How much to spend/ how much to keep in case of care costs?

Newly_retired

Following the interesting thread on how much to live on in retirement, I am thinking about the next stage. Retired already for 14 years and with a comfortable but not lavish pension income, we would only dip into savings for major expenditure, either in emergency or by choice, eg private medical treatment. We are currently looking at private dental treatment, as there seems no chance of getting an appointment with our NHS dentist. I actually find it quite hard to spend money. It has taken me a few years to stop being frugal.

Everything is relative, I know, but we have a decent amount of savings, around £180k,  partly thanks to inheritance, partly to higher earnings in my later working years( plus my ability to save, not spend). 

It has always been my plan to pass on what I inherited from my parents to my two adult children and so far I have given them about half of that. I am now wondering whether to give them the rest, rather than them having to wait till I die. One of them could do with the money towards a house extension project, and I would give the other one the same amount. At this point I am pausing to think about any future care needs. I am in good health and may never need to pay for care, who knows? If I do, it may not be for another fifteen years or so. Or I could have a stroke tomorrow and need care. Anything I give away now still leaves me with a decent amount, such that I hardly think it could be seen as deprivation of capital, which is not my intention. However, I guess that whatever amount I have in savings may run out if I need to pay for care ( unless a better system is found by then). 

So I am wondering what is an appropriate amount to keep back? 

tacpot12

I agree it's a difficult question. Care is very expensive, and is not going to get cheaper, although I agree that alternative ways of funding it might be introduced. If you own you own home, I don't see the issue with relying on that to cover the excess cost of care - you will still have your existing pension income to also pay for care; add your house into the mix and you probably have enough to pay for a very good level of care already. The only reason to keep more money for care is to allow the first person in a couple to move into care without having to sell the home that they both occupy, but Equity Release would allow the same to happen so I would tend think you are ok to give away what you regard as 'excess' and rely on Equity Release if you ever need money for care. 

Keep_pedalling

You would be extremely foolish to do this. The main purpose of building up a nice savings pot for your latter years is to provide security and cover any costs that may come along, whether that be a new boiler, new roof or to provide choice if you you unfortunately need care. If you do ever need care giving away your entire savings would undoubtedly be treated as deprivation of assets.

I have seen far too many people who end their days asset rich and cash poor, living in a house they can’t afford to maintain. They spend their last years living in poverty in an unsuitable house which their children end up selling and use the proceeds to fund a nicer lifestyle than their parents ever had.

Like you we have gifted our children substantial sums, but we have kept plenty back for our own needs.

blue.peter

As you say, ill-health can hit anyone at any time.

Care is hugely expensive: my mother is in a private care home, and it costs her about £6,500/month. (The charge is actually calculated on a daily rate, so the monthly amount varies a bit with the length of the month.) As you might expect, it increases year-on-year. You haven't said what your monthly income is, though you've described it as "comfortable but not lavish". Could you afford to pay charges of that sort of amount? Possibly for many years? £180,000 sounds a lot, but divide that by £6,500 and it would only last 27 months. That's not a long time in context. Obviously, your pension would stretch that a bit.

You've referred to "we", so I take it that you have a spouse or domestic partner. Where would they live if you're in care? They'll need some (most?) of your joint income to live on, so it wouldn't all be available to pay for your care. Presumably you couldn't sell your home in these circumstances, but maybe you could raise some capital by equity release. Would that generate enough? (I've assumed that you own your home. If not, this option won't be available to you.) Similarly, if your OH has to go into care, where and how would you live?

I won't go as far as to say that "You would be extremely foolish" to give away your capital, but I do think that you should consider things very carefully indeed before doing anything like this. Perhaps you might find it helpful to discuss the subject with your family?

