Topic Eleven: Aged Care

While it is hopefully some time before you need to make any decisions about your high care needs, we think it's worthwhile understanding the options and the financial impact of a move to aged care so you can consider this in your retirement funding calculations. In this episode we cover briefly the main type of costs associated with aged care.

There is no action plan for this topic but the link below is a valuable resource for further reading: Helping you navigate aged care, every step of the way | My Aged Care

Transcript

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Okay, welcome everyone to the 11th topic in the retirement school. And today I'm going to be talking about something that might be a bit left field because I'm going to talk about aged care. And I know that this course is designed for people that are 5 to 10 years out from retirement or have just recently retired, so I'm going to guess you're in your 50s and 60s mostly, and the median age of entry or for aged care services is over 80 years old. So you might be thinking, why are we talking about this now? This is 10 to 20 or more years away. And that's a fair view. But there's a couple of reasons why I wanted to include this in the course. The first is that you might have parents right now that are facing this choice of what to do with aged care, and it's part of family and estate planning, so it might be useful for you to understand from their perspective, but also to help you understand what a significant financial impact the choice or the need for aged care can have in your own retirement planning. So I often hear, and we talked about this in the topic on retirement income, that there's this view that most of the spending in retirement is done in the early years when you're traveling and you've got activities and maybe upgrading your house or your car or your caravan, whatever it may be. But there is a substantial amount of money that may be needed for health care and aged care towards the end of retirement, and that obviously isn't for everyone, but it's something that, if it came up, could derail your retirement plan. So it's something worth knowing about and understanding so that you don't dismiss altogether higher costs later in retirement. I think we're already seeing signalling from the federal government that with that wave of baby boomers coming into that age group where aged care and healthcare is a serious agenda item, the government can't fund it for everyone and may only be able to fund it in part or sometimes not at all if they think you've got the assets to do it yourself. And increasingly, I think we're going to see changes that say that you will need to fund aged care as part of your retirement. So that's why I thought it was worth talking about today. Now, there are two main options really for when healthcare becomes an issue as you get older. And the first one is to stay at home, and it's the one that I'm sure all of us would prefer for ourselves and for our family is to give care at home. And that can be if you get government assistance, not a huge cost imposition, and it's particularly if there's family support, it can be a great option in the early years of requiring some sort of support. The problem is if you can't get that public support, because it is very challenging to find services to assist with keeping people in their own homes. There just aren't enough providers, even though you might get the funding. And families being so busy these days, that support isn't always there either. So a couple of things can happen. Either you start to have to draw from your money to fund it privately, and it can be horrendously expensive. Making modifications to the home, you know, if you required something like a hoist or a special wheelchair shower or whatever it may be, can be expensive. But then the cost of care, particularly as you start approaching that need for everyday care, 24-7 care, is prohibitively expensive to stay home. So what we see is people start looking at what is the alternative, and that being an aged care or some might call it nursing home facility in those later years. And this is the one where increasingly the cost of this aged care is rising. There is just no doubt. So if we are looking 10 to 20 years down the track, is that going to be even more of a cost and a burden for us to bear that we've got to think about when we're doing our retirement planning? Now, when you get to the point of um needing aged care, and that might be even several years out when you start identifying health issues that you think might result in some need for 24-7 um support. This is when it is a good time to get financial advice. It's a very complex area. Some of these costs can be quite significant and involve a fair bit of planning. So I'm going to talk about the first one being a large lump sum that may be required, and this is the time when you've got assets that may not be liquid that need to form part of your planning and getting some advice on that rather than waiting until crisis time. And you know, and and someone in your family, whether it be you or someone else, needs aged care quickly and are caught out in terms of having the finances available to organise that. So let's talk through the four basic components of aged care. So the first is a refundable accommodation deposit, commonly called the RAD, another is a basic daily care fee, then there is a means tested care fee, and then there could be additional care fees charged by the facility that you choose. So we're going to go through each of these to understand how they might impact your finances depending on what your need is for them. Okay, so let's look at the LAD, the RAD, sorry, at a very high level. You can