Retirement
How will you pay for aged care: explained
By 2060, about a quarter of all Australians will be older than 65 so families need to understand how to engage with a “rapidly” growing aged care sector.
How will you pay for aged care: explained
By 2060, about a quarter of all Australians will be older than 65 so families need to understand how to engage with a “rapidly” growing aged care sector.
That’s according to the managing director and senior financial planner at Profile Financial Services. Phillip Win this week said that aged care is “an area that is growing rapidly” and which also “struggles to keep up with demand”.
However, he told families and individuals considering a move into aged care that there are three broad areas to think about when it comes to how to pay for it.
1. Accommodation payment
“To move into an aged care home, you will need to cover the costs for establishing residency in the facility,” he explained.
The first option is to make a lump sum payment. This is a Refundable Accommodation Deposit (RAD) that will be returned to the inhabitant or their estate once they leave the accommodation.
“Most facilities charge a RAD of around $300,000 but the RAD can be any amount up to $550,000 (or higher with government approval),” he said, noting that fees and move out costs will be deducted from the refunded amount.
As this fee “can be difficult” for some to pay, there is another option. Mr Win explained that inhabitants can “borrow” the deposit from the service and instead pay a daily Accommodation Payment (DAP).
“The facility calculates the DAP based on the RAD and the government-chosen interest rate (5.73 per cent as at 1 July 2017).
“For example, if a facility has a RAD of $300,000 the DAP would be $47.10 per day ($300,000 x 5.73 per cent/ 365 = $47.10).”
However, this option is still out of financial reach for some families, he acknowledged.
Clients in this category may qualify for ‘low-means’ care as long as they have less than $160,000 in assets and receive the full age pension.
“You will then have the option to pay a Daily Accommodation Contribution (DAC) which will be less than your DAP,” he explained.
“You should consider if low-means is right for you, as you will not be receiving the nice new room in the facility! Once you are classified as low-means, it cannot be undone, unless you move to a new facility.”
2. The everyday costs
According to government estimates, the daily cost of aged care for an individual is $244.97 each day. That’s nearly $90,000 in a year.
“When you consider the full age pension for a single is only $21,071, you can easily see the government is forced to supplement some of the costs for care,” he pointed out.
The first cost is the “Basic Daily Fee” which is paid by everyone who lives in an aged care facility. However, the calculation of the fee is controlled by the government at 85 per cent of the single person rate of basic age pension which is currently $49.07 a day.
The second cost is the “Means Tested Care Fee”. This fee is based off the resident’s current income and assets.
“The more assets you have, the higher the Means Tested Care Fee,” Mr Win explained. “For example, a non-home owner with approximately $250,000 of assets would pay a Means Tested Care Fee of around $15 per day.”
However, there are caps on the costs for residents who entered care prior to 1 July 2014. The annual cap is $26,380 while the lifetime cap is $63,313.
3. Cash flow
“The final phase of the aged care process is funding the ongoing costs. This is an area where a financial adviser can provide great assistance with the many questions that arise,” Mr Win said.
“For starters, the most common concern revolves around the family home. How is the home assessed? Does it have to be sold to provide cash flow?”
He explained that some alternatives can be used to release equity from their home or to help the children service the costs.
“Ultimately, the right decisions can reduce fees, increase entitlements, and minimise tax issues. It is also often possible to negotiate deals with providers.”
He also advised that people considering their cash flow and strategy also think about their wills and the way their estates are allocated.
“For example, if a home was originally gifted to a child as part of their inheritance, but then that home needs to be sold to fund aged care, then the will may need to be updated to reflect that change.”
Retirement Planning
‘Surprising and disappointing’ lack of innovation in retirement products
Despite an ageing population, the “surprising and disappointing” lack of retirement product information is holding members back, an industry expert has revealed. ...Read more
Retirement Planning
Aged care funding falls short of ‘once-in-a-generation reform’
The “once-in-a-generation” reforms have fallen short of the measures required to fix the neglected sector, industry experts have said. ...Read more
Retirement Planning
Aged care increases announced, but are they enough?
The government has announced more than $17 billion in assistance to the underfunded aged care sector over five years. ...Read more
Retirement Planning
Majority of Australians worry about their retirement
The majority of Australians believe in raising the aged pension as well as lifting the rate of superannuation to 12 per cent as they worry about having enough in retirement, new research has revealed....Read more
Retirement Planning
1 in 2 Aussies feels unsure about their retirement
With the majority of Australians concerned about their financial future, a superannuation provider has shared six tips to help Australians take control of their retirement planning. ...Read more
Retirement Planning
5 tips for a financially healthy retirement
While it is never too early to start planning for your retirement, it is also never too late, with just five simple steps enough to make a big difference to your financial position and ensure you have...Read more
Retirement Planning
PM unveils $452m funding package following ‘harrowing review’
The federal government has announced that it will spend almost half a billion dollars on immediate measures to help overhaul the aged care sector following the release of the aged care royal commissio...Read more
Retirement Planning
Retirement time bomb requires complex thinking
The majority of Australia’s super assets now sit in the hands of retirees and pre-retirees, but many require more nuanced investment strategies to achieve the lifestyle they want in retirement, a ne...Read more
Are you being priced out of the market? Have you got the Tuesday blues? And are you ready for the upcoming super changes?
Listen now
Are property prices set to crash? Should you jump on board the fintok craze? And how to prepare for this tax time
Listen now
Dissecting the budget and what it means for your equities, property and super
Listen now
Has the property market reached its peak; Biden’s climate summit and our sharemarket, and the upcoming budget
Listen now
Retirement Planning
‘Surprising and disappointing’ lack of innovation in retirement products
Despite an ageing population, the “surprising and disappointing” lack of retirement product information is holding members back, an industry expert has revealed. ...Read more
Retirement Planning
Aged care funding falls short of ‘once-in-a-generation reform’
The “once-in-a-generation” reforms have fallen short of the measures required to fix the neglected sector, industry experts have said. ...Read more
Retirement Planning
Aged care increases announced, but are they enough?
The government has announced more than $17 billion in assistance to the underfunded aged care sector over five years. ...Read more
Retirement Planning
Majority of Australians worry about their retirement
The majority of Australians believe in raising the aged pension as well as lifting the rate of superannuation to 12 per cent as they worry about having enough in retirement, new research has revealed....Read more
Retirement Planning
1 in 2 Aussies feels unsure about their retirement
With the majority of Australians concerned about their financial future, a superannuation provider has shared six tips to help Australians take control of their retirement planning. ...Read more
Retirement Planning
5 tips for a financially healthy retirement
While it is never too early to start planning for your retirement, it is also never too late, with just five simple steps enough to make a big difference to your financial position and ensure you have...Read more
Retirement Planning
PM unveils $452m funding package following ‘harrowing review’
The federal government has announced that it will spend almost half a billion dollars on immediate measures to help overhaul the aged care sector following the release of the aged care royal commissio...Read more
Retirement Planning
Retirement time bomb requires complex thinking
The majority of Australia’s super assets now sit in the hands of retirees and pre-retirees, but many require more nuanced investment strategies to achieve the lifestyle they want in retirement, a ne...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
