THE PRICE OF GETTING OLD

Getting old now costs money. Many people are simply unable to save enough to cover the costs of living to a ripe old age and the state is facing a similar problem. Even looking at borrowing through loans can be challenging when there is no regular income to make repayments.

The average cost of residential care is now well over £25,000 per year. This figure rises to over £35,000 per year if nursing care is also required. Consequently, a few years in care can eradicate savings at an alarming rate, meaning that ultimately, the state will have an additional burden to cover.

Compounding the issue is the fact that the baby boomer generation (typically those born in the 60s) have not been saving sufficiently as they earned to provide a suitable pension. Indeed, many have taken the opposite approach and have taken out loans to fund current lifestyle options.

That said, the increase in average life expectancy caused by better healthcare and standards of living, have meant that annuity rates have dropped, so any saved funds have generated less life time income.

The government have not exactly helped or encouraged people to save for their old age. Gordon Brown’s notorious raid on pension savings in the late 1990s ripped at least £5bn per year out of pension savings.

Successive governments have done little to encourage saving for the future or to curb the cost of public sector pension schemes that are largely unfunded and paid from current taxation.

The position will get worse before it gets better. Although some reforms have been announced, they merely scrape the tip of the iceberg. With fewer working people and a growing elderly population, the sums simply do not add up.

There is also a growing sense of unfairness in the whole system. Those that have saved and been careful throughout their lives are being expected to pay for their own care, whilst those that may have contributed little or saved nothing get care paid for by the state.

Whilst there has to be a basic provision, those that have saved should not be unfairly treated else it will result in a general sense of ‘why bother?’

Increasing focus is being made on providing care at home rather than in a institution. A couple of hours’ care provision in the home can still add up to £12,000 cost per year.

State support is available, but the level depends on how much in the way of capital assets a person has. If they have less than approximately £14,000 (£22,000 in Wales), then the state will provide funding in full.

Where assets are over approximately £23,000 (£22,000 in Wales), then no state assistance is available. The fragmented devolved government approach has already opened differences in what can be claimed and is available.

But many people now own their own homes and by retirement age, this will typically be mortgage or loans free and worth considerably more than the £23,000 government support limits.

Whilst growing property prices over the past 30 years have helped boost personal wealth, cashing in on a capital asset can be difficult. Especially at a time when property prices have softened and the loans offerings are well reduced on recent years.

However, a number of loans based schemes have been developed over recent years to help elderly property owners release cash from their homes without the need to move out. Also, moving to a smaller property and renting out an existing home can generate income from a fixed asset.

Equity release loans are a way to get cash value from a property. One of the advantages is that no more than the property value can be borrowed, so there is no lasting debt burden passed to family members.

Guidance for personal finance and investment

Personal finance and investment

Personal finance and investment

As the recessionary clouds are fading away from the international markets, investments and personal finance concerns are also picking up. Sadly most personal finance managers guide people on ways to increase liquidity by purchasing their company’s credit instruments primarily, credit cards and personal loans. The credit situation may get out of hands and debt refinancing or consolidation is the only options left with. And mind it! These are the high risk options which might lead cause an individual very dearly. For instance, a mortgage against home loan for sealing up the credit may lead to home foreclosure in case of payment defaults.
In order to stay afloat and maximize liquidity some of the best in class personal finance & investment tips are as follows:

  • Individuals should understand their risk capacity. Young guns can manage a 60%-70% debt and remaining portion with equity. As one grows older, the debt portion has to significantly come down. An ideal Debt portion should be 20%-30% for individuals aged 60+.
  • Investing in secured government bonds, fixed deposit schemes, pension schemes, insurance products and equity linked saving schemes is beneficial in the long run. Individuals can realize higher dividends and few are even tax free!
  • For children and spouses dedicated financial instruments should be purchased to look out for their education and health respectively. Friendlier payment terms can be negotiated with the bankers and other reliable financial institutions.
  • High risk instruments such as Mortgage loan against home or a mortgage loan against a vehicle might provide short term liquidity but can rip off in long term. These are smart instruments for service providers. The lesser rate of interest associated with them draw more people towards such instruments. However, what is missed out on is the longer payment durations and interest component.
  • At the start of each financial year, individuals should assess out their credit, equity and investment plans. Investment should be managed smartly in debt instruments. As far as possible secured investment instruments must be preferred.
  • At the time of financial year closure most individuals sort out tax benefits. Individuals should rather target the off season months or recessionary periods in economy. Bankers and other financial institutions generally offer discounts and healthier deposit rates than peak periods.
  • Only reliable bankers or financial institutions should be sorted out for managing your financial needs. Cheats and newer companies should be completely ignored. After all, it’s your hard earned money and it needs to be parked in safer hands.
  • Nobody can eliminate financial risks completely. The idea is to mitigate risks. If you have $1,000 available for investment it should be invested across various investment products and not one in order to maximize your profit at maturity.