It’s something that most people don’t really want to think about, but something your financial adviser will strongly suggest you take into consideration when building your retirement plan: long-term care.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
There are a number of ways to fund long-term care. Among them are good old-fashioned savings and investments, immediate needs annuity, or enhanced annuities if you have long standing medical issues. But the option we’d like to focus on for financially supporting long-term care is equity release (ER) schemes because it’s a viable option if you are close to or already have paid off your mortgage.
Equity Release Refresher
With life expectancy increasing, the rising cost of retirement, and climbing debts, equity release has become an increasingly popular way to generate income in retirement over the last few years. It’s an easy way to take advantage of some of the money you have tied up in your home without actually having to sell it.
There are two types of equity release products, both allowing you to stay in your home:
- Lifetime mortgages – a loan against your home that doesn’t need to be repaid until the end of the term (selling the property, death, or moving into a permanent care home)
- Home reversion plans – a portion (or the entirety) of your home is sold at less than market value for a lump sum
There are advantages and disadvantages to each type of equity release product so which one you pursue all depends on the goals you have for retirement.
It’s best to consult with a financial adviser before moving forward with either option. In fact, a reputable ER mortgage provider will most certainly be a member of the Equity Release Council which will require outside financial advice before finalising plans. An adviser will understand your individual circumstances and help you weigh your options before you make a final decision.
ER for Long-term Care
If you’re single or your partner has already passed, don’t plan to use equity release funds to pay for a care home (as the term is considered ended and repayment will be triggered). However, it is an option if both you and your spouse are still around as the loan wouldn’t need to be repaid until you are both in a care home or pass away.
You can use the funds procured from equity release to secure a high-quality in-home care provider, renovate or remodel your home to accommodate any changes required for your changing health, or a better care home in the event that you are using it to pay for you or your spouse’s ‘outside of home’ care.
There’s a lot to consider when deciding how to pay for long-term care.
How long will you need to provide care for? When will you be needing to pay for care? What kind of activities might you require assistance with? Will you need to outfit your home with anything special to be able to continue living in it for as long as possible? All these variables and more will play into your final decision.
Talk to your financial adviser
Before taking the plunge with equity release, be sure to discuss with your financial adviser all the options provided to you that could help you pay for long-term care and anything that might affect your financial situation such as state benefits, tax obligations, or local authority support.
Considering Equity Release?
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