There are a couple of things you need to take into consideration while researching long-term care options, including what to do with your home and how to guarantee income during retirement.
Consider Equity Release
If you’re property rich but cash poor and want to stay in your own home, you could consider Equity Release. This is achieved one of two ways, either by mortgaging your home with a lifetime mortgage or by selling your home to a home reversion company.
This latter option is something I’d never ever suggest, not least because you’ll get so much less than the market value of your home, it just doesn’t seem to make sense to me. A lifetime mortgage can be pretty flexible these days, and rates are usually fixed, or at least capped.
You can take out a lump sum, or smaller regular amounts. You can port from one company to another and you have the right to live in the property until you either die or move into full-time, permanent residential care. You can choose to pay the interest while you’re able, so that the debt doesn’t get any bigger, or you can let the interest roll up.
There are always implications though. While a lifetime mortgage is portable, the mortgage company could veto any move if they don’t feel the new property is suitable for a mortgage. Your home is no longer fully your own – it is mortgaged after all – and so you’ll need to bear that in mind.
Equity release should always be a last resort. Definitely consider alternatives such as downsizing to release money, or moving in with family. But it might serve a purpose; it’s a possible string to your planning bow should the need arise.
Consider Immediate Needs Annuities
There is a product called an immediate needs annuity (sometimes called a care funding plan) which, though only offered by two or three providers at last count, might serve a purpose in providing for care costs.
They work similarly to a conventional annuity – you hand over a lump sum to an insurance company in return for an income for life. There are some options you can choose which might help you to tailor such a plan to your specific circumstances.
For example, you can choose to defer the start of such a plan which would reduce the lump sum needed to pay for it. So, you might decide you can pay your own care fees for three years, but after that you’d like it to be looked after by a plan. Essentially, you’re paying in advance, but as you’re likely to be drawing the plan down for less time, it can work out more favourable.
You can choose for the benefits to be indexed, that is, to rise each year, so that they will hopefully keep pace with the rising cost of care. You could also talk to your care provider and see if they will agree to fix any future rises in costs to match that of your care funding plan. After all, they know the money is guaranteed to come in, so maybe they’ll give a bit in return.
If your care funding plan income is paid directly to the care provider, as long as the provider is registered, then the benefits from the plan are tax-free. However, you can’t set one of those up and have it paid to your family member who’s caring for you; it’s got to be a registered care provider.
And you can often build in a death benefit. After all, the biggest issue with most annuities is that you hand over a big wedge of cash and you might not live long enough to get enough income back out to make it a good deal. Building in a death benefit will cost you, but may also provide some more back when the time finally comes.
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