Investing lump sum for care home fees

SmilingAlbert

Hi guys,

Wonder if anyone can help with a problem we’ve got. My mother-in-law is in a care home, and my father-in-law is following on soon.

We need to sell their house to pay the vast fees. The money won’t last that long, but we obviously want the cash to last as long as possible to give them a degree of freedom in their final years and to ensure they don’t get dependent on the state, get to choose their care home, etc.

So… the question is: what is the best strategy for generating income from the lump sum, in a reasonably safe way? My guess it will be a combination of ultra safe/low yield investments and slightly more adventurous ideas, so all ideas gratefully received.

Obviously we can afford to lock away at least some of the lump sum in order to get the best returns. We're talking about around £400k or so.

Best wishes,

bigadaj

Probably need an idea of fees to work back from. At £1000 a week that sum would last eight years for example.

You can look at purchased life annuities but they almost certainly would t yield enough to cover the fees in full.

It's a fairly short time period to go into equities, and capital would need to be drawn in, you could theoretically put some into equities and some into cash to try and get higher returns but it's fairly risky.

Splitting the sum into four or five would allow the sums to be under the Fscs limit, and look at different fixed terms, though you're still struggling to get 3% on even the longer fixed terms.

xylophone

You have Power of Attorney?

I am assuming that the money from the sale of the house is not the only source of income for your parents in law? (They have pension/investment income/ perhaps AA ( which is still payable to those who are self funding), and (every little helps) winter fuel allowance ( available at a reduced rate to those pensioners in care homes who are not in receipt of pension credit).

The pensions are index linked?

You need to look how much is available from the above sources and then calculate the shortfall.

You might want to keep enough money on short term deposit to cover two years' fees after having taken other income into account.

I am acquainted with an individual ( relative of a relative) whose care home fees are approximately £900 a week after the latest increase for inflation. Pensions etc cover about two thirds of this so the income from the house sale has to cover the rest.

A portion of the house sale proceeds was placed on deposit as above (cash isa, building society, NSSR income bonds), and the rest in funds/shares - the stocks and shares isa allowance was used.

In the case of shares, a portfolio of steady dividend payers was chosen and in the case of funds, a mixed portfolio of bond funds and equity income funds which offer some capital growth as well as income.

As I understand it, some zero dividend preference shares might be added to the mix with a view to utilising the CGT allowance.

You could look at the immediate needs annuity route - in my acquaintance's case I understand that this was investigated and rejected.

http://www.sharingpensions.co.uk/annuity_immediate_needs.htm

Would you wish to consult an IFA? http://www.unbiased.co.uk/

Biggles

Definitely examine the Immediate Care Needs Annuity route. You will certainly need to go via an IFA for this, who will be able to get the best price from the small number of companies offering them; they vary surprising wildly in their prices.

It does have the advantage that the pressure is then off the Attorney, as the fees are then paid indefinitely, ie there is no possibility of you running out of funds.

le_loup

Very much agree with the Biggles route. It removes all worry about the future.

SmilingAlbert

Many thanks guys - appreciated. Any other ideas out there please?

bigadaj

Not really, speak to an ifa about the lifetime care annuity. My concern with this was that annuity rates are low, but given the probable ages then they might cover the fees with contribution form pensions as well. It looks as though security and quality if care are the primary considerations and this route is the one that solve so that problem. It may well work out to be relatively expensive, patticulalry when looked on in hindsight, but meets your main criteria.

atush

I would go back and look at things via xylo's post.

It could be, with all their current income taken into acct, you would not need to buy an immediate care needs annuity with the entire 400K, you might only have to spend 200K or so? And invest the rest?

The pensions will certainly stop on at the very least the second death (possibly the first), and if one dies there will also be lower costs- will they be in the same home sharing a room? Or two separate rooms?

So spending all the money from the house sale, on a care annuity that may pay out only a short time or pay out more than is actually needed is also not always a good idea?

bigadaj

atush wrote: »

I would go back and look at things via xylo's post.

It could be, with all their current income taken into acct, you would not need to buy an immediate care needs annuity with the entire 400K, you might only have to spend 200K or so? And invest the rest?

The pensions will certainly stop on at the very least the second death (possibly the first), and if one dies there will also be lower costs- will they be in the same home sharing a room? Or two separate rooms?

So spending all the money from the house sale, on a care annuity that may pay out only a short time or pay out more than is actually needed is also not always a good idea?

Take your point but to me the primary thing is to buy the necessary care at a good standard with no risk of running out of money, which might mean disruptive change.

In absolute cash terms the annuity purchase would appear to offer poor value, in all probability, but the level of certainty it offers is almost priceless. If it can be purchased without using all the cash then all well and good, my initial concerns were that it wouldn't actually generate enough for the care needs. With a bit more thought I can see that without being indelicate the life expectancy of someone in a care home isn't as long as would be the case for normal annuities. In investment terms the annuity would look like poor value but in these circumstances I'd say that was of low priority.

The OP needs to research likely costs and annuity levels to determine the best course of action really.

Biggles

bigadaj wrote: »

With a bit more thought I can see that without being indelicate the life expectancy of someone in a care home isn't as long as would be the case for normal annuities. In investment terms the annuity would look like poor value but in these circumstances I'd say that was of low priority.

This type of annuity is only offered after a full medical report, and takes into account likely life expectancy, which is why the rates are much better than, say, a retiree. And, as they are paid direct to the care home, the benefits are free of tax.

SmilingAlbert

Thanks to all.


Let's assume the total care home costs are £50k each


They will probably be in 2 different homes (one has greater needs than other).


So £100k a year. Total pension etc. income is £48k a year or so. Don't know whether man's pension goes to woman if he dies first, or 50% etc. Need to check this.


Never going to get a £400k annuity that pays out that much I reckon, so a combination is going to be needed.


Tricky: as my dad once sagely observed, the trouble with dying is that you never know when it's going to happen and it makes planning tricky...


Albert