Warrnambool’s aged care finance questions answered

Posted on 15/02/2016 by Warren Easley in Audit & Advisory
Warren Easley
Warren Easley is a Senior Financial Planner with Sinclair Wilson Investment Services and has been with the firm since 2005. He holds a Diploma in Financial Planning, an Associate Diploma...

There is no doubt, Australia is a country with an ageing population.

It was estimated that in the twenty years to June 2014 the proportion of our population aged 65 and over went up from 11.8% to 14.7%. This group is projected to increase more rapidly over the following decade, as further cohorts of baby boomers turn 65.

Over the past two decades, the number of persons aged 85 years and over increased by 153%, compared with a total population growth of 32% over the same period (and persons 100 years and over increased 263% or roughly 4000).1

And of course, as we grow older we tend to find we need more help with day-to-day tasks and health care. Some people are fortunate to have the assistance of family close by, while others will rely on the generosity of friends and availability of health services.

Sometimes the solution will be to consider moving into aged care, which can be particularly daunting for both the person needing care and the family members trying to make sense of the complexities surrounding Aged Care fees.

Putting aside the questions of the right care facility, or when to start the family discussions around your expectations regarding lifestyle and living arrangements; let us deal instead with the question of financing the move into aged care.

Aged care finance – how much approximately do you have to pay?

I like to think of aged care costs as consisting of two elements: accommodation costs and care costs.

Accommodation costs:
This is charged by the aged care home and is dependent on the type of room you would like to have. Accommodation costs vary from $180,000 to $550,000 in Warrnambool.2 It is important to understand that this is a ‘refundable’ deposit and does not have to be paid up front. Think of it like buying (or renting) a house. Aged care facilities may also offer ‘extra services’ for which additional service fees are payable.

Care costs:
These are set by the Government and consist of a basic care fee and an additional means tested fee. The basic care fee currently stands at $47.86 per day but is due to be indexed up on the 20th of March.

The means tested fee is assessed by the Department of Human Services and is based on your income and asset information as provided to them. The fee is applied daily but has both a yearly cap ($25,731.05) and a lifetime cap ($61,754.55).

e.g. If you are required to pay a $75 means tested fee:
You’ll pay $122.86 per day 343 days of the year and $47.86 per day 21 days of the year.
You’ll hit the lifetime cap roughly 5 months into your third year of care and no longer need to pay the extra $75 per day.

Whilst the calculation of the means tests is complicated, the my aged care website has a calculator that can assist residents to gauge the costs that might apply.

It is important to know that the Australian Government recognises that not everyone can afford to pay aged care fees and charges and has hardship provisions to ensure that you can still receive the care you need.

Hardship assistance will be granted in circumstances beyond your control, such as difficulties selling your home, but not due to a choice you have made (such as giving away your assets).

Where do you find the money?

Firstly, if you’re retiring with minimal financial assets and income, it is highly likely that you will be receiving a full age pension. In this situation I would anticipate that your care costs are likely to be limited to the basic daily care fee ($47.86) which is 85% of the basic age pension for an individual. Even if the value of your assets requires you to pay a small means tested fee; your aged pension should cover your care costs.

The cost of the accommodation however is where people tend to find difficulties.

One course of action, once you have determined which home to apply to, is to talk to one of our Warrnambool based financial advisers. We can sit down with you to explain the costs in greater detail and provide advice on your options to pay for the care you need.

The sooner you start planning the better. If you start the conversation with your adviser before the need to look at care arises, your advisor can bear in mind your wishes when reviewing and making recommendations to you with regard to your financial plan.

Some commonly asked aged care finance questions:

How is the family home treated for the purpose of aged care costs?
This can be a complex area because the answer lies in knowing more information about who is living in the family home and their relationship with the aged care resident. Depending on your particular circumstances; it is possible that the home will be exempt from the means tests for both aged care and aged pension purposes or it could be tested.

Do I have to sell the family home before moving into age care?
In short the answer is a resounding NO. In fact, you may be financially disadvantaging yourself by doing so.

I have heard that if you have under a certain amount of money you don’t have to pay. Is this true?
Possibly, but if your plan is to give away all your assets so you do not have to pay for aged care, I would strongly suggest rethinking. Gifting rules would apply and you would not be eligible for any hardship provisions.

Am I better to give my money to my family before moving in to aged care?
In some situations this can be a valid strategy however it has serious implications from a number of perspectives including your ongoing cashflow, Centrelink entitlements, Estate and succession plans. Getting professional advice should be an absolute must before taking any action and should be done with longer term view and objective in mind.

Aged care fees, aged care finance and the aged pension can be very complex. Rarely do questions have a simple answer which applies to everyone. A financial planner who understands this area, such as those at Sinclair Wilson in Warrnambool, can make finding the answers which apply to you a lot less stressful.

Sources:

  1. Australian Demographic Statistics, June 2014
  2. My Aged Care