Newly_retired

I wrote a reply then found I had been logged out. Grr.
I may have misled you into thinking I was planning to give away my entire savings? No way! But it would give me great satisfaction to know that, whatever happens to me, my children will benefit from their grandparents ‘ prudence, even if I discount inflation or interest. No everyone is in a position to save for care costs, and there are so many unknowns. Even £180k might not last long, so the amount is arbitrary, and far more than many have, far less than others. Our house is owned as tenants in common, as we both have adult children from former marriages, which complicates things.
if I hadn’t mentioned giving money to children, the question of how much is reasonable to keep in savings, rather than spend, still remains. I could spend money on a new car or building an extension and I doubt I would be advised that  would be foolish.

Langtang

We have just gone through something similar with my in-laws. My MIL spent her last 20 months (apparently, the average time spent in care is 2 years) in a care home, fully funded from savings. Sadly, they both passed away in the same week in August  last year. 

@blue.peter is correct, you can go through a lot of money in very little time at all. 

My FIL had always worked hard, and saved hard. Found it very hard to change from saver to spender (he only got rid of his 22 year old Volvo a couple of years ago. The new car sat in the drive his last 20 months, with only a couple 000 miles on it. He wanted to do the right thing by his wife of 40+ years (which he did), but was shocked to see money flying out of the bank account each month. 

I guess if you have a paid up house, that could be used to help pay care fees. If it is only the balance of your inheritance that you’re thinking of giving away, I guess that would be ok. Obviously, it would depend on how much of the £180k it would make up. 

My wife and I are both only children, so when those estates were settled, it was pretty straightforward.  You read so many threads on these forums about squabbling families when estates are being read out.  My FIL had the right attitude - “doesn’t bother me, I’ll be dead”!

We now have the task (albeit a good one) of deciding what to do, going forward. We have no dependants, an except a little going to charity no-one to leave anything to. What to do, what to do. I would feel bad frittering the money away, knowing how it came to be, but at the same time knowing that spend we must. 

One thing I’ve taken from watching my, once healthy and bubbly with a wonderful life ahead of her, MIL languishing in care is that you really do have to live for the now (whilst keeping one eye on the, not promised, future)

Carpe Diem, as they say. 

Keep_pedalling

Newly_retired said:

I wrote a reply then found I had been logged out. Grr.
I may have misled you into thinking I was planning to give away my entire savings? No way! But it would give me great satisfaction to know that, whatever happens to me, my children will benefit from their grandparents ‘ prudence, even if I discount inflation or interest. No everyone is in a position to save for care costs, and there are so many unknowns. Even £180k might not last long, so the amount is arbitrary, and far more than many have, far less than others. Our house is owned as tenants in common, as we both have adult children from former marriages, which complicates things.
if I hadn’t mentioned giving money to children, the question of how much is reasonable to keep in savings, rather than spend, still remains. I could spend money on a new car or building an extension and I doubt I would be advised that  would be foolish.

Sorry, I did miss read your opening post as you were giving all your savings away, hence my response. How much to give a way is a tricky balancing act unless you are doing it for IHT purposes. 

203846930

I have given no thought at all about going into care, if it happens then I will be beyond caring anyway.
I have no-one to leave any money to and likewise, no-one to worry about how good a care home I end up in so there is no worry about any bills that might arise, I am going to be a burden on the state.
I plan to spend all of my savings and the equity in the house long before I get commited into care.

Keep_pedalling

duncanthedog said:

I have given no thought at all about going into care, if it happens then I will be beyond caring anyway.
I have no-one to leave any money to and likewise, no-one to worry about how good a care home I end up in so there is no worry about any bills that might arise, I am going to be a burden on the state.
I plan to spend all of my savings and the equity in the house long before I get commited into care.

Interesting plan, but I see 3 major snags.

1. there are a few reasons people end up in care and dementia is only one of them. I think if you end up in care with your mental faculties in place you will not be beyond care.

2. It is impossible to obtain the entire equity in your home without selling it and moving out.

3. without knowing the date of your death you run the risk of dying early and your plan fails. Or live too long and spend many years with zero savings.

