says. Where someone is moving to a care home, selling the home can often be the sensible option.

Some families may want to rent out the home to cover fees, but this can be risky, as rental income isn’t guaranteed and maintenance and repairs will also have to be considered.

Annuities for care fees

There are also financial products that could help with care fees. In exchange for a lump sum, a care fees annuity will pay a guaranteed amount to the care home or care provider, tax-free, for the rest of your life.

Each care fees annuity is individually underwritten, taking into account factors such as your age and health. This means they should be matched to life expectancy but, if you die prematurely, your estate could be out of pocket.

Need more help?

Age UK, Carers UK and PayingForCare are useful sources of information on everything from the types of care available to how to fund it. A financial adviser can help with any funding queries you might have. Members of the Society of Later Life Advisers (SOLLA) specialise in the financial needs of older people.

It may also be sensible to speak to a solicitor to make sure your life admin is up-to-date. Having a valid will and a lasting power of attorney (LPA) in place will ensure your wishes are followed if you do need care in the future.

• Find out more with our Four ways to plan for care.