Aged-care costs are an essential piece of the plan

It’s tempting to ignore the costs, but do so at your peril.

Why aged-care planning is vital

Planning your retirement can be exciting and absorbing. Less exciting, but equally important, is making plans for the aged-care years.

The reality is that we are all likely to experience some cognitive decline or lose some of our physical ability as we age. This is a natural process, but this does not mean we will all develop dementia or lose the ability to live independently.

It does mean, however, that at some point we may need to ask for help to complete our normal daily activities. This might be at-home help or help in residential care.

What do you need to plan for?
Based on figures from the Australian Institute of Health and Welfare (AIHW), you should plan for about 17 to 25 per cent of your retirement years to be ‘care years’. For example, if you expect a potential of 30 years in retirement, this might include five to 7.5 care years.

If asked, most of us would prefer to stay in our own homes as we age. Staying at home may be possible if we have lower care needs, if we can rely on the support of a capable spouse/family, or if we have sufficient financial resources to pay for help at home.

But if our care needs are too high for the people around us, or we don’t have good support networks, residential care might be a better option.

In any case, planning the financial aspects of your retirement should also include an assessment of how much you will need to pay for care. This is difficult to calculate because of the unknown factors around health, opportunities and finances.

Historically, the approach to retirement planning has been to decide what income you need and then calculate how much you need to save to generate this income. Most people assume a flat (or declining) level of income that grows in line with inflation. However, if you consider the cost of care, the pattern is more likely to follow an upwards curve as shown in the graph below.

In your early retirement years, you may spend more on leisure activities. This spending may decline as you age, but is likely to be replaced with the costs of care or in paying someone to do the activities you used to do yourself.

What does care cost?
The costs of aged care have been increasing, and opportunities have been expanding. The Government is increasingly focused on helping to expand and improve home-care opportunities.

Australia has a good system of care compared to many other countries, with safety nets to ensure people with lower financial capabilities can still access care. But the ability to choose and the options available may be more limited if relying on the low-means concessions.

How much you will need to pay is difficult to predict. Currently, it can vary roughly from $100 to $6000 a week, depending on the options chosen. This covers the wide range of options, from basic home-care packages to full-time nursing care at home. If you wanted to have 24/7 nursing care at home, you might need to employ four to five full-time nurses or carers to work eight-hour shifts.

Access to government subsidies and rules for calculating the fees based on your finances helps to make care affordable, but having adequate savings opens up your choices and your ability to control the level and type of care you receive.

These figures were current to 30 June 2018 and only cover the cost of care. Regardless of which option you choose, you also have the costs of accommodation and other personal expenses.

If you can afford them, top-up or additional services alongside these costs can make the difference in how comfortably you live in older age.

What to start thinking about
While we don’t know what our future holds, with some planning, we can help make our retirement a comfortable one and live it the way we choose. For example, we could:

  • Ensure we have a safe and secure income in place for life. This might be pension income, lifetime income streams or drawdown strategies from other investments.
  • Include our home as a financial resource available to provide a safe place to live. This might be a physical building, but it might also be access to equity to pay for our care needs by drawing regular income under an equity release arrangement, renting to generate extra income if we move into residential care, or selling to access the sale proceeds for other purposes.
  • Consider the impact on family and friends if relying on them to provide our care and allow for financial support to help them.

Planning to make sure we have resources available is important. Equally important is to ensure we have an Enduring Power of Attorney in place in case we need to give someone else the responsibility of making the decisions and paying the bills on our behalf.

These are all major decisions and can be too hard to make on our own, so advice from a financial planner who is experienced and accredited in aged care can help to remove some of the stress.

Aged Care Steps can help you find an adviser.

This article first appeared in the June edition of YourLifeChoices’ Retirement Affordability Index™, The Longevity Issue.

Do you have a plan for those years when you may need care? Do you have a clear idea of the costs involved?

