Long term care annuity or invest the lot?
Poll: Long term care annuity or invest the lot?
Total Members Polled: 6
Discussion
Hi all,
Quick poll if you don't mind. Here's the situation.
My mother is 88 and has dementia. She is in a care home which costs (currently) £950 per week.
I've just sold her house and have £375k.
The long term care annuity is £200k, so roughly 5 years of care home fees. This will pay out £3,300 per month for the rest of her life, so she needs to live for more than 5 years to recoup the cost.
Do I buy the annuity, invest the rest in a low-medium risk investment vehicle (4-5%pa) which can be drawn upon as necessary as the fees go up, or do I invest the lot and hope the money lasts longer than she does?
I don't have the time or the skills to run the investment myself and property will not yield enough to pay the care home fees.
The money that the annuity pays out is tax free whereas the investment returns would be subject to tax..
What would you do in my situation?
Quick poll if you don't mind. Here's the situation.
My mother is 88 and has dementia. She is in a care home which costs (currently) £950 per week.
I've just sold her house and have £375k.
The long term care annuity is £200k, so roughly 5 years of care home fees. This will pay out £3,300 per month for the rest of her life, so she needs to live for more than 5 years to recoup the cost.
Do I buy the annuity, invest the rest in a low-medium risk investment vehicle (4-5%pa) which can be drawn upon as necessary as the fees go up, or do I invest the lot and hope the money lasts longer than she does?
I don't have the time or the skills to run the investment myself and property will not yield enough to pay the care home fees.
The money that the annuity pays out is tax free whereas the investment returns would be subject to tax..
What would you do in my situation?
Pretty good, she takes Aspirin, Digoxin and Paroxetine. Her legs, which have been ulcerated for years have healed up since she has been having better nutrition and skin care in the home. She used to get UTIs regularly but they monitor her fluid intake carefully and she hasn't had one for several months.
Mrs Cuch,
If I were advising you, and if you insisted on investing, I'd suggest you target just 3-3.5%. Aside from that though, and it's almost heresy for an adviser to suggest it, have you considered not investing? I (and other advisers) would love to manage an investment portfolio like that for you, but it's for your mum and you have, I imagine, very low capacity fo risk/loss.
Why not find the best savings rates that you can for the vast majority of it?
You might not make as much, but you don't stand to lose as much either - how much flexibility for loss do you have? Not much, I imagine. If you want a steer, I use some rather nifty software to source best savings rates on an ongoing basis for long term savings strategy, so if you want any info, it'll help you get going.
If I were advising you, and if you insisted on investing, I'd suggest you target just 3-3.5%. Aside from that though, and it's almost heresy for an adviser to suggest it, have you considered not investing? I (and other advisers) would love to manage an investment portfolio like that for you, but it's for your mum and you have, I imagine, very low capacity fo risk/loss.
Why not find the best savings rates that you can for the vast majority of it?
You might not make as much, but you don't stand to lose as much either - how much flexibility for loss do you have? Not much, I imagine. If you want a steer, I use some rather nifty software to source best savings rates on an ongoing basis for long term savings strategy, so if you want any info, it'll help you get going.
You could do either.. with or without.
An annuity is a gamble of sorts too, and although you want your mum to be safe and secure, she probably would be miffed if she died the day after annuitising the lot! But your mum might live for another 10 years; if she does, then the annuity would be priceless. Not only for your mum, but also for your peace of mind - do *you* want the additional guilt, regret and worry if your investments suffered serious and sustained drops in value?
But if your investments did quite well and still only made 5/6% year on year, you'd still have the investment risk and truth be told, that wouldn't add much to the amount of months you'd be buying. A halfway house solution might be to see how your mum settles into the (new?) home before committing?
An annuity is a gamble of sorts too, and although you want your mum to be safe and secure, she probably would be miffed if she died the day after annuitising the lot! But your mum might live for another 10 years; if she does, then the annuity would be priceless. Not only for your mum, but also for your peace of mind - do *you* want the additional guilt, regret and worry if your investments suffered serious and sustained drops in value?
But if your investments did quite well and still only made 5/6% year on year, you'd still have the investment risk and truth be told, that wouldn't add much to the amount of months you'd be buying. A halfway house solution might be to see how your mum settles into the (new?) home before committing?
Thanks Ginge, all good food for thought. Interested in the software you mentioned for monitoring savings rates, is that something I can obtain or is it like Glass's Guide, for industry peeps only?
The other thing that concerns me, is that *if* government policy were to change and long term care were to be funded, I would have purchased an annuity that I didn't necessarily need any longer.
Mind you, the cynic in me feels that what the government gives with one hand they will take away with the other, so the end result will probably be much the same, otherwise the country could never afford it!
