Aged Care - What You Ought To Know

Most people want to remain independent throughout retirement and to stay in control of where and how they live. But your ability to do so may depend on your health and physical well-being. As we age, some things become harder to do on our own. 

If your ability to live independently starts to decline and you need help with daily living activities such as cooking, cleaning and personal care, you may need to move into residential care.

 

Tip: Residential aged care should not be confused with retirement villages which are independent living options and operate under very different fee structures

 


The costs for residential care are divided into three categories:

The daily care fees can be up to $112,840 per year, but a large portion is paid by the government. The contribution you would pay is between $19,239 and $47,578 depending on your financial means (as assessed by the Department of Human Services - DHS).

For most people however, the biggest concern is how to pay the large amounts quoted for a room. These range from around $100,000 to $2 million but will commonly be between $400,000 - $600,000. These lump sum payments are called Refundable Accommodation Deposits – RADs.

Seeking financial advice on what options you have for payment and funding strategies may help to minimise your stress. Let’s examine some of the facts around accommodation payments.

 

Fact 1 – this is not lost money

The first thing to know about RADs (paid since 1 July 2014) is that they are fully refundable when you leave care, unless you allow the service provider to deduct other fees to help with your cashflow.

Repayment is also guaranteed by the Federal Government if paid to an approved provider – an important thing to check when you are selecting a care provider.

 

Fact 2 – you don’t have to pay the lump sum

Accommodation payments are quoted as a lump sum but are also converted to an equivalent Daily Accommodation Payment (DAP). The interest rate used for this conversion is currently 4.01%.

For example, a RAD of $400,000 is converted to a DAP of $43.95 per day.

If you accept a place in a residential service, you can choose whether to pay the full RAD, the full DAP or any combination of the two. You don’t need to make this choice until 28 days after moving into care and the service is not able to pressure you to choose any particular option.

 

Fact 3 – even if you have less assets than the published RAD it may be affordable

If you don’t have enough assets to pay the RAD the first step may be to see if you qualify for government concessions as a low-means resident – this would require your share of assessable assets to be less than $173 075.20.

If you don’t qualify you will need to find a way to fund the full accommodation payment requested by the service. If you don’t have enough assets, paying a part RAD and part DAP may help, but only if you have surplus cashflow to pay the DAP.

One further strategy option is to pay as much of the RAD as you can afford and then instruct the service provider to take the DAP (on the unpaid amount) out of the RAD you have paid.

This option leaves your income to meet daily care fees and living expenses but reduces the RAD refunded when you leave. This can help you fund the accommodation payment to access the care you need.

 

 

 

Example

Bert is moving into residential care. He is a widower on the full age pension with a home worth $420,000 and $20,000 in the bank. The service he and his family have chosen is asking for a RAD of $530,000 (or $58.23 per day).

 

Bert is worried that he cannot afford a place in this service without asking his children for help. He sought advice on his options and decided to take the advice to:

  • Sell his home (with $20,000 of sales costs)
  • Use the net sale proceeds to pay a $400,000 RAD, leaving a DAP of $14.28 per day on the remaining $130,000
  • Instruct the service provider to deduct the DAP each month from his RAD

 

This leaves his $24,770 age pension to cover his daily care fees of $21,743 per year (this includes the basic daily fee and the means-tested care fee) plus some personal expenses.  His DAP is deducted from his RAD leaving Bert financially self-sufficient and keeping a $20,000 cash reserve to meet other expenses.

 

 

 

 

Disclaimer
The information contained in this material is current as at date of publication unless otherwise specified and is provided by ClearView Financial Advice Pty Ltd ABN 89 133 593 012, AFS Licence No. 331367 (ClearView) and Matrix Planning Solutions Limited ABN 45 087 470 200, AFS Licence No. 238 256 (Matrix). Any advice contained in this material is general advice only and has been prepared without taking account of any person’s objectives, financial situation or needs. Before acting on any such information, a person should consider its appropriateness, having regard to their objectives, financial situation and needs. In preparing this material, ClearView and Matrix have relied on publicly available information and sources believed to be reliable. Except as otherwise stated, the information has not been independently verified by ClearView or Matrix. While due care and attention has been exercised in the preparation of the material, ClearView and Matrix give no representation, warranty (express or implied) as to the accuracy, completeness or reliability of the information. The information in this document is also not intended to be a complete statement or summary of the industry, markets, securities or developments referred to in the material. Any opinions expressed in this material, including as to future matters, may be subject to change. Opinions as to future matters are predictive in nature and may be affected by inaccurate assumptions or by known or unknown risks and uncertainties and may differ materially from results ultimately achieved. Past performance is not an indicator of future performance.