How to Save $173,000 on Aged Care

Rachel Lane from Aged Care Gurus shows you how

When it comes to residential aged care (what used to be called “nursing homes”) many people believe that if they don’t have any money, they won’t get in. Which is simply not true. You see, in residential aged care there are two groups: market price residents and low means residents. And the overwhelming majority of aged care homes need to keep a mix of each to receive government funding.

Market price residents, as the name suggests, pay the market price for their aged care accommodation. The aged care facility will advertise the price. You can pay any amount up to the advertised price, but not more than it. How you pay the price is up to you. You can choose to pay by daily payment, lump sum or a combination.

Low-means residents pay a contribution towards their accommodation based on their assets and income. The government “tops up” the amount the resident pays, up to a maximum of $59/day. Just like market price payers, low-means residents can choose to pay for their accommodation by a lump sum, a daily payment or a combination

But it’s important to know that as a low-means resident even though the amount you pay is based on your assets and income, doesn’t mean that it will be affordable. In fact, you can find that the amount you need to pay is more than the market price.

So what will you pay?

Well everyone in aged care needs to pay the basic daily fee, set at 85% of the Age Pension, currently $52.71 so that’s the starting point. Beyond that the means test will calculate a contribution to your accommodation costs based on 17.5% of your assets between $51,000 and $173,075 and 50% of your income above $28,101/ year for singles or $27,581 for members of a couple. The income threshold is based on the amount of income you can have to get the full age pension, so for most low means residents it is the asset test that affects them.

Now when it comes to the means assessment there are a few things to know. If you are a couple your assets and income are assessed jointly on a 50/50 basis, regardless of legal ownership. Your former home will be included in your aged care assets. This is up to a capped value of $173,075 unless a protected person lives there. A protected person includes your spouse or dependent child, a carer who has been living in the home for the last 2 years + and is eligible to receive an Australian Income Support Payment or a close relative who has been living in the home for the last 5 years + and is eligible to receive an Australian Income Support Payment.

CASE STUDY

Let’s look at the example of Shirley. She receives the Full Age Pension, she has $95,000 of investments and $5,000 in personal assets. Shirley’s daughter lives in her home with her and qualifies as a protected person.

Shirley’s accommodation contribution under the income test is zero. Under the asset test her accommodation contribution is $23.56/day which is $8,575/year. Shirley can choose to pay her accommodation as a daily payment of $23.56 or she pay by a lump sum. Her lump sum is calculated using a government set interest rate, currently 4.04%, which gives her lump sum of $212,252.

For many low means residents aged care fees cause a lot of financial stress. The accommodation contribution on top of the basic fee means Shirley’s cost of aged care is $76/day. This is almost $28,000/year and far more than her pension and other income. Paying a lump sum of $212,000 is likewise impossible. She could choose to pay by a combination. For example she may choose to pay $50,000 by lump sum. This would mean her daily payment would be $17.96 per day. This would reduce her cost of care to around $71/day which is $25,800/year and still more than she can afford. If Shirley pays a lump sum, she could choose to deduct her daily accommodation contribution from that amount. This would ease the pressure on her cash flow but reduce her lump sum to zero in around 13 years.

But if Shirley sought advice she may be able to reduce her assessable assets under the means test. This in turn would assist in making her aged care more affordable. Let’s say she sought advice and reduced her assessable assets by $40,000 – which could be through a combination of gifting, pre-paying funeral expenses and/or purchasing an income stream with an asset test exempt amount – Shirley’s accommodation contribution under the asset test would drop from $23.56/day to just $4.33/day and her equivalent lump sum would also reduce from $212,252 to $39,092.

Many low-means residents think that they can’t afford to get financial advice. Personally I think they can’t afford not to get it.

About Rachel Lane

Rachel Lane explains the ins and outs of retirement living and aged care like no-one else. Her ability to break down complex arrangements and explain the pros and cons is embraced by millions of readers and she frequently speaks on radio and television. As Principal of Aged Care Gurus she oversees a national network of specialist financial advisers. Rachel holds a Masters in Financial Planning and has written several books including the best seller “Aged Care, Who Cares?”