Retirement is a well-deserved and important milestone, offering an opportunity to enjoy more of what makes you happy. But planning your retirement isn’t as simple as it once was – your retirement income may need to last you 30 to 40 years, or even longer.

And a common, often false, assumption is that spending goes down in the later years of retirement. In fact, it can be the exact opposite, and you could risk being caught out if you don’t factor in possible spending needs in later life.

Now that people are living longer, it’s more important than ever to consider the increasing costs of long-term care and medical care – no matter how far off or unnecessary that might feel right now.

We take a closer look at how much you would need to cover care home costs for two years – both now and in 20 years’ time. We also factor in the additional nursing care costs – these are added to the bill for care home fees because residents require higher levels of care.

How much care could cost you now

Care home residents needing nursing care currently pay £135,360 on average for a two-year stay, rising to £201,128 in 20 years, assuming 2% annual inflation – figures based on data from carehome.co.uk

Currently, the average single pensioner would have a £53,853 annual shortfall in income if they need nursing care in a care home, based on ONS average pensioner incomes, uprated for inflation.

How much care could cost in 20 years

A single pensioner retiring at 65 and potentially needing nursing care in residential care home in 20 years’ time would need to set aside around £500 per month for 20 years to afford nursing care for two years at 85, and that’s assuming 5% annual investment growth.

Care home residents with assets worth over £23,250 currently fund their own care. But the rules are due to change in October 2025, with some costs capped at £86,000.

However, the cap only applies to personal care costs and not accommodation or other costs, so many care home residents will still be facing a substantial bill and will see their assets depleting rapidly. Residents with assets between £20,000 to £100,000 will have their care home fees subsidised, but in many cases will still end up paying the majority of costs.

Despite rising pensioner incomes, the average pensioner income still falls far short of the amount needed to fund care home fees, so many residents will be forced to sell their homes or other assets. The rules mean that your home may not be counted towards your assets if your partner is still living there.

Someone who is currently 65 years old and retiring, could need around £200,000 to fund two years in a care home with nursing care by the time they reach their mid-80s.

According to Fraser Kerr, Regional Director at abrdn Financial Planning:

‘One of the biggest concerns for retirees is the inability to afford care, which can jeopardise their plans to pass on wealth. It takes a lifetime to accumulate wealth, but only a few years of high costs to see it diminish rapidly. Paying for two years of care home fees is almost as expensive as buying a home, but less predictable and the costs come all at once – this could put quite a dent in your retirement savings if you’re not prepared. Even with the new fee cap, someone with modest wealth could still see their assets dwindle.

‘By keeping some of your money invested in retirement, you’ll be giving it the potential to continue to grow in value and beat inflation. A financial adviser can help make sure that your money is invested in the right way, and that your investments remain on track and in line with your retirement plans.’

Financial advice is accessible and affordable

With retirement potentially lasting 30 years or more, it’s vital that people are fully aware of how they’re going to make their money last. People often think that they’ll have higher income needs at the beginning when they’re fit and healthy and then over time this will reduce, but they’re running the risk of exhausting their retirement pot too soon.

While it’s something we’d all prefer not to think about it, it’s something that’s so important to prepare for financially. Seeking help with retirement planning to map out what you’ll need at every step of the way can make a complex process much easier to manage.

If you’re already an abrdn client, get in touch with your financial planner. If you don’t have an adviser, you can find out more about how our financial planning services can help you.

Sources: care home fees based on figures from carehome.co.uk, inflation of 2% pa assumed for care home costs in 20 years, income based on ONS pensioner income data, uprated for inflation.

The information in this article should not be regarded as financial advice. Please remember that the value of investments can go down as well as up and may be worth less than was paid in. Information is based on abrdn’s understanding in October 2024.

abrdn Financial Planning and Advice Ltd is registered in England (01447544) at 280 Bishopsgate, London EC2M 4AG and authorised and regulated by the Financial Conduct Authority.