Funding nursing home for parents

[chenda]

Both my parents have had strokes and will need dementia nursing care for the rest of their lives. Dad is 85 and mum is 70, we have no idea of life expectancy, it could be months or many more years. Dementia care will cost around £1900 per week per parent after government subsidy is applied, so £196 700 in total per annum. This is at a standard of care home we want our parents to be in. (Its possible the NHS will fund the long term care of one or both parents but that is not yet certain)

Their total assets come to about £950 000, most of which is in the family home and the remainder in cash saving. The combined pension income, including some welfare benefits, is about £62 000. Rough maths tells me if we stuck most of the cash in some high interest savings account, their capital would depreciate by about £100 000 a year for the first few years. Possibly less if we invested some of it in low risk equities.

We have spoken to a financial advisor who discussed the possibility of buying care homes annuities, which are index linked and would guarantee and a lifelong income for them. We don't yet know what sort of rate they would get but the impression I got is that most of the capital would have to go into buying annuities. Obviously, the annuity is gone once they die and we would not inherit any of it.

The government will only pay for care homes if your savings drop below about £23000, and they will usually put you in the cheapest place they can find. You hear of heartbreaking stories of people been kicked out of nice nursing homes because they run out of money and ending up in some shitty facility. However, the care homes we have been looking at are part of a large charitable non-profit. They have a 'care of life' guarantee whereby if you run out of cash they will keep you in the home so long as you have paid 2 years of care. (they take the government funding and top-up via their charitable division)

On this basis, surely we would be mad to buy an annuity ? If they die within the first few years then most of the estate would be preserved. If they live for many more years then the government and charity would pick up then tab. Yes the capital would be all gone but it would be all gone anyway if we purchased the annuities, with the risk that they would die before it was financially worthwhile.

Or to ask the question the another way, what would be the minimum % annuity rate between them which would conceivably make buying an annuity worthwhile and ensure we could retain at least some of the estate as inheritance ? This is too complex for my stressed mind to work out.

Edit: Thinking about this further 196 700 - 62 000 = 134 700/950 000 = 0.14. So we would need a total of >14% annuity rate between them to make an annuity worthwhile. Or maybe a bit less as we could still preserve 2 x 23 000 below the government funding threshold. Brief googling suggests that it is highly unlikely to get such a ROI unless you are maybe terminally ill Though having two parents with likely different life expectancies and annuity rates makes the whole thing much more complicated...

[loutfard]

The way I understand what you say, the care home's 'care of life' guarantee is a kind of annuity on its own, subsidised by government and charitable donations. If you are sure that their care is just as good for the guaranteed/subsidised clients as for the full rate ones, that looks like the best solution...

[chenda]

If you are sure that their care is just as good for the guaranteed/subsidised clients as for the full rate ones, that looks like the best solution...

Yes it would be the same care package.

The government is supposedly bringing in a cap on care home expenditure, so the maximum anyone will have to spend on care is £86000 in a lifetime. After that the government will pick up the tab (although this excludes the 'hotel' costs of board and lodgings, which are not always clearly delineated from the care costs) This was supposed to start from October 2023 but the government delayed it by 2 years. Fuckers.

[take2]

Have you considered care homes elsewhere? I believe you own a place in Portugal (or perhaps just spend a lot of time there?)

It may be worth looking into, especially if you are equally looking to move there and be near them. Perhaps not a viable solution but may be worth exploring.

Best of luck.

[J_]

What a difficult situation Chenda. It brings your own life in an unexpected acceleration, I think.

A solution depends of course to in which degree your parents suffer from their dementia. Do they recognise each other still? If not you could perhaps look for a separate solution for each of them and one which suits you too? And with perhaps a different funding?

Do you have thought of the possibilty to organize yourself the care they need by hiring personell?

[Sclass]

I just ran your figures and it looks like you’ll need about an 8% return to come out to zero in ten years. There is the question of whether ten years is enough, I.e. how much longer will mom live beyond 80. Also what are the terms of the pension when one spouse passes on? But then again if they’re broke at that point you put it on the state.

But roughly speaking you’ll burn through £990k at £134k a year over a decade with single digit returns. So you it seems like a wash if you get some kind of annuity and lose the principle on death or you just draw down the asset while investing it yourself. Depends on how confident you are about hitting 8% return.

I had to go through this a few years ago. I posted my frustration. Here are some random details just to illustrate that plans are just plans. No matter how I projected it out I’d run out of money if my mom lasted ten more years. She was 80. She died at 82. I was warned she could last ten more years by my gerontologist aunt. she was wrong but her projections were distressing. Mom’s personal funds were only enough to last three years at her burn rate.I projected out we’d run out of money.

Depending on the scenario we would or wouldn’t. Incredibly stressful.

The people selling you the annuity aren’t dumb. They have to get paid too so you are likely going to end up in the same place at the end…no principle left. It’s close if they live over ten years. You’ve obviously figured this out. The big difference is you’ll have peace of mind with the annuity which is golden when dealing with this stressful situation. You’re paying a few percent for a promise.

