Posted on: 24 December, 2017

Retirement conversations - considering the cost benefits

by Dr Stephen Ladyman

Most people think about retirement during their careers but we know that many fail to properly prepare themselves for the changes to come, including the financial impact of leaving work and maintaining their desired lifestyle.

In a recent study by the charity Centre for Ageing Better, 20 per cent of people who retired in the last five years admitted to having a number of concerns, including money worries, while almost half of those surveyed admitted they would appreciate financial advice. But finance is only part of the picture. What about housing? To downsize, or not to downsize? Is equity release a good idea? How do you plan for when you need extra help?

With the number of 85-year-olds in the UK expected to double by 2026, we need to be more creative in the ways in which we support older people to help them maintain their independence for longer.

I often get asked by PAs/IFAs when is the best time to bring up retirement planning. Well, the truth is, as soon as possible. And nowhere is the need for better information more critical than when it comes to housing for older people. But what are the options and what will be the impact of downsizing socially and, crucially, financially?

When sitting down with your clients to discuss their financial planning, retirement living needs to be properly explained. The thought of ageing and deteriorating health can be a great worry and no-one wants to become a burden on their family, so downsizing and moving to ‘age appropriate housing’ has to be one of the options that people consider.

The thought of moving into a retirement property can often be a daunting prospect for those looking to retire as the market place is a confusing one. Many people fear losing their independence but it’s important to be clear that when talking about retirement properties, we are talking about a very different housing product to residential care homes.

Retirement properties are self-contained properties and most people who downsize into the right type of property at the right time are able to retain both their personal and financial independence for longer. Studies have shown that these benefits are strengthened when the property in question is designed on the ‘extra-care’ model, as recommended by the Department of Health, with only around three per cent of those choosing an extra-care property needing to move to a care home.

As with any move, undertaking thorough research before downsizing into a retirement property is recommended to find out exactly what is on offer. However, one of the most popular reasons for making the move is certainly its financial benefits.

Naturally, when considering downsizing, concerns can arise over preserving capital and what this means for the family in the long term. In leasehold ‘extra-care’ developments, each resident owns the property they live in, allowing them to protect their equity and safeguarding it for their families and loved ones in the future.

A modern retirement property will also often be better insulated and so have lower energy costs than a traditional family home. Maintenance costs will also be lower. In addition, retirement properties will usually be in a lower council tax band.

Of course, most retirement properties will come with a service charge so those looking to move into such a property should be clear on how much it is and what it covers. For example, most service charges will include building and grounds maintenance but not the maintenance of the interior of your own apartment.

In my experience, once you have taken into account the cost of running your old home and the potential cost of funding the additional services you would need to manage there, the service charge will often represent very good value for money. Do your own sums though to make sure you understand what you are going to pay and what you will receive in return. Once you have a care need, there is also a non-means-tested and tax-free benefit called Attendance Allowance available to help you meet the additional cost of supporting yourself, which includes paying your service charge.

In properties that follow the extra-care model the service charge may also cover the cost of some services in your own home such as cleaning, laundry or personal care.

In addition, if your savings fall below a certain level, councils have to help you out with care costs should you need extra help. When calculating your contribution, the current rules says councils must exclude the value of any property that you or your spouse are living in. This means that while you or your spouse live in your extra-care property, the value of that property is protected and can ultimately be passed onto your heirs.

Of course, people are always reluctant to leave the home they raised their families in and where they shared happy memories, but the financial prize for downsizing is potentially a big one, allowing people to maintain their independence and keep control over their own lives for longer. Of course, conducting thorough research is important but doing it all in good time, ahead of retirement, can help you make the best decision for you and your family in the long term.

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