Planning for aged care
Aged care is expensive and, with so many Australians living longer, the demand for facilities will only become more competitive. Plan early and you can help ease the transition for you or your family.
By independent financial planner Tim Mackay.
Groucho Marx once said: “Getting older is no problem. You just have to live long enough”. When he died aged 86, he cheekily suggested his epitaph should read: “Excuse me, I can’t stand up.”
Sadly, Groucho was declared incompetent in his mid-80s and a bitter legal fight ensued over who would look after him. So ask yourself – who will look after you (or your parents) when you (or they) can no longer do so?
Clients typically seek aged care advice in one of two situations – 50-60 year olds seeking advice for their parents; or older clients recognising their own or partner’s need for aged care services.
If you’re fighting fit and your folks are full-time jet setters, golfers and gardeners (and part-time child minders), then aged care may not be an immediate concern. If age is catching up with you (or your parents) then planning is crucial. Also be mindful that the shift from independence to requiring significant assistance can be unexpected and emotional.
Age shall (not?) weary them
One million Australians currently receive aged care services (forecasted to 3.5 million by 2050), of which 70 per cent are women, and 45 per cent are under 85 years old.
To put it in perspective – a woman at 65 has a 50 per cent chance of living to her 90s; a man at 65 has a 50 per cent chance of living to his late 80s. The Productivity Commission estimates that a woman at 65 has a 54 per cent chance of needing to move into aged care; for a man it’s 37 per cent.
We’re all living longer and your family or people you know will need aged care.
The average stay for low care is three years, for high care it’s 1.2 years. We typically advise to conservatively budget for three to five years in aged care expenses. Noting 19 per cent of women and 9 per cent of men stay longer than five years.
The myriad of aged-care fees is incredibly confusing. Depending on your type of care and your circumstances, you can pay an entry fee, a basic daily care fee, an income tested fee, an extra service fee, and an accommodation bond or an accommodation charge.
“How much will my bond be?” is the question that most confuses and concerns our clients. In metropolitan areas a typical bond ranges from $350,000 to $450,000 (bonds greater than $1 million for resort style homes are not unusual). Your bond is negotiated with your home, is paid in a lump sum or periodically, is government guaranteed, and crucially it is refundable (less an amount retained by the home of up to $19,080).
Expensive and confusing
Aged care is highly complex and expensive. For an excellent overview of the problems facing the aged-care industry, see Ben Power’s article ‘Falling into Crisis’ (August Charter).
Step 1: Undertake an ACAT assessment to determine high or low care.
There are two types of aged care – low care in hostels and high care in nursing homes. The ACAT assessment determines the level of care required based on individual circumstances.
Step 2: Visit a few homes and ask lots of questions to help demystify the process.
Research your options – you can select a home based on location, culture, religion, friends, facilities and feedback. Involve the family so everyone feels comfortable. Join the waiting list of your chosen home(s) ASAP.
Step 3: Undertake a Centrelink assets test.
Centrelink has a standardised test to assess your assets. While not compulsory, you should undertake it if you want government assistance for your aged care costs. Without an assessment, there is no limit on your accommodation bond (hopefully competition between homes ensures you are not charged egregiously).
Step 4: Plan and optimise your assets, income and cash flow.
Step 5: Negotiate fees, sign agreement, move in.
The rules change
From July 2013, the aged care rules change. Seek professional advice so that you understand your changing options and the financial implications. Involve the family in the process. If you plan, you can implement strategies to structure assets and income so you can afford the home you desire in the area you choose.