Moving into aged care can be an emotional and stressful time for everyone involved. On top of the emotional turmoil, financial decisions need to be made.
We have a blog on navigating through the Aged Care system, and the steps that need to be taken to find the right home. Below, we’ll discuss the funding options and ways to manage to cashflow when moving into Aged Care.
There are several ways and combinations of payment options available:
1. A lump sum payment known as Refundable Accommodation Deposit (RAD)
2. An ongoing Daily Accommodation Payment (DAP)
3. A combination of both of the above
A RAD is similar to the deposit required when you move into a rental property. The RAD amount will be set by the facility and is fully refundable when you leave or will form part of your estate. You should be able to find out how much this is by searching the facility’s website or simply enquiring. Currently the average RAD is $350,000-$450,000.
The DAP is the daily fee required to fund your accommodation and care in the facility. This cost will be determined by the room price and the maximum permissible interest rate (MPIR).
Let’s say the room price is $500,000, the current MPIR is 4.01%:
$500,000 x 4.01% / 365 = a DAP of $54.93.
The government provides some funding for Aged Care, how much depends on your current assets and income (known as means testing or means assessment). This will determine if you need to pay the means tested care fee and how much.
You can combine both options above to help you manage your assets and cashflow. For example, perhaps you don’t have the full RAD amount, or you would like to keep some of that for other purposes (see below). You can then part pay the RAD and make up the rest in your DAP.
Let’s use the same details as above. The room price is $500,000, the MPIR is 4.01% but this time, you’ve paid a RAD of $200,000.
$500,000 - $200,000 x 4.01% / 365 = a DAP of $32.95.
Some Aged Care facilities will offer extra services, which of course, come at an extra cost. These are optional costs, and can include items such as wine with dinner, extra social activities and television subscription services.
Now you’ve got some ideas on how funding Aged Care works, let’s talk about making sure you have the funds to maintain your lifestyle, pay your DAP and have some extra left over for to spoil yourself.
If you choose to pay the RAD in full, this can help your cashflow as you will have very little outgoings for accommodation and care. However, not everyone is able to do that, and it may not be in your best interest to do so. For example, instead of selling your family home to fund the RAD, you may wish to keep the home in the family.
This fee is calculated based on your individual circumstances, including your assets and income to determine your Means-Tested Amount (MTA).
To help you maximise your entitlements, you could consider an Annuity. An annuity is a fixed term pension which will give you a guaranteed income.
Lifetime annuities receive special treatment under the Centrelink pension asset test, or the aged care means test. Meaning, you can still receive an income while maximising the government support available to you.
In our experience, the move to Aged Care happens quite suddenly. Luckily, there is a recognition of this across the facilities and you have 28 days from the day you move in to decide how to fund the care. This allows you time to seek financial advice and to consider all of your options before making such a large financial decision.
We can help you with determining the costs, protecting your assets, maximising Centrelink entitlements and ensuring you have access to funds to maintain the lifestyle you want. Give us a call and speak to one our Accredited Aged Care Professionals. Whether you’re in a hurry, or just thinking this might be the next step for you or your loved one, we can assist.
It is very important that you understand that the information above is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. It is also worth noting that the Australian financial and taxation system is ever changing, and the information above may no longer be relevant. Again, we suggest seeking professional advice from a financial adviser before proceeding.