Financial planning is essential at every stage of life, and aged care financial planning is no different. Whether it’s for yourself or a loved one, navigating the financial aspects of aged care can be complex and daunting. This guide can help you understand and prepare for the financial journey ahead.
Understanding Aged Care
Aged care in Australia offers a variety of services to support older Australians and can be broadly classified into several categories.
Different Types of Aged Care Options
Home Care: These are services provided in your home, enabling you to live independently. Services may include personal care, nursing, physical therapy, meal preparation, transportation, and domestic assistance.
Residential Care: This involves full-time living arrangements in facilities that provide personal care and health services if you cannot live independently. These facilities range from low-level care (retirement villages) to high-level care (nursing homes).
Short-term Care: Respite care, restorative care, and transition care are short-term options in aged care.
Respite care provides temporary relief for primary caregivers, and can be provided in your home, a day centre, or a residential care facility.
Restorative care aims to address difficulties you may experience with everyday tasks and help you regain independence.
Transition care, on the other hand, helps you return home after a hospital stay, rather than move into residential care.
Assessment Process for Determining Eligibility and Care Needs
The assessment process involves contacting My Aged Care, either by phone or online, to discuss your needs and assess your eligibility. If eligible, you will be signed up for an assessment conducted by either a Regional Assessment Service (RAS) or an Aged Care Assessment Team (ACAT). The assessor will visit your home, gather information about your situation, health, and daily tasks, and recommend appropriate services. This assessment is free of charge, and once completed, you will receive a letter within two to six weeks informing you of what services you may receive.
Aged Care Accommodation Options
The choice between residential aged care facilities, retirement villages, or staying at home with support services depends on your care needs, lifestyle preferences, and financial capacity. Each option has different cost structures and implications for your personal finances.
Residential aged care facilities – are residential settings that offer 24/7 care and support for individuals needing a higher level of assistance. They provide accommodation, meals, and access to medical and personal care services. Costs for residential aged care include accommodation fees, daily care fees, and additional services. These facilities operate under the federal government’s Aged Care legislation.
Retirement villages – provide older adults with a more independent living option. They offer self-contained units or villas, semi-detached units or high-rise apartments within a community setting and residents can access various amenities and support services. Financial arrangements in retirement villages include entry fees, ongoing fees, and potential exit fees. Accommodation in retirement villages is usually self-funded.
Supported living – is an accommodation option for those who want to maintain independence while receiving necessary support with daily tasks. It combines the care benefits of residential care with the independent lifestyle of a retirement village. Residents of supported living facilities receive personal care, meals, and activities. They typically pay for supported living costs, as the government does not subsidise this aged care accommodation.
In-homeaged care – offers tailored assistance to help individuals stay in their own homes for as long as possible while maintaining independence. The government subsidises home support services based on your needs and financial situation. Access to these services is available through the Commonwealth Home Support Programme (CHSP) or a Home Care Package (HCP), depending on the level of care you require. An assessment process determines your eligibility, and services can range from basic support for independent living to more comprehensive care. This option empowers you to remain at home while receiving help in your daily activities.
Aged Care Costs and Funding
Aged care comes with various costs, including daily fees, accommodation costs, and additional service fees. This can vary significantly depending on several factors including the type and level of care required, and the care location you would need. The Australian government does provide some funding for aged care, but individuals may also have to cover some out-of-pocket costs. Using a calculator such as this Fee Estimator would be very helpful in determining the costs for your unique situation.
Government support to help fund aged care services include the Aged Care Assessment Program (ACAP), Home Care Package (HCP), Residential Aged Care (RAC), and the Commonwealth Home Support Programme (CHSP). Your eligibility would be determined based on your personal income and assets.
Illustration of Aged Care Costs and Government Subsidies/Financial Support
In addition to these programs, you may be able to claim tax deductions related to aged care expenses. These deductions are income tested and are based on your adjustable tax income (ATI) and family status as of 30 June 2016.
For example, if you are single, have no dependents, and have an ATI of $90,000 a year or less, you can claim a tax deduction of 20% of net medical expenses related to aged care over $2,265. If your ATI is above $90,000, you may claim 10% of net medical expenses over $5,343. These deductions apply to aged care expenses, disability aids, and attendant care, but can only be claimed if you have used an approved care provider.
Aged Care Financing Options
There are various options to finance aged care based on your circumstances and finances. One option is a lump sum payment called the Refundable Accommodation Deposit (RAD), which can be refunded when you leave the aged care facility.
Another option is the Daily Accommodation Payment (DAP), where you make daily payments instead of a lump sum. You can also choose a combination payment, combining a lump sum payment (RAD) with ongoing daily payments (DAP).
Government subsidies are available to help eligible individuals, and financial hardship assistance is an option if needed. Personal savings and selling assets are other ways to cover aged care costs. It is wise to engage in aged care financial planning and consider factors like accommodation and additional expenses when budgeting for aged care.Assessing Personal Finances For Aged Care
Now that you know more about aged care options and their costs, it is time to take stock of your current financial situation. This is an essential first step towards planning for aged care.
1. Evaluate Your Current Financial Situation and Assets
Understanding your current financial situation and assets involves reviewing your income sources, savings accounts, investments, and property, among other things.
Income: This includes any money you receive regularly, such as superannuation income streams, social security benefits, annuities, dividends from investments, rental income, etc.
Savings: This refers to the money you have set aside in bank accounts, savings accounts and term deposits.
Investments: This encompasses shares, bonds, managed funds, and superannuation.
Property: This refers to any real estate you own, including your primary residence and any rental properties.
2. Determine the Affordability of Aged Care Options
After you have assessed your financial situation and assets, you can look at various aged care options and see what you may be able to afford.
