What is Aged Care?
For older people no longer able to live independently, aged care offers a caring environment to support all of their needs. Whether that’s in-home support, respite care, or permanent residential aged care (also known as nursing home care), there's different levels and associated costs at each stage.
For many, these different options also represent a pathway of next steps for degenerative conditions and increasing support needs as we continue to age.
How much does aged care cost?
The cost of aged care in Australia depends on the type of care you or your loved one needs, as well as your financial situation. In general, the government subsidise the cost of aged care, which covers accommodation, personal care, food. This is currently set at 85% of the single person rate of the basic age pension- representing a maximum basic daily fee of $56.87 per day, or $20,757.55 per year.
The amount you ultimately pay will however depend on the outcome of a Means Assessment Test, which isn’t fixed and can change over time. This determines your entitlement to government support, as well as any extra contributions if you have a higher level of income or assets. These depend on the assessment outcome and personal needs, but can vary from $0 and $358.41 per day.
To find out if you need to pay a means tested care fee, you can use an online fee estimator to give an estimate of what this amount might be. It’s a good idea to do this early, to give you an idea of how much to prepare to pay.
Regardless of your fee, there are however annual and lifetime caps that will put an ultimate limit on how much you have to pay. This is $30,574.33 per year, or $73,378.49 in a lifetime.
Strategies to pay for aged care?
If your assets are above $52,000, then you will be required to contribute some costs to your aged care. We outline some options below which might help soften this blow to the family finances:
Selling or renting your home
If you're moving into a residential aged care home then this will likely require a deposit, known as Refundable Accommodation Deposit (RAD). This is paid either as a lump sum or in daily instalments. However after the 6 month grace period, many sell their family home to cover this cost and the cost of care in general.
2. Move early
Planning a move in advance can reduce some of the upset and feeling of powerlessness in selling or renting your family home, which arises due to financial pressures.
Many aged care facilities offer live-in options with different levels of care intensity, including independent living apartments which allow you to maintain independence. You’ll have the option for increasing care support when and if the need arises, and a smoother emotional and financial transition into this elevated care. You’ll have the extra financial cushioning from selling or renting out your house in advance, as well as the benefit of familiarity in your environment at this time; even if the rest of your normality is changing.
It is however worth noting that selling your house will increase your family assets and potential contribution requirements for your care package.
3. Rent out your home
Renting your house can be another alternative solution to help pay for aged care costs, if emotional attachment is keeping you from selling. This can provide an additional source of income to pay for your aged care costs and help reduce the burden. However, similar to selling, it's worth noting that if you rent out your home it will be counted as an asset and may affect your aged care fees.
4. Take out a reverse mortgage
A reverse mortgage is a loan that allows you to borrow money, using the equity in your home as security. Whilst this represents another financial strategy to help cover aged care costs, it could also affect your ability to leave your home to your children or other heirs.
It’s common practice for Australian families to downsize once children have moved on. In planning ahead and thinking about the potential future care needs, many use a portion of this sale money to uplift their superannuation. This can generate more money for when they need residential care.
To Wrap Up
Regardless of which financial strategy you choose to support your ageing care costs, planning ahead is central to managing this burden. What's more, in thinking and preparing for care in advance you also reduce a the emotional strain from sudden and disruptive changes at an already difficult time.
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