How to navigate care costs and protect your financial future

As you look forward to retirement, your mind is likely brimming with exciting possibilities. Perhaps you have plans to travel, try new hobbies, or spend more time with loved ones.

While you may have budgeted for these goals, it’s important not to overlook another significant aspect of later life. The possibility of needing care.

Understandably, thinking about this may not be high on your list of wants, but proactive planning for later-life care costs is essential to safeguard your financial security.

Here’s what you might want to factor into your retirement plan when considering your care needs for later in life.

With varied costs of care across the country, preparing in advance is key

Research from the Actuarial Post reveals that only 17% of UK workers have factored potential care costs into their retirement planning. This is despite the fact that a significant 36% expect a substantial increase in their health and care expenses as they age.

This might involve regular visits from carers at home or, for more complex needs, a move to a residential or nursing care facility.

Though the Government has recently announced millions in funding to bolster the social care sector, the independent commission tasked with overhauling the system is unlikely to deliver its final report until 2028. Even then, it could take time for suggested changes to come into force.

In the 2025/26 financial year, costs can vary across the country, but they remain significant no matter your location. According to Care Home UK:

• Residential care costs an average of £65,832 a year.
• Nursing home fees cost an average of £79,508 a year.
• Residential dementia care costs around £67,912 each year.
• Nursing dementia care costs an average of £80,808 each year.

While your local authority might offer support for these costs, this help is subject to a means test, and you might not meet the eligibility criteria.

As of the 2025/26 tax year, if your total assets, including your family home, exceed £23,250, you will likely need to cover the entire cost of your care. This is known as the “upper capital limit” (UCL).

Once your assets fall below the UCL, you may become eligible for some financial support.

So, if you need long-term care and haven’t planned for it, you might need to use your retirement savings or investments to cover the cost. This could have a considerable effect on your wealth and lifestyle.

Here are three strategies to help you navigate potential later-life care costs and safeguard your financial future.

1. Speak with a Financial Planner to model your future financial position

Your care needs can be unpredictable, so the associated costs could be higher than you initially planned for. Expenses can also vary significantly over time, and what you could expect to pay now may not be what you pay in the future.

Cashflow modelling could be a powerful tool to help project your future financial situation, allowing you to simulate various care cost scenarios. By “rehearsing” the potential situations, you’ll have more time to prepare accordingly for a worst-case scenario.

A Financial Planner can help you explore different funding options and integrate potential care costs into your long-term financial plan.

2. Explore what Government assistance you could be entitled to

While self-funding your care may be necessary, exploring potential Government assistance is crucial. While the current upper UCL is £23,250, this might change in the coming years. Prior to Labour’s election win, the Conservative Government had proposed increasing this threshold to £100,000 with a £86,000 cap on individual care costs.

Though these reforms were scrapped by the new Government, staying informed about potential future changes is important.

Additionally, if your primary need for care comes from an ongoing health issue, you might be eligible for NHS Continuing Healthcare, which could cover your care home fees entirely.

Continuing Healthcare is not means-tested, but it can be difficult to come by. Eligibility is determined by a complex checklist, so it’s not to be relied on as a primary funding strategy.

3. Take a lump sum from your pension

Using a lump sum from your pension might offer advantages over pure cash savings, as the funds could continue to generate returns within your pension fund until needed.

The drawback is the potential reduction it could make on your overall retirement income. However, with careful planning and the guidance of a Financial Planner, you could account for this in advance.

Remember, you can take up to 25% of your pension when you retire as a tax-free payment. This is known as your “pension commencement lump sum” (PCLS).

Read more: Your helpful guide to pension commencement lump sums

Preparing for all eventualities could help you gain peace of mind

Ultimately, while hoping that you won’t need later-life care is natural, the potential for significant costs down the line means it’s important to plan proactively.

Working with a Financial Planner gives you the power to navigate these decisions with confidence. By using cashflow planning tools and exploring various financial scenarios, you can work out if you have enough to achieve your retirement goals while maintaining a financial buffer.

Get in touch

Whether you’re an existing client here at PenLife or new to our services, we’re here to help.

If you’re an existing client, your Financial Planner will discuss how your current financial plan aligns with your potential needs in later life.

If you’re a new client or researching your options, talk to us to find out how we could help you plan for a stable and secure financial future.

Email us at enquiries@pen-life.co.uk, or call 01904 661140.

Please note

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Workplace pensions are regulated by The Pension Regulator.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

The Financial Conduct Authority does not regulate cashflow planning or tax planning.

Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.