think of the RAD a bit like the bond that you pay when you're renting a residential tenancy. So a unit or a house, and it is the bond you pay to secure a bed or a room in an aged care facility. Now the rad scheme is administered by the federal government, it is based on means testing, and the rad can be zero. For people with low income and low asset values, particularly say if you're on the full age pension, you may not need to pay a rad. But I'm not going to beat around the bush, it is harder to find a room when you're not contributing a rad because the rad helps fund the aged care facility. So rads do become a big factor when it comes to entering aged care, they are getting higher all the time. So it used to be that an expensive rad was maybe around 600,000. Now that's kind of the norm for in the cities for a private room would be generally at least 600,000, and it is going up into the million dollar plus range. So what that means is that when you're a member of your family moves into aged care, you need to be able to put up a rad. Now it could be a lump sum, there is an option to pay it daily, and this is where you really need to get the advice. What is the best for your circumstances and what is available to you to pay this rad? It has to be paid pretty much at the time of entry. Now, there's a number of factors that determine the size of the rad. And so things like are you sharing your room or you're in a private room? Do you have an ensuite? Um, what are the facilities that are provided by the aged care home itself? Um, and most importantly these days now is the location of the home. So it's a bit like renting a unit. You know, if you've got city views in a city with a gym and a pool and an elevator, then you're going to be paying a lot more rent and therefore a lot more bond than you would out in the suburbs with pretty low facilities. So, you know, this is what's going to determine the size of the rad. So no two facilities are alike. You need to shop around a bit to find out what the range of rads are. The rad is capped at a maximum cost. So once you've been offered a place in a room, the rad will stay as it was on the day you were offered it. It's only if you change facilities or change rooms, either upwards or downwards, that you're going to be retested for how much of this rad you're going to need to contribute. So the means test determining how much you pay is pretty similar to the ones used by Centrelink for the age pension. It is determined by a different team. The one key difference is that the primary home may not be exempt. So unless you have a partner living in that and continuing to live in that primary home, your primary home may now become an accessible asset for this testing. It doesn't happen straight away. They do give you two years before it's fully assessed. And then even if it is fully assessed, it's a pretty generous assessment of the home's value. It's not on some inflated market value, but that's going to be the big difference in how it's and how it will impact you on means testing. And this is going to be a big difference for people who their primary home is their largest asset. So that is that is why you're going to need financial advice as you approach this sort of time of life. Now the RAD is refundable, so as the name suggests, but what we've seen recently is that the federal government changed it so that instead of getting 100% of the bond back when the person exits the facility, it's now a facility can take up to 10%. So that could change over time. So it's, you know, in the past it's like, well, the family rallies around, range um raises the bond, the rad for the family member to go into aged care, but then it will come back to them. Not necessarily the case now, and that's why paying by regular instalments calculated daily might be an option for families to consider. So if we talk for a moment about the primary home exemption, like I said, it won't be assessed for two years, and that's based on the need that the recognition that you may have to sell the home to fund aged care services. And this is a point where families have some really tough decisions to make, particularly if they want to keep the family home. So some decisions and discussions go on about should it be transferred to a family member rather than sold. But there are some consequences of doing this. Keeping the home in the person's name may mean that the asset asset test can be breached because of it. But you know, you can offset this by renting it out to generate income, but then that could have an impact on the income part of the tests. Transferring or selling the home to family members can mean that gifting rules are applied. And so we talked about this in the Centrelink topic, meaning that Centrelink and aged care assessors can consider that the capital value and the income value that would have been received from that home is considered to still exist for five years under a deprived assets approach. And so simply gifting it, you'd have to be aware that there could be an impact for at least five years from doing that. Selling the home can also be problematic because it generates excess assets. So whether the assets are in the home itself or in cash, it's going to be considered an asset and may also generate income, which can put some pressure on that means testing for the aged care testing for both the rad and then the means tested care fee, which we're going to get to. So when a person doesn't have sufficient cash flow or available liquid assets to pay for a rad, it can be tempting to f for families to step in and pay it on their behalf. And that is definitely the way that it's been done by many people I know. And this is well intentioned, but you've got to be careful here again