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Case Study: Immediate need Case Study

Mrs Astbury was concerned about her father, Bert, who at 90 years old was still living at home, but had recently fallen and injured himself. She has for many years helped him out on a daily basis and he was also receiving assistance from a local carer. However, it was agreed between them that he would now move into a local residential home where he could receive round the clock care and assistance.

Bert has a small amount of savings, a small personal pension and receives the weekly full state pension. He owns his house outright and so he decided to sell the house to contribute towards the cost of the residential home. Because of his savings and value of the property, the local authority was not required to pay anything towards his residential care, although on assessment, any nursing care required would be paid by the state.

The cost of the residential home was £25,400 per year and it was realised that if all of his savings was held as cash, the cost of the home would quickly eat into this pot and possibly his daughter would have to consider how she could assist in later years. Alternatively, the local authority would re-assess Bert at that point, but it may mean he would have to move to another care home.

One of the major issues with paying for long term care is that it has shown it increases at about 6% every year and with inflation quite high too, it meant that the purchasing power of his savings would also decrease.

The house was sold for £125,000 after costs and this meant Bert had a total pot of money of about £165,000. It was at this point that Mrs Astbury came into meet with us to discuss what options were available for them to consider.

Immediate Care Policy

One option was to purchase an immediate care annuity, though because of his age and health, Mrs Astbury was concerned that it would commit his funds and Bert wanted to leave as much of his estate after his death to his Grandchildren. Also, the limit of choice in the market place meant that it was difficult to find something suitable for his individual needs. Most providers would not consider Bert as he had reached 90 years old.

Investing for income

With a savings pot of £165,000 and after the income he receives from his state and personal pensions, Bert would need to earn over 8% interest from his savings to meet the remaining costs of the residential home. This would not be possible without risking the capital and with the expected increase each year in fees; it may mean that Bert would run out of money fairly quickly. However, when investing in funds that offer the opportunity for capital and income growth, it would allow Bert to combat the impact of inflation. Therefore Bert needs to see how he can commit some funds to his short term need, whilst elsewhere still offer some potential growth.

Bond Laddering/Conveyor

A bond ladder is a good way to create a cash flow to meet expected future expenditure. Bond ladders own a series of bonds with differing maturing dates, so providing a regular lump-sum of cash each year over and above the natural income being generated. By establishing this with a portion of the savings (earmarking), it provides certainty and confidence in paying for the care costs and then allowing other funds to be invested for additional income and potential growth.

Bert's solution

To meet Bert's first 4 years of care costs, a number of corporate bonds were invested in to mature each year. However, the first year's more immediate costs were retained as cash in his current and easy access savings account. This meant that the bills were paid without needing to draw monthly from the portfolio. The remaining savings were then invested in conservative collective bond and equity funds to provide further income that would rise with time and offer an opportunity for some capital growth over the next 5 years. The income from these funds could be paid away with the other income or reinvested if not required.

After the first year, Bert's current account had reduced down and when the first bond matured, the capital was paid away to his account to top it up for the next year. This continued through until the last bond had matured at the end of four years. However, as some additional growth had been achieved and not all the cash required, an additional three years of bonds had been invested and so his future needs were secure.

Shortly after the fourth anniversary, sadly Bert died. The outstanding fees were paid and Mrs Astbury was surprised that after four years, despite drawing some of the income and capital, the portfolio had retained the same value as originally invested. This meant that had Bert still been alive, the funds would have been able to meet his needs at least for another 5 years. However, it had met his other expectation of assisting him and then leaving some funds to pass onto his Grandchildren.


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