The other thing that concerns me, is that *if* government policy were to change and long term care were to be funded, I would have purchased an annuity that I didn't necessarily need any longer.
Mind you, the cynic in me feels that what the government gives with one hand they will take away with the other, so the end result will probably be much the same, otherwise the country could never afford it!
Mrs Cuch,
It's an industry thing, I use it on licence and mainly for clients who I look after on an ongoing basis and who refuse to consider investments.
If you went down the savings route instead on the annuity, consider layering the money into tranches of say, 6 months; so, you'd have some for immediate access, some on a better rate at 6 months, some on 12/24/36 months etc. But the risk you have is that your mum outlives her savings.
I don't imagine that any legislation change would adversely affect your mum, but you make a good point though. Another reason to hang fire maybe. Did you shop around for the best annuity, and did you haggle?
It's an industry thing, I use it on licence and mainly for clients who I look after on an ongoing basis and who refuse to consider investments.
If you went down the savings route instead on the annuity, consider layering the money into tranches of say, 6 months; so, you'd have some for immediate access, some on a better rate at 6 months, some on 12/24/36 months etc. But the risk you have is that your mum outlives her savings.
I don't imagine that any legislation change would adversely affect your mum, but you make a good point though. Another reason to hang fire maybe. Did you shop around for the best annuity, and did you haggle?
Hi Mrs Cuch
From my experience as a Care Home owner / operator you need to speak to a "SOLLA" Adviser
http://societyoflaterlifeadvisers.co.uk
They understand the older care market
For example i know for a fact there are annuities that you can buy so that pay back a proportion of the invested sum should the holder pass away within set time frames, you therefore do not loose the whole amount. You can choose differing ratio's etc
Also speak to the Mental Health Worker / Community Psychiatric Nurse (CPN), or Mum's GP or Consultant and find out what type of Dementia she has, there are sadly differing life expectancies with the various forms of Dementia as they all have potential differing complications.
Bear in mind that there are changes that the government have promised following the Dilnott Report
https://www.gov.uk/government/uploads/system/uploa...
These will come in from 2016 and will mean that in large your mums responsibilities should be reduced.
Also talk to the Nursing Home Manager and ask if mum has been assessed for Continuing Health Care?
If eligible she will get ALL of her fees paid.
Good luck
Shan
From my experience as a Care Home owner / operator you need to speak to a "SOLLA" Adviser
http://societyoflaterlifeadvisers.co.uk
They understand the older care market
For example i know for a fact there are annuities that you can buy so that pay back a proportion of the invested sum should the holder pass away within set time frames, you therefore do not loose the whole amount. You can choose differing ratio's etc
Also speak to the Mental Health Worker / Community Psychiatric Nurse (CPN), or Mum's GP or Consultant and find out what type of Dementia she has, there are sadly differing life expectancies with the various forms of Dementia as they all have potential differing complications.
Bear in mind that there are changes that the government have promised following the Dilnott Report
https://www.gov.uk/government/uploads/system/uploa...
These will come in from 2016 and will mean that in large your mums responsibilities should be reduced.
Also talk to the Nursing Home Manager and ask if mum has been assessed for Continuing Health Care?
If eligible she will get ALL of her fees paid.
Good luck
Shan
I knew someone would do the usual PH thing of going off the point and questioning my motives.
There will be no "Sorry Ma" as my first priority is to ensure my mother is cared for. Yes I know you think I should look after her myself, but that is not the point. You don't know me or my family so please don't judge us without knowing all the facts.
Right, back to the point. I do have a suitable financial adviser, but it's always useful to hear what other options I have.
Thank you for the link about the funding reforms - I hadn't found that document during my research. As I said before, my feeling is that once the 72k cap is reached- which will roughly be 72 weeks after April 2016, so we are looking at September 2017 or thereabouts- the local authority may cover some of the costs - currently about half the weekly fee, and the rest will be up to the individual. I wouldn't be surprised if the government stop attendance allowance for people who receive funding.
There will be no "Sorry Ma" as my first priority is to ensure my mother is cared for. Yes I know you think I should look after her myself, but that is not the point. You don't know me or my family so please don't judge us without knowing all the facts.
Right, back to the point. I do have a suitable financial adviser, but it's always useful to hear what other options I have.
Thank you for the link about the funding reforms - I hadn't found that document during my research. As I said before, my feeling is that once the 72k cap is reached- which will roughly be 72 weeks after April 2016, so we are looking at September 2017 or thereabouts- the local authority may cover some of the costs - currently about half the weekly fee, and the rest will be up to the individual. I wouldn't be surprised if the government stop attendance allowance for people who receive funding.
