My generation of baby boomers is often characterised as lucky. Born after the Second World War, we participated in the strong post-war recovery. A better term for us might be the ‘sandwich generation’ – sandwiched between our children struggling to buy houses and pay off student debt, and our parents as they live longer than previous generations.
My 91-year old mother is of the war generation. They saw doodlebugs, spitfires dogfighting with German 109s and years of rationing. Now they face a new set of challenges and her story sums them up neatly.
Seven years ago my mother suffered a severe stroke and was given only 24 hours to live. Amazingly she recovered completely and was even still able to drive too. Some wonderful neighbours and friends helped her through (although one problem of getting older is your friends start to die off).
When she became ill again this summer it nagged in my mind that unless she died suddenly she would at some stage need greater help. She was less able to go out and suddenly things we take for granted, like shopping, became trickier. She was also less keen to eat, which was very uncharacteristic. Despite my brother and me spending more time with her it was clear we couldn’t look after her daily and she was also forgetting to take vital drugs.
We needed some respite care for her. Social Services did try and help but my experience is they are overworked, undermanned and simply don’t have the time that is needed. My brother and I decided to look for somewhere local to us to find this care. We went on the internet looking around our local areas (we live about 40 miles apart). The first obvious problem we found is with people living longer many care homes are full up. The second thing you find is that it is very expensive, with rooms costing anything between £750 and over £1,000 a week.
Eventually, we found a wonderful place near Taunton that was a beautiful old Georgian type property with wonderful gardens, open space and a community of small mews type bungalows around it. My mother had lived in the same house in the suburbs of London for 60 years and was naturally reluctant to leave. However, this is over 130 miles from where my brother and I live, so I explained moving would be the best way to get her back on her feet.
We discovered that within the care home a one-bedroom bungalow was available at a cost of £265,000. My mother saw it and, amazingly, decided this would be a far better lifestyle than being alone in her own old house that needed more maintenance when she had little money. She loved the idea of a room overlooking the gardens with a telephone right next to her. The improvement after making the decision was dramatic. Within a few days she got her appetite back.
After this everything happened quickly. We sold her house far more quickly than I expected. My mother was lucky. Living in a London area meant that a three bedroom semidetached ended up going for the princely sum of £885,000. I am sure you can do the sums yourself but this suddenly meant my mother, who never had any money in her life, had a sum near £600,000 available after she had bought the bungalow.
However, she needed this money to fund maintenance costs and any extras she wanted from the care home. Given her age you might expect the easy answer was to put the entire amount in cash and live off the deposit interest, but this is where things get tricky. The incredible low rates of interest now available mean that even the sum of £600,000 put on cash deposit will not pay all the bills.
You could run down the cash, living on part interest and part capital. However, most people are reluctant to do this. I should also add my mother comes from a family who are quite long living. My great-aunt lived to 103. So the situation presents an ongoing conundrum.
The proceeds of the house were parked on deposit. I shall invest at least £100,000 into the HL Multi-Manager High Income Fund. This is a managed portfolio of bond and equity income funds giving a yield of approximately 4.5%, far higher than achievable on cash, and pays it monthly. The capital value will fluctuate, but really this doesn’t matter as it is the income level which is the all-important part. I may well add to this investment over the course of the next few months.
Given my mother’s age I am also looking to an enhanced annuity. Annuity rates may be low but given my mother’s age and past medical problems she is likely to get an annuity yield of approximately 20%. This would give her a regular income for life and should cover most of the bills. The capital may be lost but given the size of her estate, the taxman through IHT would take quite a large slug of the actual cost of the annuity. It isn’t even as high as £50,000. I will also add an ISA for this year in a similar income fund.
This leaves us with a still sizeable amount of money in cash, something in the region of £400,000. Given this brand new situation my intention is to leave it there while we see how things pan out. This is a big change in lifestyle. I always recommend that people make haste more slowly. You don’t want to tie all your money up on day one and then find you have lost all flexibility for the future and this is true for those about to retire too.
So a few weeks into the situation what am I finding? First a 16-page annuity form with a medical questionnaire that almost requires you to be a doctor it is not easy for an elderly parent or son to sort out. Secondly, while a new bungalow comes with a nice modern kitchen it is clear that many appliances are not designed for elderly people. The oven requires a five stage operation to put it on. An induction isn’t frankly much better.
But I have to say in the great scheme of things my mother is counting her blessings. She is able to live in this wonderful spot because she was lucky enough to live in an area where house prices have risen so much. As I have said to her many are considerably less fortunate. A great majority find themselves depleting capital at rapid rates because they have no choice.
One point I am very happy we didn’t do years before, although many people recommended it, was to use equity release. This would have meant my mother having considerably less money available when she really needed it. Always try and keep things simple is my rule.