that it's not treated as an asset or income for the person that you're helping out, and also when it comes to getting that refund of the rad, there could be an issue when it comes to estate planning. Because what happens is when a person exits aged care, the aged care operators will look at who is the beneficiary to return the rad to, and that is generally the beneficiary under a will. And so if one member of the family has put up the funding, it may come back to all beneficiaries if that is not put in legal terms in a formal agreement. So another reason to seek financial and legal advice when you're considering how to pay RADS. Now the basic care fee is a daily cost, it's set by the federal government, it's at a rate roughly equivalent to 85% of single-age pension. Everyone pays the same fee. There is no distinction here. And the facility may bill this monthly or quarterly or on another time frame, but it's similar, I guess, to paying like a body corporate fee. It's a person's contribution to the ongoing cost of care. So you need to have that availability to pay that basic daily care fee on top of any arrangement to pay the RAD that may be being calculated daily. Now there's a third fee, and this one can be really high for families to pay for, and this is a means tested care fee, and I think it's indicative of the federal government trying to get people with the wealth at their disposal to contribute more to their cost of care. So, as the name suggests, it's an extra charge for people with higher assets and income. It's once again determined, set by federal government, and there's sort of a sliding scale test, and the fee can be really significant, like up to about $105 per day on top of the basic daily care fee. So you can see how that could add up. There is some relief in that there's an annual cap to this fee, and there's also a lifetime cap. So the lifetime cap is exhausted after about two and a half years, which is great, except when you take into account that the average length of time people spend in aged care facilities is about two and a half years. So you know it will reduce over time, but it could be applied for up to three and a half years, therefore it's no longer payable. So you need to understand where you can get the funding to pay this extra means tested care fee. Um, once again, that'll form part of financial advice. Now, the last um fee that can be charged is that the facilities themselves can have higher level care packages, so they might have a gold, silver, bronze type approach. Bronze is the basic care. Um, so obviously, meals, your accommodation, the cost of having staff there 24-7 to look after healthcare needs. But what the facilities will do is they'll bundle bundle on extras, and it might be internet, or it might be Foxtel, or it might be a daily newspaper, or it might be added services like having a hairdresser come to your room, whatever it might be. This is another daily care fee, and because this one's optional, it may not be as big of a deal, but when you add the four fees up, aged care is expensive, and that's my message to you is why you need to consider this for the later latter part of your retirement planning. Now, it can be tricky if only one member of a couple needs aged care as well, and the other one wants to remain in the primary home. Um, as I outlined, as I outlined, you know, this can be good in terms of the the primary home is then exempted as an asset by centrelink or for aged care calculations. But the other thing that helps here is that with the aged pension, there's recognition that there are two people separated by no fault of their own, and so therefore they can apply to have two single pensions instead of the couple pension. But the reality is that even the single the extra money from a single pension probably won't make up for the fact that one person now has to split costs that two people were sharing before, and can cause families' difficulties, and the person remaining at home, you know, may not have the funds that they're used to to paying for their lifestyle. The person in the care facility is generally going to be okay because all of that is accounted for and taken care of up front. Now I've only taken a short amount of time to talk about aged care because I recognize that it's not relevant for most of you right now. Um, and it's just like I said to help with that planning so that you understand why you might need liquid assets, why you might need cash flow reserves, because we never know when that kind of care might be needed. And I would remind you that in the last topic I talked about some options with the home equity access scheme and reverse mortgages, and these might come into play when it comes for funding aged care costs now, taking a little bit out of what might be handed over in the will to beneficiaries at a later time. Obviously, there's no actions for this topic. I hope it's one that you don't have to consider for a very long time. But if you are seeking financial advice and you are worried about healthcare conditions now that might mean that there's an earlier entry in your family for healthcare, it'd be really great to let your financial advisor know that so that they can account for it when it comes to that planning for retirement. And also, I would say that there is a great website with more information. I'll put the link into that. It's called My Aged Care, run by the federal government, and it's a great resource to look at you know what help and assistance and more information is available for you. So that's it for the topic today, and I look forward to seeing you in our final topic, which is on estate planning, and we'll talk about some of the things we've mentioned today about wills and beneficiaries.