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?
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.