How to build a care home savings pot

Talking about how to pay for care later in life isn’t always easy, which is why planning ahead is so important.

Whether it’s for yourself, a partner, or a parent, care home fees can become a major financial strain. Yet many people are caught unprepared, unsure how much to save, when to start, or what help might be available.

With the cost of residential care often running into thousands of pounds each month, creating a dedicated care fund is quickly becoming just as vital as planning for retirement.

Here are some tips on how to plan ahead with confidence…

Start planning earlier than you think

Early savings can enable you to select a care home that best suits your preferences and needs.

“If you’re in your mid 50s, start planning now,” advises Laurence Geller, CEO of elderly care provider Loveday & Co. “It’s important to start saving as soon as you can.

“This can be stressful because at the age of 50 or 55 many people have kids going to colleges and universities and want to help them financially, but after you’ve looked after them, you’ve got to look after you.”

Double your predicted costs

People often live longer than expected and healthcare expenses tend to rise significantly with age – so it’s wise to save more than you anticipate needing.

“Our financial advisers will always say double your projected costs, not because you have to necessarily double the time, but because health costs usually go up with the spectrum of age,” says Geller. “An age increase often means a cost increase, whether you’re in a luxury care home or in a regular care home. The NHS can only do so much.”

Put money aside as soon as you get paid

Setting aside funds immediately after payday can help you manage expenses and potentially avoid financial strain later on.

“Open a high-yield savings account that exists for care costs only and schedule a transfer on the day your paycheck lands,” recommends Kevin Marshall, certified public accountant and senior contributor at Amortization Calculator. “Even small automatic deposits enjoy compound interest over the years, and you are never tempted to spend the money elsewhere.”

Avoid investing money intended for future care costs into speculative ventures

Prioritise stable and dependable financial strategies for long-term care planning, rather than risky or speculative options, because you can’t predict when you might need that support.

“Start putting money aside into something interest bearing, you can’t be speculative,” advises Geller. “If you live to 100, you are going to need a load of dough.”

Remember to factor in inflation

Care home fees aren’t fixed and can escalate due to factors like inflation.

“A lot of people forget to factor in inflation when saving for future care home costs, but it makes a huge difference,” says Michael Foote, founder of UK-based comparison website Quote Goat, who has over 20 years of experience in the finance and insurance sectors. “What looks like a solid amount now might fall short in 10 or 15 years. You need to think about how prices could rise and make sure your savings or investments are growing at a rate that keeps up.

“This might mean choosing options that offer better long-term returns rather than just leaving money in cash. If you don’t account for inflation, you could end up with a big gap between what you’ve saved and what you’ll actually need.”

Consider a mix of financial strategies

To effectively plan for care home expenses, it might be worth considering talking to a financial adviser about a mix of financial strategies.

“Mix your approach the same way a gardener plants several crops,” suggests Marshall. “Retirement accounts, brokerage portfolios and even home equity can all support the final goal, while a separate emergency fund keeps short-term surprises from derailing progress.”

Sort out the paperwork

Choose your power of attorneys in advance and ensure your will is up to date and readily accessible.

“Financial preparation works best when paperwork matches the plan,” says Marshall. “Update wills, powers of attorney, and advance directives so assets move smoothly and decisions do not stall in a crisis. A clear legal road map saves money by saving time.”

Check what support you may be eligible for

To determine what financial support you might be eligible for to cover care home costs, you will need to have a care needs assessment from your local council.

According to Age UK’s website, the financial assessment considers your income and your capital to determine whether you qualify for help with care costs. If you do qualify, the assessment also calculates how much you may need to contribute toward the care services the council has identified you need.