In the first of a new series suggesting ways advisers can breach some often sensitive subjects associated with retirement, Stephen Ladyman considers the potential cost benefits associated with 'age appropriate housing'
Most people think about retirement over the course of their careers but we know that many fail properly to 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% 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 said 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 financial advisers when is the best time to bring up retirement planning. The truth, of course, 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 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 is important to be clear that, when talking about retirement properties, they are 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 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 3% 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. One of the most popular reasons for making the move, however, 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.
Be clear on the service charge
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. Most service charges will, for example, include building and grounds maintenance but not the maintenance of the interior of your own apartment.
In my experience, once people have taken into account the cost of running their old home and the potential cost of funding the additional services they would need to manage there, the service charge will often represent very good value for money.
You and your clients do need to do their own sums, however, to make sure they understand what they are going to pay and what they will receive in return. Once they have a care need, there is also a non-means-tested and tax-free benefit called attendance allowance available to help people meet the additional cost of supporting themselves, which includes paying the service charge.
In properties that follow the extra-care model the service charge may also cover the cost of some services in a person's own home such as cleaning, laundry or personal care. In addition, if savings fall below a certain level, councils have to help people out with care costs should they need extra help.
When calculating someone's contribution, the current rules says councils must exclude the value of any property they or their spouse are living in. This means that while they or their spouse live in the extra-care property, the value of that property is protected and can ultimately be passed onto their 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.
Conducting thorough research is important but doing it all in good time, ahead of retirement, can help clients make the best decision for them and their family in the long term.
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