Why it’s so vital to factor potential later-life care costs into your retirement plan

When you think about retirement, it’s natural to picture the aspects of life you’re looking forward to the most. This might include travelling, pursuing hobbies, or spending time with your loved ones.

However, you may find that you overlook later-life care as you plan for this next phase of your life.

While it might not be the most uplifting topic, factoring these costs into your plans is vital for ensuring financial security throughout retirement.

Failing to plan accordingly could leave you exposed to significant expenses later in life.

Continue reading to discover why taking a proactive approach today and thinking about later-life care costs could help you maintain your standard of living in retirement.

Later-life care can be costly, and you may need to fund a longer retirement than expected

It’s vital to note that later-life care costs can be expensive. Carehome.co.uk states that, as of 8 December 2025, you could expect to pay a yearly cost of:

●        £67,496 for residential care

●        £79,820 for nursing home care.

With life expectancies on the rise in the UK, you may also have to pay these costs for a considerable portion of your retirement.

A life expectancy calculator from the Office for National Statistics (ONS) shows that a man aged 65 today would have an average life expectancy of 85 years. This rises to 88 for women.

Importantly, you likely won’t live all these years in good health, either. Further data from the ONS shows that from 2021 to 2023, men aged 65 in England could expect to spend 10.1 years in good health, compared to 11.2 years for women.

This means you could potentially spend a decade or more in care, which will likely be incredibly expensive. Even a few years in residential or nursing care could quickly exhaust a considerable portion of your retirement savings.

As such, it’s vital to factor realistic care costs into your retirement plans, rather than hoping your good health and independence will continue well into the future.

It’s common to delay planning for later-life care

Perhaps the most common reason you delay planning for later-life care is that it can be an uncomfortable topic to consider.

Indeed, it’s often easier to focus on exciting goals such as holidays or home renovations than to consider the risks of declining health.

Still, ignoring these potential care costs can have considerable long-term consequences.

For instance, if you draw too heavily from your pensions or investments early in retirement without considering the possibility of care expenses, you may find you lack the funds to pay for them later.

This could mean you have to limit your dream lifestyle or rely on support from your loved ones.

If you hope to receive government support, it’s vital to remember that you might not necessarily be entitled to any.

To determine whether you will receive support, your local council will conduct a means test to evaluate your income, savings, and property wealth.

You will usually have to fund your own care if your assets exceed the “upper capital limit”, which stands at £23,250 as of 2025/26.

This isn’t a significant sum of money, so you will likely have to fund care yourself until you deplete your assets.

There are simple ways to incorporate potential care costs into your financial plans

Thankfully, there are steps you can take to incorporate later-life care into your overarching retirement plan. Here are three ways to do so.

1. Review your retirement budget and assets

It’s worth reviewing your expected retirement income and budget. You should think about the lifestyle you want in the early years, such as travel or hobbies, and how that might change as you get older.

Then, factoring in any potential later-life care costs could give you a more realistic picture of how much you might need to fund your entire retirement.

It can also give you a better idea of how much you can afford to draw from your pension when you initially stop working.

After doing this, you may want to determine whether your existing savings, pensions, and investments are sufficient to cover both your lifestyle and any potential later-life care costs.

If you believe there is a shortfall, you may still have time to adjust your level of savings or invest your wealth differently.

For instance, you could take on more investment risk as you approach retirement, potentially delivering more competitive returns.

Read more: Why “pension lifestyling” might not be right for you, and how we can help

2. Think about what might happen if you don’t require later-life care

You should always remember that not everyone will require later-life care. So, planning for this uncertainty is vital.

Otherwise, you could simply create a larger-than-expected Inheritance Tax (IHT) bill for your loved ones if you don’t use the money you’ve ringfenced for care.

To manage this, you might want to explore strategies to minimise the overall value of your estate. For example, gifting assets while you’re still alive could mean less of your wealth is subject to IHT, all while helping your loved ones get onto the property ladder or build their own retirement fund.

Alternatively, you could set up a trust, which allows you to remove wealth from your estate for your beneficiaries and control how and when they receive the money.

Just remember that trusts tend to be highly complex, and don’t necessarily circumvent IHT altogether, so it’s always worth seeking professional advice before you open one.

3. Work with a professional financial planner

As you may now know, planning for later-life care costs can be complex. However, a financial planner could make it more manageable.

We could assess your retirement goals to help you determine whether your current savings and income would be enough to cover care costs as well as your desired lifestyle.

Most importantly, we can work through different scenarios with you to provide reassurance that you’re protected against unforeseen costs, while still enabling you to afford your dream retirement.

Email info@athertonyork.co.uk or call us on 0208 882 2979 to find out more.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning, trusts, or estate planning.

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.

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.