How Do I Plan Ahead for Care Costs?

Planning ahead for care is less about predicting the future and more about staying in control of it. Roughly one in seven people aged 65 and over will face care costs above £100,000, yet most families only confront the numbers in the middle of a crisis, a fall, a diagnosis, a hospital discharge, when choices are narrow and emotions run high. Doing the thinking early buys you options.

The starting point is to understand what care actually costs and who pays. Home care commonly runs to £25–£30 an hour, while a residential care home averages well over £1,000 a week and a nursing home more again. Against that, there is no limit on what you might spend, the long-proposed £86,000 cap has been shelved, so the aim of planning is to fund care sustainably without leaving a partner short or being forced to sell up in a hurry.

A framework for planning ahead

Good planning follows a logical order. Work through these steps and you will know your likely exposure and how you would meet it.

• 1

  Estimate the likely bill

  Look at local home-care and care-home rates and assume a possible three to four years of care. Model a realistic mid-range figure rather than the worst case, then stress-test it.

• 2

  Map your guaranteed income

  Add up the State Pension (around £12,000 a year at the full new rate), any defined-benefit pension and annuities. This is income that keeps paying whatever happens.

• 3

  Identify the gap

  Subtract that income from the likely fee. The shortfall is what your capital, investments or property must cover.

• 4

  Ring-fence the funding

  Decide which assets you would draw on, ISAs, a cash reserve, drawdown pension, or later options such as equity release, and in what order.

• 5

  Get the paperwork in place

  Put a lasting power of attorney and an up-to-date will in place now, while you have full capacity. Without an LPA, your family may need a costly court order to act for you.

Where the money can come from

Most people fund care from a blend of sources rather than one pot. Pensions and investments do the heavy lifting for many; for homeowners, the value tied up in property is often the largest single resource. Each route has trade-offs worth weighing before you need it.

One option deserves a special mention. An immediate needs annuity (a care-fee-payment plan) converts a lump sum into a guaranteed income for the rest of your life, paid straight to the care provider free of tax. It caps your cost and protects the rest of your estate, but it is irreversible, so it suits people already in or entering care rather than those planning years ahead. You can read more in our guide on how to pay for care in later life.

Sequencing matters as much as the sources themselves. As a general principle, it often makes sense to spend the most flexible and least tax-efficient money first, a cash reserve or ISA, while leaving pensions invested, since from April 2027 unused pensions can pass to family free of income tax rules but within the scope of inheritance tax. Drawing everything from a pension pot to pay early fees can be the costliest route, whereas a considered order of withdrawals can stretch your capital significantly further. There is no single right answer; it depends on your health, your other assets and what you want to leave behind.

It is also worth pressure-testing your plan against the things that go wrong. What happens if one partner needs care while the other still lives at home? What if care lasts eight years rather than three? Building in a margin, and revisiting the plan every couple of years, turns a one-off calculation into a living strategy that keeps pace with your circumstances and the rules.

Don’t forget tax and your estate

Planning for care sits alongside estate planning, not apart from it. Gifting money to family to shelter it from the means test can backfire: councils can treat it as “deliberate deprivation of assets” and charge you as if you still held it. At the same time, the way you fund care affects what you leave behind, so it is worth coordinating with your inheritance tax planning and, if property is involved, weighing the local means-test rules carefully.

This is information, not personal advice, and investments can fall as well as rise. Because the sums are large and the rules interact, most families benefit from modelling the numbers with a professional. Vetted Wealth’s free service matches you with an independently vetted, FCA-regulated adviser who specialises in later-life planning.

Related questions