Financial Planning for Aged Care: A Guide

Australia has one of the highest life expectancies in the world, with an average life expectancy of 83.2 years. But as more Australians live for longer, there has never been a greater need to get your finances in order and plan ahead for aged care. Being proactive about your financial planning for aged care can help you and your loved ones to prepare for the future. This can also increase your confidence in making informed decisions about your future care and finances.

What does the aged care system look like in Australia?

There are a number of different factors and considerations that need to be taken into account when it comes to financial planning for aged care in Australia. Before we get into this, though, it is important to first understand what the aged care system looks like in Australia and what some of the different support services are that may be available to you.

The term “aged care” is basically an umbrella term that covers a wide range of different services that are designed to support and care for older people who may no longer be able to live independently. Within this broader aged care umbrella, there are two main types of aged care: home care and residential aged care.

The first type – home care – is designed to help an older person remain in their own home. This may consist of a range of different services to support their health and wellbeing, including help with personal care, domestic assistance, transport, and basic medical care. 

The second type – residential aged care – involves an older person moving into a special aged care facility (which some people may also refer to as a “nursing home”). This option is designed for older people who are no longer able to live in their own home, as well as those who require ongoing assistance with their personal care, health needs, and daily living. With this option, the person has access to accommodation and 24-hour care from staff who assist them with their meals, personal care, nursing care, and other health services.

What does each option cost?

Both options come with a number of different fees, which will vary depending on your financial situation and the level of care that you require. These fees include basic daily fees (which can be up to 17.5% of the single Age Pension for home care and 85% for residential aged care), and care fees (which are means-tested, meaning they are calculated based on your assessable income and assets).

If you opt for home care, you will also need to think about package management and care fees (which may vary and are charged by care providers). For residential aged care, you will also usually need to pay accommodation costs. Depending on your financial situation and the care provider you choose, you may be asked to pay for your accommodation upfront (which is known as a “refundable accommodation deposit”, as it is refundable upon exit or death). Alternatively, you may be able to make interest-based daily payments (known as a “daily accommodation payment”). Additional fees may also apply on top of this for other care or lifestyle services.

There are a number of government-funded programs available to help with home care, including the Commonwealth Home Support Program and Home Care Packages (with four funding levels available). For residential aged care, the Australian Government also offers subsidies and supplements that allow older people to access residential aged care from approved providers.

It is important to note that the amount of government support you will be able to access will depend on your income and assets. This includes things like pensions, superannuation, property, savings, shares, investments, and other assessable sources of income and assets. A means assessment carried out by Services Australia will be able to tell you what subsidies you may be eligible for and how much you may be able to access in funding. Based on this, you will be able to calculate how much you will be required to contribute for your care.

There are many considerations that will need to be taken into account to determine which option is best for you: home care or residential aged care However, knowing what type of care you will prefer or require is important because this will influence the decisions you make from a financial planning point of view.

Some of these decisions will include things like what will happen to your family home. You may need to decide whether you will sell your home or rent it out to cover the costs of your care. There may be other options too, such as reverse mortgages, pension loans schemes, and home equity release schemes, that you may be eligible for, which you will also need to consider.

Thought needs to be given to how you will cover your refundable accommodation deposit, if you expect to go into residential aged care. If you do not have sufficient liquid assets to cover this, you may need to think about downsizing, selling off some of your investments, or drawing from your superannuation. Some care providers may also allow you to take a combined approach to payment, so that you pay a smaller refundable accommodation deposit but then also pay daily accommodation payments on top of this. This is another option that you will need to consider if you are concerned about how you will manage to come up with your refundable accommodation deposit.

You will also need to think about how your income and assets will affect your care fees, as well as your pension, taxes, and superannuation. For example, selling your property or investments may be helpful for funding your refundable accommodation deposit or care fees, but this can also come with tax consequences. Likewise, your income and assets will impact the level of government assistance that you are eligible for, so it is worth thinking about how you will structure your assets to minimise means-tested fees.

Both home care and residential care can have different implications for your pension, tax, and estate planning. Therefore, it is highly advisable that you consult with a qualified financial adviser, as they will be able to provide you with specific advice tailored to your personal financial circumstances and preferences for future aged care. They will also be able to help you estimate the cost of care under different scenarios and model how different asset strategies may affect your fees and pension.

Last but not least, it is essential that you ensure you have the proper legal documents in place to back up your financial planning – for example, a will outlining how your assets should be distributed when you die. An enduring power of attorney may also be advisable so that someone else is able to make financial decisions on your behalf, should you become unable to do so on your own. You may also wish to create an advance care directive outlining your preferences for future medical treatment and care. 

Ensuring you have the proper legal documents in place ahead of time will help prevent future stress and confusion, particularly if you experience cognitive decline, dementia, or other health conditions in the future that mean you are no longer able to make legal and financial decisions on your own.

As you can see, there are a number of different matters that need to be taken into account as part of financial planning for aged care. The key is to start the planning process early. Not only will this give both you and your loved ones peace of mind, but it will give you time to think about the different aged care options available to you so that you can make an informed decision about the one that is right for you. This will also lead to a better financial outcome, as you will have the time to seek proper financial advice and manage your assets in a way that minimises financial stress in the future.

_{This article contains general information about aged care planning. It does not consider an individual’s personal circumstances and therefore before relying on any content, you should ensure that you have obtained individual personal advice from a licenced Financial Adviser.}

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