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When we plan for life after retirement, we can often tend to focus on saving for a comfortable standard of living and travel. It can be difficult to factor in anything other than a happy and healthy journey as we get older, even if we know the reality can be very different.
Australians are getting older
The number of Australians over age 85 is set to increase from 400,000 in 2010 to 1.8 million by 2050. Along with an ageing population comes a rising number of age-related health problems such as arthritis, dementia and cancer.
Changing care landscape
Even without these illnesses, as medical improvements improve longevity, the percentage of people needing care is also expected to grow. Previously, communities could rely on friends and family to provide help if needed in the home, but the landscape for informal care is changing.
Smaller families, children living and working away, more women continuously in the workforce and changing attitudes mean a growing reliance on formal care arrangements.
The government’s latest data shows more than 1.3 million people access or use some form of subsidised aged care either at home or in a residential care facility.
By 2050, it is predicted that this number will increase to around 3.5 million Australians accessing aged care services every year.
Most people may never have to move from their own home into residential care, but this is where future planning can go a long way. Ask yourself whether you would or could rely on family, on government-subsidised services or pay privately using existing resources.
If you would choose to pay for aged care then the question becomes, where would the money come from?
Superannuation and cash savings are generally the two obvious sources of capital.
But if the focus for theses resources has been to fund a comfortable retirement, will there be enough in the kitty to cover your care needs as well?
Accessing equity in the family home
The family home may also become an important consideration in the funding of future care needs. Decisions may need to be made around accessing the equity in the home (such as through the Pension Loans Scheme) to fund care in the home or sell it to pay for necessary accommodation or care costs in residential care.
The current expectation is that the government will continue to (heavily) subsidise people’s care costs. Under the current system, the government does pay all or some of the bill for a large portion of home and residential care recipients – full pensioners are covered and part pensioners make a small contribution. But those with the means to pay are asked to do so.
Caps exist for the care costs associated with both government subsidised home care packages and government subsidised residential care.
Home care costs
There are two categories of government subsidised home care services:
- Commonwealth Home Support Programs provide basic home services, such as cleaning or transport on an ad-hoc basis at highly subsidised rates.
- Home Care Packages provide a co-ordinated package of services tailored to meet a person’s care needs. There are four levels of home care packages which carry a budget of between $12,000 for a level one and $54,133 for a level four.
The funds provide a budget to an individual to pay for services for their care. The individual chooses an accredited provider to manage the funds and deliver the services they require.
Depending on the individual’s income, they may be asked to contribute a maximum income tested fee of $11,013 a year for the care they receive. Everyone is asked to pay a daily basic fee of $10.54.
The package for the highest level of care may deliver about 10-12 hours a week of care.
It can be difficult for someone who lives on their own with high care needs to manage on a package without further help, which may mean topping up the package with private funds.
As a guide, the current rate for privately-funded home care services through an accredited provider is about $55 an hour (more on weekends).
Residential care costs
There are three costs associated with residential aged care:
- The accommodation costs
- A basic care cost
- A means tested care cost and extra or additional services
The accommodation cost is known as the refundable accommodation deposit (RAD) which is a market price set by a facility. This ranges from about $350,000 to $1 million depending on the age and location of the facility.
The RAD can be paid in full or in part, but any unpaid portion is charged as a Daily Accommodation Payment, which is effectively a daily interest rate set by the government. The current rate is 5.54% a day.
How you meet the RAD or DAP payments will depend on a number of factors including your existing income and assets; whether you have a surviving spouse or partner or dependent child who will be living in your home, and estate planning considerations.
If you move into care then you may have to decide what to do with a former home; whether to sell or keep the property. The outcome may depend on a number of factors including personal preferences, estate planning and the financial impact.
In addition to the cost of accommodation, there are care fees.
Everyone pays a basic daily care fee. This is set at 85% of the Age Pension and is currently $51.21 a day.
If you have financial means, you will be also be asked to make a further contribution to your care. This means-tested care fee is based on your income and assets and is capped at $27,532 a year.
In calculating the means-tested care fee, a person’s home will be exempt if a spouse is living in it. If no-one is living in it, then only $168,351 of the value of the home is included in the calculation.
Both the income-tested fee for home care and the income and asset tested fee for residential care are capped at $66,078 over a lifetime.
Plan to avoid pressure
Conversations around different care options and how they should be paid for are often difficult.
The worst time to have them is under pressure, for example, beside a hospital bed.
It’s inevitable that creating a future that will meet our needs and keep us safe and comfortable as we age will involve a greater focus on the actual delivery of services and how we will pay for it. One thing is certain – the preferred outcomes will always be better with some planning.
Bina Brown is a journalist and director of aged care solutions company Third Age Matters.