Show me a financial planner who claims they can advise an immediate needs long-term care client without using cashflow forecasting tools and I’ll show you a bad financial planner.
There are so few variables with immediate need care cases – no live pension plans, dependant children, job worries, debt concerns or protection needs – that I can build a full long-term care case using cashflow software Voyant in two minutes once I have the inputs, and there are usually only around six to seven variables.
Forecasting funding shortfalls
The big question for families is: when will the money run out? I can tell them the exact year this will happen. There will be changes in inflation, care fees and cash and investment performance. However, these variables are not volatile.
I look for any gap between the client’s net income and their total life costs. For example, a client with a net income, including attendance allowance, of £15,000 and care costs of £40,000, will have a £25,000 gap. This is the figure I want to know.
The options are:
- do nothing;
- invest the remaining capital and hope for a longer preservation of capital;
- purchase a care annuity for the full gap or a portion of it;
- a combination of the above.
Bridging the gap
I would prefer to close this gap with an immediate needs annuity if the purchase price was good value.
Using Voyant, I can show a family the exact month when the money paid out would be higher than the purchase price of the annuity. We assume care costs increase by 5% a year and capital growth assumptions are very conservative.
Annual reviews are paramount. I am on my fourth with some clients and it is staggering how accurate my original plans were, not including subsequent reviews that have nudged them back on course.
I have also planned for care with clients in their late 60s and 70s. I assumed total annual care costs of £45,000. If their confirmed income is higher than this, there is nothing to worry about. If there is a small gap of, say, £10,000 per annum, my clients could easily fund this from their capital.
Andrew Hart is a financial planner at Serenity Financial Planning and adviser trainer at the Voyantist.
Original Article here