A group of MPs has found only 4% of the 40% of people who would benefit from investing in a financial product to fund care do so.
The All Party Parliamentary Group on local government's report - Care Now and For the Future has said the funding gap is around 4.4% a year, or £634 million.
Speaking at the launch of the report, secretary of state for communities and local government, Eric Pickles said addressing the funding issue was "the most important thing we'll ever get right to [ensure] our twilight years are [treated with] dignity and compassion."
The recommendations- based on evidence by charities and interested parties - said ‘significant thought will also need to be given to what other measures might encourage a growing market.'
Insurance, annuities and other financial products should be developed to help individuals meet a proportion of their costs.
In addition, the report found £622 million of NHS money has been invested in social care and recommended additional surplus cash should be used to fund care.
The group called for this to be doubled in 2012/13 and 2014/15, using funds from NHS underspend which is currently around £1.5 billion.
And while the committee said it "supported the implementation of the main recommendations of Dilnot, it believed the narrow term of reference given to the Commission meant the more fundamental issues about the need for a more integrated care model were only addressed in passing by Dilnot."
However, the report acknowledged Dilnot's recommendations, remains the most developed funding solution currently on the table. Implementing Dilnot in full could cost 0.14% of GDP (£1.7 billion) if the cap on individual contributions was set to £35,000 rising to £3.6 billion by 2025.
But raising the cap to £50,000 coupled with a higher cost of £10,000 for living costs; could see the cost of implementing the proposals fall to £800 million from £1.7 billion.
Chris Horlick, managing director of Care at Partnership said: ""Access to appropriate financial advice is critical for self-payers. Of the 53,000 self-payers who entered residential care in 2009, only 7,000 received appropriate financial advice. It is hardly surprising that one in four are estimated to deplete their capital and fall back on the state. This is estimated to cost local authorities £1 billion a year in England alone."
Claim from SocGen's global markets division
Third annual Hampton-Alexander review
European Commission yields to pressure
Numbers in Adviserland
Retirement sector trends