I hate annuities*. I’m not one for sure things of any sort. I think I lived a life of broken promises so I’m just averse to any sure thing. Short story is I demanded my father pay half of my mom’s expenses. I paid the other half out of my mom’s diminishing liquid assets. Burned about $400k on in home care. She lasted only two years. I gambled a lot of her money in the dream stock of the last decade. I never touched it since 2015 and I’m stricken with guilt when I look at her shares now. I was so worried I would have run out and I ended up with money she cannot use anymore. I have not spent a penny of it since losing her. Want to see God laugh? Make a plan.

I’ve told my wife if I start showing signs of dementia she should throw me into the worst care facility she can find. If I don’t do it first. My experience while interviewing these places is it’s kind of a euphemism for euthanasia. I’ll die fast of a respiratory infection and save a lot of headache and money. I cannot speak for my mom but I wouldn’t want to waste a dime to buy additional time along that inevitable decline. It’ll all take care of itself.

Looking back if my mom ran out of money she’d be doomed…which is what she was. The state would pay (they wouldn’t because dad and mom commingled their assets) but ultimately both my mom and dad are dead. The money paid for frequent bed sheet changes and prolonged agony. I have a big chunk of their money. It’s kind of useless to an ERE person.

Sorry for the rambling thoughts. I’m wondering if it even matters if we get dementia and run out of money. What is bad is being old and clear minded and broke. Or feeling obligated to take care of a person with dementia when you have no money. But when I really think about it it may not be so bad getting severely incapacitated by a stroke and dying shortly afterward because I cannot pay to postpone the inevitable collapse of my world. Once you take stretching it out off the table things get easier.

*annuities are insurance. Insurance people have run the numbers better than I can. In entering into a bet with them it’s likely that I will come up on the losing end of the trade.

[Henry]

We have spoken to a financial advisor who discussed the possibility of buying care homes annuities, which are index linked and would guarantee and a lifelong income for them.

I have know idea what is best for you parents. But I have an idea of what is best for your financial advisor and my guess is its selling care home annuities to the vulnerable children of aging parents. Due deep due diligence on these. An annuity is an insurance policy and an investment vehicle. They are complex and generate huge fees to those who sell them.

[Frita]

First, hugs, @Chenda! Scrambling to meet the needs of your parents whose conditions will continue to decline, the reality that their large home/cash position will most likely be depleted, and trying to make sense of the available options sounds is a really hard situation.

Yes it would be the same care package.

The government is supposedly bringing in a cap on care home expenditure, so the maximum anyone will have to spend on care is £86000 in a lifetime. After that the government will pick up the tab (although this excludes the 'hotel' costs of board and lodgings, which are not always clearly delineated from the care costs) This was supposed to start from October 2023 but the government delayed it by 2 years. Fuckers.

Does this mean any payments for home care made prior to 2025 may not/would not be applied to the £86k maximum pp?

Just to clarify, is home care still an option? Or is it a matter of locking into the level of care that may be ultimately needed with a care continuum at present?

[IlliniDave]

I would pursue the annuity option far enough to get a quote/reasonably firm numbers. At their age the rates are usually pretty good, and if you provide the insurer with your parents' medical situation, you might be able to get even better rates than people their age in good health would get (I've heard of people doing that in the states who have conditions likely to shorten their life expectancy). The obvious downside is if they both pass in a short amount of time, the payout would likely fall short of the money put in. But if one or both live for many years, the annuity will continue and eventually draw on the premiums of other annuitants who died before their payouts reached their premium payment.

The other option is to liquidate all their assets and spend it until it's gone, then they will have to rely on your government's safety nets unless others in the family afford the cost.

A hybrid approach might be possible too. Annuitize a fraction of the resources and maintain the balance and draw it down to supplement the annuity.

Very sorry to hear of their situation. My dad is declining and experiencing dementia, and turns 85 next month. It's a really difficult series of decisions family members have to make. Sincere best wishes.

[chenda]

Thank you all.

@J Neither have been formally diagnosed with dementia but will require dementia care in a residential setting. Mum's cognition has been damaged by the stroke and dad's seems mild at this stage but he is physically disabled. Dad is still much the same as before but he just gets confused (and has got verbally aggressive with the staff) and mum still greets us with her usual 'Hello girls!' but then starts crying as she knows something isn't right and gets very muddled and often talks nonsense. They do recognise each other but don't seem to understand the serious of the others situation. Which I suppose is a good thing in some sense.

@take2 - I have looked at Portugal but whilst I can live there full time my sister can't as she works in the uk and could only visit every 6 weeks or so. Its also a minefield of additional complexity and I doubt either would be in a fit state to travel.

@ Frita - my understanding is that it won't be backdated to 2023, and there still some political uncertainty about it. However, rough calculations are that if we depreciate by £100 000 a year, by October 2027 we would likely have maxed out the £86k for both parents, assuming half the fees are considered 'care' rather than board and lodgings. So conceivably we could still have about £600 000 left which could just about generate enough to cover enough for both parents with their pension with minimal capital drawdown, if the government pay the care fee element. We just hope we can get NHS funded care for at least one parent, which would protect most of the capital.

