Aged Care – Navigating the Minefield
An ever increasing number of our clients are now faced with all the emotional issues that come with the realisation that a much loved family member needs to be placed in care. There are not only the emotional challenges that face many families, but also the financial assessments. Many of our clients have made financial decisions on aged care placements under stress without realising that their financial planner could have helped them to find the best solution. If you need help on aged care matters speak to your Smith Wealth Partners adviser.
The following provides some of the basic information that needs to be considered:
The Cost of Care
All permanent residents of government funded aged care pay what is called a ‘basic daily care fee’. This fee covers every day needs such as care, meals, cleaning, and laundry costs. At present the most likely amount that a self funded retiree would have to pay for this fee is $38.33 per day.
In addition to this, there is another ‘care’ cost called an ‘income tested fee’ which is the resident’s contribution towards their care. It is worked out depending upon the level of care needed and the person’s income. The maximum income-tested fee is currently $64.69 per day.
In a nutshell excluding accommodation costs, a self-funded retiree may have to pay from their own pocket.
Basic Daily Care fee: $38.33 per day
Income-tested fee: $64.69 per day
Total: $103.02 per day
That’s $38,000 pa!
The Cost of Accommodation
If a person is mobile, in reasonable health and doesn’t need a lot of help with day-to-day living, they will probably enter into ‘low care’ with an aged care facility. Unless their assets are below $39,000, a person entering low care would be asked to pay an Accommodation Bond, usually an upfront capital payment to the provider. Currently, based on figures produced by the Department of Health and Ageing in 2010, the average Bond paid is $232,276. It is common though for a Bond to be even greater and can exceed $1 million.
The Bond is like an interest free loan to the aged care provider and is meant to assist the provider in maintaining and improving the building facility.
A monthly amount is deducted by the provider from the Bond for the first five years and on leaving the facility the Bond is returned less the deductions. As well, people often move from low care to high care but the balance of the Bond is only refunded once the resident has left the facility permanently.
There is the option of paying the Bond:
– In a lump sum;
– By instalments; or
– A combination of both
If a Bond is not paid in full on entry, then the resident has to pay interest on the outstanding amount, currently 9% per year, until it is paid.
Many sell their home to pay the Bond. However there may be a number of reasons that a Bond cannot be raised in a lump sum. There may be estate planning reasons, particularly in rural families, that make it hard to sell off any part of the assets. Or, it may be that some assets, such as the family home, are hard to sell.
Those who have to pay interest on the unpaid Bond can find themselves facing a steep bill. Paying interest on an unpaid Bond of say $250,000 can add up – $22,500 per year. On a Bond of $400,000, the interest bill would be over $36,000 per year.
For those who need greater help, there are ‘high care’ aged care facilities.
Presently, there is no need for a lump sum to be paid to enter a government-funded high care facility unless there are extra services supplied. However, there is a daily cost called an accommodation charge. Again, as to how much a person has to pay depends on their level of assets. The maximum amount a resident can be asked to pay is $30.55 per day which is about $11,150 per year.
Self-funded retirees entering low care need to consider, in a worst-case scenario, how to keep their assets working to earn say $70,000 more or less a year to meet care and accommodation costs. Alternatively, they need to consider how to pay the Accommodation Bond in a lump sum and meet the care costs.
For a self-funded retiree entering high care, they need to consider, in a worst-case scenario, how they will generate an income stream of about $49,000 a year to meet:
– Care costs of $38,000 per year; and
– Accommodation charges of about $11,000 per year.