Recent research suggests that nearly 7 out of 10 parents gifting over £5,000 to their children don’t factor in the cost of their own later-life care when deciding if they can afford to help.
While it is only natural for a parent to want to help their child, it is also important to ensure that it doesn’t detrimentally impact you financially, either now or in the future.
Keep reading for your guide to supporting your children without risking your own standard of living.
The cost of care can vary greatly
Not only will the cost of care depend on your individual needs, but it can also change depending on where you are in the country.
There are three main types of care you’ll need to consider when budgeting for retirement – and before deciding whether or not you can help to support the next generation.
- Independent living or home care
- Assisted living or sheltered accommodation
- A care home or nursing home
If you are well enough to remain in your own home, you might pay between £20 and £30 an hour for domiciliary care. You’ll have the benefit of remaining in your own home and you might have family and friends locally who can support you too.
Depending on the nature of your illness you might have to adapt your home. You’ll need to weigh up the potential cost of this against the number of years you might remain independent.
At the other end of the scale, if you are no longer able to live independently and require residential care, Which? confirms that in 2019/20, the average UK cost for this was £672 a week, or just short of £35,000 a year.
You could expect to pay more than this if you are receiving full-time nursing care.
Factoring care costs into your long-term financial plan
You’ll need to think very carefully about your prospective income streams in retirement. You’ll likely have your State Pension, plus occupational and personal pensions.
You might also have savings and investments. These can provide a great security blanket when you are choosing your retirement options, but you might also consider the benefit of using non-pension income to fund your retirement while leaving your pensions until last.
Finally, you’ll need to consider the value of the property you hold.
The retirement plan we put in place for you will take a holistic look at all of these income streams as well as your potential outgoings, now and in the future.
By understanding your retirement goals, we will help you to live your dream retirement while leaving money aside to protect you against the unexpected, including the need for later-life care. We can also help you plan your inheritance, whether your pass on wealth during your lifetime or on death.
The effects of the pandemic, however, might have left your loved ones struggling financially now. Here are some ways you might help them.
How to access the money you need
1. Savings and investments
Once you’ve factored in the potential costs of later-life care into your retirement plan the best way to help your child should be clearer. It’s important to remember that there is no one right answer and the best approach will be different for everyone.
Accessing savings and investments is likely to be one of the easier ways to help a child if you have disposable – and easily accessible – cash. With interest rates low, cash savings will be effectively losing value in real terms against inflation. Putting these funds to more immediate use might be a great option – just ensure your emergency fund remains intact.
Releasing money from savings and investments could result in surrender charges or have tax implications, so speak to us before you decide to withdraw a large amount of savings.
2. Use your pension
You can access pension funds from age 55 (rising to 57 from 2028) and taking a lump sum could be one way to help a struggling loved one.
Remember, though, that your pension is designed to last you for the rest of your life and could help to pay for your future care. Decisions involving your pension shouldn’t be taken lightly. There could be long-term repercussions as well as immediate tax implications.
Depending on how you access your income you could trigger the Money Purchase Annual Allowance (MPAA), for example, limiting the value of future pension contributions you can make. Also, remember that unused pensions can be passed to the next generation tax-efficiently in some circumstances.
Take a look at the true cost of retiring early? – and why you might choose not to, for more information.
3. Use your property
With house prices high currently, your property could be the largest asset you hold. Downsizing can free up immediate funds but is a huge step if not already part of your retirement plans.
If you are over the age of 55, you might consider releasing the equity in your home through either a lifetime mortgage or a home reversion plan.
There are pros and cons to each, but you’ll need to remember that the mortgage debt and interest you accumulate via a lifetime mortgage will be subtracted from your estate when you die or enter long-term care.
This is something you’ll need to factor into your decision. Also, be aware that equity release reduces the value of your estate and can affect your eligibility for means-tested benefits.
Get in touch
If your children are struggling financially, it is only right that you will want to help them. You’ll need to be sure that you can do so without detrimentally impacting your standard of living and we can help with this.
Please contact us to find out how our Chartered Financial Planners can work with you to find the best and most tax-efficient way for you to support the ones you love.
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it. Equity Release will reduce the value of your estate and can affect your eligibility for means-tested benefits.
