The cost of care: how can you pay for long term care?

With average life expectancies becoming longer, more people are likely to need at least some level of care when they get older.

While for some, this will be provided by their families, others with more complex needs may need to move to a residential care home or nursing home.

But paying for this long-term care can be expensive – more so than many people think – meaning costs can catch people off-guard at a vulnerable time.

Start your trial of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up for MoneyWeek’s free twice-daily newsletter.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Sign up

How much does care cost?

While medical care is provided by the NHS and is free at the point of use, social care usually has to be paid by you.

According to the NHS, the typical hourly rate for home care – where a carer will visit your home regularly and help you with your everyday needs – is around £20, but average prices will change depending on where you live. A live-in carer costs from around £800 a week, but can cost up to £1,600 a week if you need a lot of care.

Residential care – where you move to a residential care home that offers accommodation and personal care to help you with everyday tasks – typically costs more than at-home care. Charity AgeUk says on average a place in a residential care home will cost £1,100 a week, while a place in a nursing home will cost around £1,450 a week. These costs are also highly dependent on where you live.

If you have a specific condition or disability, you may choose to live in a nursing home. These offer 24/7 medical care from qualified nurses. Some care homes offer both ordinary residential care and nursing care places, and nursing places tend to be more expensive.

How to pay for care

If you need care, it will likely be expensive as even the cost of at-home care quickly adds up especially if you live in an area with higher living costs.

The first step should be to estimate how much care will cost you. This calculator by Paying For Care can help you work out the price.

Once you know roughly how much care will cost you, you can start looking into how you can use your assets to help pay for it.

Renting out your home

For many people, the most expensive asset they own will be their home, and they will therefore look at how to use it to help pay for their care costs.

Sarah Coles, head of personal finance at AJ Bell, said: “There’s a good chance that many people will need to use the value of the family home to cover the cost. Some will try to rent it out – although this comes with risks and costs you need to think through carefully.”

Renting out your home will mean you have to deal with the responsibilities involved with being a landlord, which you may not be in a position to take on if you require residential care.

Some may be able to get help from family members to make this more viable, but you should consider this approach carefully first.

Selling your home

Some people going into care will choose to sell their homes to help pay for it. If you are considering this, there are a number of options available.

You may be able to set up a Deferred Payment Agreement with your local authority if you have savings of less than £23,250 and all your money is tied up in your property.

This is effectively a loan you take out with your council that pays for your care. The council gets their money back when your home is sold after you die. The benefit of this agreement is that it allows you to keep your home while you are still alive.

Check with your council to make sure you’re eligible for a deferred payment scheme.

Another option may be equity release, which allows homeowners over 55 to borrow money against the value of their home. The borrowed money is then paid upon death when the home is sold.

Alternatively, you may choose to sell your home while you are still alive and use the cash earned from the sale to pay for your care directly.

Use your pension, savings and investments

If you have enough money in your pension, savings or investments, then the most straightforward way to finance your care could be through using your existing assets.

You can use your savings to pay directly for your care, or you could consider buying an immediate needs annuity, in which you can pay a lump sum to a provider for a guaranteed monthly payment for life that can be used towards care fees.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “You can choose an annuity that rises with inflation or you can get a level income and arrange for any increases to be paid from other assets. Payments made directly to the care home are tax free and they can bring valuable peace of mind that at least part of a loved one’s care costs are covered.”

These may not be the right choice for everyone, however.

“It can be difficult for people to consider, because it involves a significant outlay upfront, but if you expect to need care for a considerable period, it can pay off,” says AJ Bell’s Coles.

How to prepare for care costs

As the cost of your care will likely be expensive, it can be a good idea to start planning how you’ll pay for it early.

Morrissey at Hargreaves Lansdown, said: “It can be very difficult to estimate how much you might need to pay in care fees, or for how long. That can cause real concern that, over time, your assets will be massively reduced.”

She says that this is why it can be useful to build a savings buffer to help give you more support to manage these expenses.

“If you have time on your side, regular investing over the long term gives your hard-earned money the best opportunity to grow and not only puts you in a stronger position if major costs arrive, but provides peace of mind too.”

Coles at AJ Bell adds that some people choose to ring-fence money in their pensions to pay for care.

“If you intend to do this, it’s worth using a pension calculator to see what your pot might be worth at retirement. You may need to increase your contributions so you can take the income you need, and still cover the cost of any care.

“If you take this approach, you run the risk that if you don’t need the money, there could be inheritance tax on any money left in your pension when you die. However, you may well decide that this is a better risk to take than not having the money available at all.”

Can you get assistance with care costs?

Some people can get assistance with the cost of care from their local council if their income and assets (excluding their home) fall below a certain level, but if your income and capital are worth over £23,250 you will have to entirely self-fund your care.

If your income and capital is less than £14,250 then you will qualify for the maximum funding from your council. This means that your assets won’t be able to fall below £14,250, but you will still need to contribute to costs from your weekly income.

Prime minister Andy Burnham has said he wants to reform the social care system and announced in September that launching a free and universal ‘National Care Service’ will be at the heart of Labour’s next election manifesto.

However, the next election is due in 2029 meaning that, unless the prime minister decides to call an early election, it will still be some time before a scheme like this is set up.