Edited by Mrs Cuchillo on Wednesday 3rd December 17:02
2 5HAN said:
Also talk to the Nursing Home Manager and ask if mum has been assessed for Continuing Health Care?
If eligible she will get ALL of her fees paid.
Good luck
Good luck indeed; dementia isn't taken very seriously by the authorities. Care home or nursing home? - two different things.If eligible she will get ALL of her fees paid.
Good luck
Remember that your mother will still receive her state (and any other) pensions, which will help towards costs and once (if) Dilnot comes in the costs will be split between the actual care costs and the hotel services part, the care costs being subject to the lifetime cap, so total costs could potentially reduce then.
375K could give 10 to 20K a year from even a "safe" investment.
If she has a pension this will top up the cash for fees as well.
You might find that you end up paying a lot less than you think.
Also now is not the time for total caution, if you truly regard the money as for her benefit then make sure she enjoys some of it. She can buy the kids (You) and her friends nice birthday and Christmas presents now.
Seriously, do this. It may be the only way she can contribute to her family and she hasn't got forever. For the same reasons make certain that any family or friends debts or favours are settled. Talk it through with her and do it.
Just so that you know, I've done this. When the MIL went into a home she owed money and couldn't afford much in the way of gifts. Now she has settled everything and can buy her grandchildren nice stuff. Plus the investments have more than made up for what she has spent.
If she has a pension this will top up the cash for fees as well.
You might find that you end up paying a lot less than you think.
Also now is not the time for total caution, if you truly regard the money as for her benefit then make sure she enjoys some of it. She can buy the kids (You) and her friends nice birthday and Christmas presents now.
Seriously, do this. It may be the only way she can contribute to her family and she hasn't got forever. For the same reasons make certain that any family or friends debts or favours are settled. Talk it through with her and do it.
Just so that you know, I've done this. When the MIL went into a home she owed money and couldn't afford much in the way of gifts. Now she has settled everything and can buy her grandchildren nice stuff. Plus the investments have more than made up for what she has spent.
I feel like quite an important point has been overlooked here (unless my skim-reading has missed it).
Using one of these strategies in isolation is always going to be a high risk proposition. If you buy an annuity, an early death could be costly. If you invest / leave in cash then a long life could lead to the fund being depleted.
The route most individuals opt to go down when presented with a balanced analysis is to secure a proportion of the income via an annuity (say 50%) and fund the remainder with a cash/investment strategy. This decreases the impact of the fund being lost with an early death but at the same time reduces yield / capital withdrawals required, which in turn lessens the risk of capital erosion.
For example, if you have 375k and require 3.3k per month, and could secure an annuity of 1.65kpm for 100k then you'd retain 275k to fund the remaining shortfall of £19,800 per annum. This equates to 7.2% of your capital. If you "invested the lot" the 3.3kpm would equate to 10.56% of your capital.
Whilst a 7.2% withdrawal would not be sustainable long term, it would apply significantly less strain than a 10.56% withdrawal.
It's all about finding a balance that you're comfortable with.
Another thing to think about when deciding whether to invest or not: Are you the sole beneficiary of her estate? If so, would you look to leave the fund invested following her death, or cash it all in? If the latter, then a cash or very low risk strategy would be more appropriate. If you'd look to leave in situ for your own benefit, a medium/low risk investment strategy could be employed but this would have to coincide with careful planning (which is beyond the scope of my post!) to mitigate the impact of withdrawals should your investments fall in value.
Using one of these strategies in isolation is always going to be a high risk proposition. If you buy an annuity, an early death could be costly. If you invest / leave in cash then a long life could lead to the fund being depleted.
The route most individuals opt to go down when presented with a balanced analysis is to secure a proportion of the income via an annuity (say 50%) and fund the remainder with a cash/investment strategy. This decreases the impact of the fund being lost with an early death but at the same time reduces yield / capital withdrawals required, which in turn lessens the risk of capital erosion.
For example, if you have 375k and require 3.3k per month, and could secure an annuity of 1.65kpm for 100k then you'd retain 275k to fund the remaining shortfall of £19,800 per annum. This equates to 7.2% of your capital. If you "invested the lot" the 3.3kpm would equate to 10.56% of your capital.
Whilst a 7.2% withdrawal would not be sustainable long term, it would apply significantly less strain than a 10.56% withdrawal.
It's all about finding a balance that you're comfortable with.
Another thing to think about when deciding whether to invest or not: Are you the sole beneficiary of her estate? If so, would you look to leave the fund invested following her death, or cash it all in? If the latter, then a cash or very low risk strategy would be more appropriate. If you'd look to leave in situ for your own benefit, a medium/low risk investment strategy could be employed but this would have to coincide with careful planning (which is beyond the scope of my post!) to mitigate the impact of withdrawals should your investments fall in value.
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