Ageing is a natural part of life and just as we plan for early milestones like buying a home or the arrival of kids, it’s worth laying foundations for old age.
Aged care can be a tough subject for many families to broach, but as we enjoy longer lives, there’s a growing likelihood that at least part of our final years will be spent in formal care.
The decision to move into aged care doesn’t just come with a raft of emotional issues. There are also financial considerations. That’s because nursing home accommodation can involve substantial costs, especially for self-funded retirees.
The costs involved
New residents entering aged care are often asked to pay an upfront accommodation bond. There is no set level for this bond – the only proviso is that residents must be left with at least $46,500 in assets (excluding the family home) after the bond has been paid.
An accommodation bond works like an interest-free loan to an aged care home. Any income earned from the bond is used by the aged care home to improve accommodation and services for residents.
As aged care facilities are generally free to set their own bond, it’s usually open to negotiation between families and the home’s staff. This can be a source of discomfort as it means revealing your financial worth to complete strangers. Simply being aware of how the system works can help you plan for it.
How do I pay my accommodation costs?
You can choose to pay an upfront bond by:
- a lump-sum style ‘refundable accommodation deposit’
- rental-type payments called a ‘daily accommodation payment’, or
- a combination of both.
The accommodation bond is generally returned to residents or their estate, if they move out or pass away.
But don’t expect to get the original sum back. The aged care facility is entitled to keep any interest earned on the bond and it can also withhold up to around $345 each month for the first five years as a contribution towards the upkeep of the facility.
Bonds vary widely and in some of our capital cities, the cost is running into hundreds of thousands of dollars. So it’s extremely important to consider all the facilities available and consider if a particular aged care home is the right place for you or your loved one.
Unfortunately, high demand for aged care, particularly high level care, often means families who haven’t done their research have to accept the first place that becomes available and that can see a mad scramble to find the bond money.
Basic daily fee
In addition to the accommodation bond, a basic daily fee is used to contribute towards your day-to-day living costs such as meals, cleaning, laundry, heating and cooling. Everyone entering an aged care home can be asked to pay this fee.
The maximum basic daily fee for new residents is $48.25 per day. This equals 85% of the basic age pension rate and it increases on 20 March and 20 September each year in line with changes to the age pension.
Means-tested care fee
This is an additional contribution towards the cost of care that some people – self-funded retirees in particular, may be required to pay. The Department of Human Services will work out if you are required to pay this fee based on your income and assets.
There are annual and lifetime caps that apply to the means-tested care fee. Once these caps are reached, you cannot be asked to pay any more means-tested care fees.
The government’s Aged Care website features a Residential Care Fee Estimator (www.myagedcare.gov.au/fee-estimator/residential-care/form) to help gauge the sorts of fees you could be looking at.
Funding it all
Meeting the future cost of aged care is just one aspect retirees need to factor into their investment portfolio.
The way your portfolio is structured can impact on your age pension entitlements as well as the costs you’ll pay for aged care.