Pensioners need an extra £200,000 to fund care in later years

Care home fees could reach £200,000 for a two-year stay in 20 years, according to figures by Interactive Investor. This means that pensioners in their 60s today may need to source an additional £200,000 if they hope to afford a nursing care stay in their 80s. The figures assume 2% annual inflation on average over the next 20 years.

However, current pensioners needing care are already facing significant income shortfalls. Care home residents today pay around £136,560 on average for a two-year stay with nursing care. Without nursing care, the cost is still an eye-watering £111,360. The average monthly income for a pensioner in 2024 is roughly £1,150 for a single household (couples bring in around £2,500). This means that even without nursing care, the average pensioner faces a monthly shortfall of roughly £3,400. With nursing care, this shortfall is closer to £4,500 a month.

Alice Guy, Head of Pension and Savings at Interactive Investor, said: “It’s almost impossible to plan for care home costs which are hugely expensive and very difficult to self-fund for any time unless you have extremely substantial assets. Care home fees have soared in recent years and it’s rare to have enough pension income to cover the bulk of the costs. Not being able to afford care is one of the biggest worries for retirees, who would love to pass on wealth but sadly could see their plans slip through their fingers. It takes a lifetime to build up wealth, but only a few years of expensive costs to see that wealth rapidly dwindle."

In this article, we take a look at whether budgeting for your care makes sense, how much you should save and what other help might be available.

Should you budget for your care?

Getting older means your health could begin to decline. If you live long enough and don't have people in your life willing to look after you, then you may eventually need access to some form of later life care. This could include home visits for a few hours a day, staying at a care home full-time and in some cases having to pay for additional nursing costs on top, depending on your needs. That being said, the vast majority of people in the UK will not need to stay in a care home. Figures from carehome.co.uk suggest that there are currently around 450,000 people living in care homes in the UK. Around 70% of these care home residents have dementia or cognitive impairments.

However, the older you get, the more likely you are to require placement in a care home. According to the latest Census figures, approximately 10.8% of people aged 85 or over live in care homes. Women are more likely than men to live in care homes, with more than 20% of those aged 90 and older living in a care home. This means that around 1 in 10 people aged 85 or over and 1 in 5 women aged 90 or older could require a place in a care home down the line. Once you move to a care home - assuming you're 90 or above when you do so - your life expectancy is expected to be around 2.9 years (if you're a woman) and 2.2 years (if you're a man).

So while the figures suggest most of us won't need a care home place, if you are in fairly good health and likely to live beyond your 80s and into your 90s, there is a possibility you might need care.

Even if you don't end up in a care home, you may find that you need help with your care in your own home. Right now, help at home costs around £25 per hour according to Age UK. As such, while the costs you incur personally may not be anywhere near £200,000, it still makes sense to plan so you can afford the care you need in later life.

How much should you save towards your care?

If you're in your 60s and budgeting for potential care costs in your 80s, then you could expect to pay £165,475 for two years in a care home without nursing care and £201,138 for two years in a care home with nursing care assuming 2% annual inflation.

Interactive Investor suggests a single pensioner retiring at 65 today needs to save around £500 per month over the next 20 years to afford a care home with nursing care for 2 years in their 80s. This assumes a 5% annual investment growth. This should give the pensioner around £200,000 in savings by the time they're in their mid-80s. These savings are on top of the pension pot you'd require to retire in the first place. According to the latest figures by Interactive Investor, you'll need at least £400,000 for a moderate retirement if you retire when you're 66. For a comfortable retirement, you'll need £640,000 if you retire at 66 before you account for care costs of up to £200,000.

Do you need to pay for your own care in later life?

Not everyone needs to pay for their own care. In some cases, your local council may be able to contribute to your costs. If your local council carries out a care needs assessment and decides you need a spot in a care home (or even help at home), they'll then do a means-tested financial assessment to figure out how much help they could offer you.

However, typically, if you have more than £23,250 in savings (this is referred to as the upper capital limit), you will not be offered funding towards your care. You will be expected to cover your own fees instead. If you have less than £23,250 in savings then your contribution will depend on how much you have. Anyone with savings above £14,250 will be expected to cover some of their care. Anything below this figure will mean that the council will cover your care in full if they agree you need it.

If you are moving into a care home and you own your property, then you might be expected to sell your home to fund your care as well. This only applies if you're moving to a care home, not if you're having help at home. In addition, if your partner still lives in your home, you will not typically be expected to sell up to fund the costs. If you want to find out more, we cover what you're entitled to and ways to fund your own care if you choose to do so in our article on paying for later-life care.