Accommodation: The cost of accommodation in aged care can be paid in several ways. You can choose to pay a lump sum to “buy” the right to the room, make daily payments to “rent” the room, or use a combination of both methods. The funds to cover these costs could potentially come from your current assets, such as selling or renting out the family home.
Ongoing Costs: These include basic daily care fees, additional care fees based on your assets and income, and extra service fees for additional services provided by the facility. These costs will need to be met by the assets or income of the individual entering care.
Tax Deductions: You could potentially claim a deduction based on your net medical expenses, which include aged care costs. This deduction is income-tested and can only be claimed if you use an approved care provider. It is recommended to consult with an accountant to understand the details of claiming such deductions.
Budgeting and Cash Flow Management
Having a realistic budget and good cash flow helps ensure that you can comfortably afford ongoing aged care costs. Here are some key strategies:
Assess your income sources: Identify all sources of income, including pensions, investments, and other revenue streams.
Determine regular expenses: Take stock of your ongoing expenses, such as housing, utilities, healthcare, and daily living costs.
Consider future costs: Anticipate potential future expenses, such as increased care needs or modifications to your living environment.
Create a comprehensive budget: Develop a budget that accurately reflects your financial situation, considering both income and expenses.
Implement cash flow management strategies: Set up automatic bill payments, regularly review and adjust expenses, and explore opportunities to maximise government benefits or subsidies.
Periodically reassess your budget: Regularly review and adjust your budget as needed to maintain financial stability throughout the aged care journey.
Maximising Government Benefits
Government benefits, such as the Age Pension and Veterans’ Affairs pensions, can significantly help cover aged care costs. An aged care financial adviser can guide you on how to optimise your Centrelink entitlements and other government support programs.
Here are some key programs in Australia:
Aged Care Assessment Program (ACAP): Assesses your need for aged care services and determines eligibility for government funding.
Home Care Package (HCP): Provides funding for home care services for those with a moderate level of care need.
Residential Aged Care (RAC): Offers funding for residential aged care services for those with a high level of care need.
Commonwealth Home Support Programme (CHSP): Provides funding for community care services, such as home care, Meals on Wheels, and transport, for those with a low level of care need.
Carer Allowance: A payment for people who provide regular and substantial care to someone who is aged, disabled, or has a serious medical condition.
Carer Payment: A payment for full-time carers of individuals who are aged, disabled, or have a serious medical condition.
Aged Pension: A payment for individuals aged 66 and older who meet income and asset test requirements.
Carer Supplement: Additional payment for recipients of Carer Allowance or Carer Payment.
Disability Support Pension (DSP): A payment for individuals with a permanent disability preventing them from working.
Tax Implications in Aged Care
When it comes to tax implications in aged care in Australia, here’s what you need to know:
Tax-deductible: You can claim a tax deduction for net medical expenses. This includes your total medical expenses minus any refunds from the National Disability Insurance Scheme and private health insurance.
Not tax-deductible: Aged care accommodation deposits are not tax-deductible. Additionally, extra service fees charged by some aged care providers for additional services are also not tax-deductible.
It’s important to remember that the Australian Government provides subsidies for aged care based on individual needs. These subsidies can help you plan your aged care expenses.
Protecting Assets and Wealth Preservation
Proper aged care financial planning and decision-making can help ensure that your assets are safeguarded and used efficiently for your care needs. Some strategies for protecting your assets and preserving wealth once you enter aged care are:
Paying a higher refundable accommodation deposit (RAD): A higher RAD can reduce the amount of means-tested care fees that need to be paid.
Creating a Will and implementing estate planning: Creating a will is a crucial step to outlining how you want your assets to be distributed after you pass away. Additionally, estate planning can include setting up a trust and gifting assets to family members, within Centrelink exemption rules. These measures can help protect your assets and ensure they are distributed according to your wishes.
Downsizing your home and value home contents at fire sale value: Downsizing to a smaller home can free up equity that can be used to cover aged care expenses or invested in other assets. Furthermore, valuing home contents at fire sale value, instead of replacement value, can reduce assessable assets and preserve more of your wealth.
Taking out private health insurance: Private health insurance can provide financial support to cover the cost of medical care, protecting your nest egg and ensuring you receive the necessary care.
Reviewing and Updating Your Financial Plan
It’s important to remember that aged care financial planning is an ongoing process that requires regular review and adjustments. As your personal circumstances and aged care needs may change over time, it’s crucial to conduct periodic reassessments of your financial plan.
By doing so, you can ensure that your plan remains effective and relevant, enabling you to protect your assets and preserve your wealth as you navigate the aged care journey. Regularly reviewing and updating your financial plan allows you to adapt to any new developments, make necessary modifications, and stay proactive in managing your finances effectively.
Summary
Let’s recap the important points we’ve discussed in this guide. Aged care financial planning is a crucial step towards securing a comfortable future in your golden years. By starting early, you can protect your assets and ensure a smooth journey through aged care. You can also make the most of opportunities to mitigate aged care costs, such as government subsidies, tax deductions or wealth preservation strategies.
It is also good practice to seek guidance from a financial adviser who can help you understand your options, make informed decisions, and tailor strategies to your specific circumstances. Remember, being proactive and staying informed is the key to financial security for yourself and your loved ones in your golden years.
Take the First Step and Get Expert Aged Care Advice Today!
Talking about the future can be overwhelming and complicated, especially when it involves your aged care plan. But planning for your later years doesn’t have to be stressful.
By working with a qualified and experienced aged care financial adviser at Newcastle Financial Planning Group, you’ll be able to achieve peace of mind and an ideal lifestyle for you and your family.
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