203846930

Keep_pedalling said:

duncanthedog said:

I have given no thought at all about going into care, if it happens then I will be beyond caring anyway.
I have no-one to leave any money to and likewise, no-one to worry about how good a care home I end up in so there is no worry about any bills that might arise, I am going to be a burden on the state.
I plan to spend all of my savings and the equity in the house long before I get commited into care.

Interesting plan, but I see 3 major snags.

1. there are a few reasons people end up in care and dementia is only one of them. I think if you end up in care with your mental faculties in place you will not be beyond care.

2. It is impossible to obtain the entire equity in your home without selling it and moving out.

3. without knowing the date of your death you run the risk of dying early and your plan fails. Or live too long and spend many years with zero savings.

Oh brother have you missed the meaning of the points in my post!
1. nothing was said about dementia, I said that I would be beyond caring meaning that I would not care.
2. nothing was said about the entire eqity in my home just 'the equity' meaning what I could release.
3. I spent most of the first 40 years of my lif without savings so what does it matter if I have no savings at the end of my life no matter for how long, I'll still have my state pension which will be 3 time the amount of income I have right now, everyone runs the risk of dying early, I just plan to leave nothing when I go.

DairyQueen

Newly_retired said:

It has always been my plan to pass on what I inherited from my parents to my two adult children and so far I have given them about half of that. I am now wondering whether to give them the rest, rather than them having to wait till I die.

... At this point I am pausing to think about any future care needs. I am in good health and may never need to pay for care, who knows? If I do, it may not be for another fifteen years or so. Or I could have a stroke tomorrow and need care. Anything I give away now still leaves me with a decent amount, such that I hardly think it could be seen as deprivation of capital, which is not my intention. However, I guess that whatever amount I have in savings may run out if I need to pay for care ( unless a better system is found by then). 

So I am wondering what is an appropriate amount to keep back? 

Our situation is similar but we are probably a little younger (early 60s). Mr DQ inherited a reasonable sum from his parents and he has two adult daughters from a previous marriage. I have no children but have young nephews (< 18). My parents are both living and could require care (so no inheritance assumed).

Mr DQ provided well for his children and both have received reasonable sums (undergrad, post grad, house deposits, wedding gifts). They are both settled and in good careers. As the future is unknown, and unless they are in real need, we are not planning to pass any more cash to them during our lifetimes. No grandchildren yet but we will likely gift should they come along.

Mother-in-law was a self-funded, care-home resident for her final two years. The house was sold in order to fund the difference between the £52k p.a cost and her pension income. MiL's stay in care was of average duration but my cousin's MiL was in a care home for 12 years. Sadly, the majority of care home residents are female and widowed.

We have assumed that we would need to fund in the region of £30k+ p.a. from assets if either of us needed care. Should we exhaust other assets then our fall-back is house equity but this assumes that only the survivor would require care after the first of us dies. If the spouse is still living then the house is ring-fenced and the cost must be borne from other sources. This would be concurrent with a division of household income between the care-home resident and the spouse living at the family home. Sadly, dementia is the most likely reason for this scenario. 

We have taken the view that we would need approximately £150k above pension income to fund five years of care. We have therefore ring-fenced that sum within pension-wrappers. I have left 50% of my share of the house to my stepdaughters to ensure they receive a reasonable chunk of their grandparents' estate should I be the survivor, and should it not be required to fund care.

Bottom line is that we need to make sure that we do not outlive our money and that we protect ourselves against an unknown future. For us, this means not being at the mercy of the state in extreme old age, and retaining independence for as long as possible. That may require a heap of money. If so, the kids will inherit less (maybe much less) but that's the luck of the draw.

Our worst case scenario is that we could gift too much and one of us mirrors my cousin's MiL's experience. 12 years of care would be pushing £720k and around half of that would need to be funded from capital.

Scary thought.