 

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    Disclaimer: The information contained in this article is based on the understanding Aged Care Steps Pty Ltd ABN 42 156 656 843 (AFSL 486723, registered tax [financial] advisers 25581502) has of the Australian legislation at the time of writing. This information contains general information and may constitute general advice. Any advice in this communication has been prepared without taking account of individual objectives, financial situation or needs. It should not be relied upon as a substitute for financial or other specialist advice. Before making any decisions on the basis of this communication, you should consider the appropriateness of its content in regard to your particular investment objectives, financial situation or individual needs. We recommend that you see a registered tax agent or legal adviser prior to implementing any recommendations that you may make based on the information contained in this publication. Current to 30 June 2018.





    COMMENTS

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    tams
    22nd Jul 2018
    4:17pm
    In the next 5-7 years the paying of accommodation within residential aged care will change.

    Currently Residents have $22bn of their monies given to aged care providers and they get no financial return.

    Government understands this and will eventually get around for everyone with the capacity to pay daily. Based on a $550,000 cost of accommodation now, that is equivalent to $89.80 per day.

    In order to please providers, the interest rate would increase and reflect an amount of around $128 per day. With more residents staying longer at home and less time in residential care, the question is why would you hand over $550,000 for a short time.

    That daily payment will allow residents to pay for other services such as additional staff levels and services to meet their needs.
    Rae
    23rd Jul 2018
    10:44am
    Yes tams and some groups are already planning to stay in their own retirement set up and employ their own nurse and home help.

    The problem with greed is it eventually destroys itself which is a good thing.
    casey
    2nd Aug 2018
    11:12am
    If I can't take care of myself in my own home,and have a good quality of life it's bye bye world, and I'm outa here.
    Cheezil61
    2nd Aug 2018
    12:49pm
    Sad but true for me also & the odds aren't good here. Keep getting told happiness more important than money but can't live on fresh air alone (not sure how we buy food & pay the bills to keep any sort of roof over our heads without $ (& working a miserable job until we are 70) but some people think it's possible but they never elaborate or explain how you manage on dole/Newstart or such without being set up in a (new low maintenance house already with whitegoods etc that don't break down & decent low maintenance car/vehicles as well that dont need $ to keep running) to begin with-theses things don't just fall out of the sky!)
    The pom
    2nd Aug 2018
    11:50am
    You may have to include the cost of entry to a residential care home, generally over the $400,000 plus the usual fortnightly fees.
    Anonymous
    2nd Aug 2018
    2:32pm
    The bond you pay is payable to your estate on your demise...but the facility keeps any interest that was earnt on the money .
    Fliss
    2nd Aug 2018
    5:26pm
    And that RAD is counted as an asset which then puts your assessed daily payment up. Crazy!!! If you don’t have enough to pay the RAD & family pay it for you, it is still considered to be an asset & your daily payment is increased.
    KB
    2nd Aug 2018
    11:53am
    Cost of living and care will increase.If you are on a pension you are restricted with how much money you can have set aside, No wins for people low incomes, I looked after my mother ads she received very little help. Should have had more help. Care will depend on the physical needs of the person.
    Cheezil61
    2nd Aug 2018
    12:40pm
    Euthanasia i think as no way I'm ever gonna afford any sort of retirement far less one that needs either of the care options mentioned. I guess that's what government wants anyway -if we can't pay our way & save them paying us a pension & health care then go away & die & seems to be no other option the way things are going!
    chrissie
    2nd Aug 2018
    5:15pm
    If affordable, stay in your own mortgage free home and get people in to help with everything you are unable to do any more. At least you have your own things around you which is far less stressful than being "in care". Eventually it may be necessary, but until then stay put!
    Charlie
    2nd Aug 2018
    5:52pm
    So what happens to people who have no money to pay for care and living in rented flat.?
    Rae
    5th Aug 2018
    7:51am
    The Government has mandated that around 10% of places be available for those without assets so a bed is found and subsidised by the taxpayer and I suppose the $22 billion of other people's bonds.
    tams
    5th Aug 2018
    7:59am
    There are approximately 40% of aged care residents who are fully supported/partially supported by Government in both their care and accommodation.
    The $22 billion is the lump sum contributions made by the other 60%, some of who also decide to pay their accommodation on a daily basis.