@SClass - thanks for sharing. I share your and @Henry's skepticism about annuities especially as the care home have this 'Care for life' deal which mean they won't have to leave the care home if they do run out of money. Which makes the annuity pointless, unless we could get a very high rate which means we could firewall a substantial element of the capital. @IlliniDave - yes we may still get a quote to see what they could get, if only to give us an idea of life expectancy. All the best to your dad.

[Sclass]

Had the day to think about this some more. This is sounding really good.

They have a 'care of life' guarantee whereby if you run out of cash they will keep you in the home so long as you have paid 2 years of care.

@Chenda I like the sound of the pay two years and not get kicked out place. You should interview some of the clients and their families (ex clients too) and see how they hold up their end of the deal. My great aunt did something like this. It was with a very reputable place. She gave them a lump sum at 75 and she lived there till 97. I think she got the better end of the deal if better meant 24/7 care in their nursing wing bedridden for five years. She survived on Ensure. It was quite amazing. Unfortunately this wonderful place was bought by Charlie Munger who kept a foot in Pasadena. He remodeled it and raised the prices. My mom died during the remodeling or I'd have moved her in. So just saying, it can work out and when it does the peace of mind is priceless.

In your shoes I'd likely manage the money myself and draw it down. I think an 8% return is doable with a sensible stock allocation like the MSCI World index. It may get bumpy but I suspect that'll work with your resources. Then you cut checks to the home with the stay for life deal.

The annuity thing sounds good because it is low risk, but these things can get wacky. High inflation and rising rates can really throw something like this off the rails. I spent the week sorting 60 years of my parents' financial documents and receipts. They kept everything. It was crazy what interest rates and inflation did from 1970 to 1985. I read their grocery receipts and they made today's complaints of food inflation look like nothing. We have been lulled into complacency thinking that some kind of bond or annuity can save us but the graveyard is full of widows and orphans who got boondoggled with high yield paper paid in localities with fragile currencies. Do your homework.

If all hell breaks loose and you lose the bet there is always the state. When that happens your folks will be so far gone they won't suffer much.

[J_]

Thanks for your information Chenda. Arghh, what to do now or not to do?
My “utopian?” thoughts are: both parents have to change nutrition/lifestyle to strive to better overall health.According to Greger this is still possible. Discuss with them the need to move to simple one floor housing. Rent such a place, and sell the family home so that there is enough funding for care, now and in the future. Do involve them as much as possible so they are active engaged as much as possible. They are themselves responsible for how they can/want to live.
And do not trap yourself and your sister in an awkward situation for an unforeseeable time. I know my thoughts demand much mental acrobatics and energy of your whole family of 4.

[ducknald_don]

Thanks for your information Chenda. Arghh, what to do now or not to do?
My “utopian?” thoughts are: both parents have to change nutrition/lifestyle to strive to better overall health.According to Greger this is still possible.

This doesn't seem very realistic. We have been trying to encourage my 92 year old mother in law to improve her diet but it is like dealing with a five year old.

@J Neither have been formally diagnosed with dementia but will require dementia care in a residential setting.

My understanding is care homes will use a dementia diagnosis to jack up the prices so until they have a diagnosis I wouldn't necessarily volunteer that information.

Also I wonder how negotiable the rates are.

[The Old Man]

A nursing home (in the USA) has skilled nursing care 24/7. I am unclear what is meant by a care home.

If all you need is custodial care, then a nursing home would be overkill.

If the scope of your need is custodial care, then have you considered a DIY approach? The parents' assets and income would then become available to you (or the carers) as an inheritance (in the future) or gift (now). This was the historical approach.

It may be more economical to retire (this is ERE afterall) and provide the care, then to continue working and pay for a care home.

[Walwen]

I am not much help on the money/funding side but I worked in a nursing home with a dementia/memory care and the "after you've paid 2 years they can stay there" thing was a red flag to me. This is in no way a guarantee that the price of care will be locked in.

You need to also consider what will happen if their medical situations get too bad for them to stay in that dementia home. For instance, at the memory care ward where I worked, they could not have patients with medical ports/drains unless it was a very specific scenario where the care team was coming in to fully take care of it. They also could not, for example, take someone who was on dialysis.

At this point in time the people in the dementia care would typically go to a skilled care or a hospice facility- which are typically even more expensive although in some situations it becomes cheaper or about the same because they're moving from a single room, to having a roommate. It wasn't a matter of if they could afford it or not- they simply weren't eligible to stay in the memory care, they had to go to a higher level of care facility.

This is from the POV of someone in the US so I'm not sure how it works where you are. But that was my immediate concern: you might think they're in a stable long-term place, until one of them needs to move into a skilled care, and then you're paying for a double room for one person, and a more expensive room for another person.