How real Australians cover aged care costs

I remember Jan phoning me looking for help to finance the cost of placing her 86-year-old father in aged care. While she had found an aged care home her dad was happy to move into, she was overwhelmed by the home’s refundable accommodation deposit (RAD), which was more than $500,000.

“How on earth are we going to afford that without selling the family home?” she asked me through tears. While selling the home her father had lived in was an option, her family were too emotionally attached to the property to sell it yet. There was the little garden that had been there for more than 30 years, from when her parent’s first bought the house, and her sister was planning to move from Western Australia to live in it in the near future.

The good news was that once I explained to Jan what a RAD actually meant – note the key word ‘refundable’ – and we looked at the options available to them, they didn’t have to sell the family home at all.

How much an aged care bed costs

If you are moving your mum or dad into an aged care bed, then the facility will charge a RAD, which is often in the hundreds of thousands of dollars. However, there is no need to be alarmed by what initially looks like an eye-watering sum.

The RAD is meant to cover the cost of caring for a resident in an aged care facility but if the resident leaves the facility or passes away while living there, the RAD is returned to them or their estate, minus the portion of the lump sum that was required to pay for their accommodation over whatever period they stayed in the facility.

While you can choose to pay the RAD in full up-front, you also have the option of paying it as a Daily Accommodation Payment (DAP). This means you will pay interest payments on the unpaid RAD at an interest rate set by the government, which is currently a maximum rate of 5.96 per cent. It’s important to note this interest rate is reviewed periodically so may be different at the time you or your loved one enters an aged care facility, but  the interest rate at the time of entry is then frozen for the duration of the residence.

The third option is to do a combination of both, which is what Jan and her family did. Once they looked at all of the assets, they chose to pay 50 per cent of the RAD by accessing their father’s superannuation and selling an investment property. They then paid the remaining 50 per cent as a DAP, so they could keep the family home they were so attached to.

Generally speaking, the government expects all Australians to pay for some or all of their own aged care accommodation, unless they can’t afford it. At present, if you have income below $27,460 a year and assets worth less tan $49,500 (including the family home), the government will pay for your residential aged care accommodation. And if you have income above $69,430 or assets worth more than $169,079.20, you’ll need to pay for the full cost of your RAD. If your income or assets fall between these bands, the government will part-pay for your accommodation.

As for Jan, she knew that the family home would be sold one day, but the payment option chosen for her father meant that it would be when the family was ready and on their terms. And it’s important to remember that any lump sum you you put down in return for a bed in an aged care home is coming back to you, minus accommodation costs, and it is government-guaranteed (providing you have paid a RAD to an accredited aged care provider).

Aged care costs and the Age Pension

Mark and Bernadette, a couple in their 80s, both needed aged care but were worried how they were going to pay for it. They were both full Age Pensioners with less than $10,000 in the bank and their home was their only other asset.

They were convinced that their only option was to move into an aged care home that was not as nice as their current home. They were also worried they wouldn’t be able to live together when moving into aged care. But once we broke down the options, Mark and Bernadette found they could live together in a beautiful apartment inside an aged care facility.

This apartment had everything they needed – a bedroom they could stay in together, a kitchenette and a courtyard. It also gave them the independence they wanted but they could still keep their full pension and would have access to the nursing care Mark really needed. They ultimately did decide to sell their home, but realising there were aged care options they could finance that made them truly happy.

The family home and aged care

While no one has to sell their home to receive the aged care they need, it is something many families will need to consider eventually. But it’s not the first thing you should think about when it comes to helping your parents move into aged care.

It sounds counterintuitive but a better way to approach this situation is to first focus on finding the best aged care accommodation for your mum or dad, and then decide on the best way to fund what they want. Of course, if your mother or father have been living in their home for most of their life, it’s natural for them to not want to sell that home, even if it is financially the better option.

However, once they moves into aged care and settle in, it’s common for those emotional ties to lessen and for people to see the situation more clearly. Mum may realise that the family home is sitting there empty and no one’s using it, and she may feel selling the home is the best option for her and the family after all It’s about giving people the time to process a big life change rather than feeling you have to rush them or yourself into making a decision.

Key aged care costs

In Australia’s aged care system, there are three common fees on top of the RAD/DAP to be aware of:

• Basic Daily Fee
• Means-Tested Care Fee
• Additional Services/Extra Service Fee.

Basic Daily Care Fee

A basic daily care fee helps to cover the costs of day-to-day living, including meals, cleaning, laundry, heating and cooling. The maximum basic daily fee for new residents entering aged care (including respite) is $51.21. This rate increases on March 20 and September 20 every year to coincide with changes to the Age Pension (the maximum daily care fee rate is always 85 per cent of the Age Pension paid to a single person.)

Means-Tested Care Fee

The means-tested care fee is an additional contribution towards the cost of aged care that you may need to pay, depending on an income and assets assessment by Centrelink. The maximum fee is currently $252.20 per day but there are caps that will apply to your means-tested care fee – both yearly and lifetime – so once you have reached these caps, you are not required to pay any further.

The means-tested care fee covers personal and clinical care such as bathing, grooming, specialised nursing services and assistance with medication. If you have been receiving home care services and paying income-tested care fees for this care prior to moving into residential aged care, these payments will contribute to your yearly and lifetime caps.

Additional Service Fee/Extra Service Fee

Some aged care providers will provide additional or extra services that are not covered in the basic daily fee or RAD payment, such as hairdressing, Foxtel, daily newspaper delivery, more meal choices and other concierge style services.

What’s the best way to prepare for aged care costs?

If your parents are reaching a stage of their life where they will need aged care, it’s better to have the conversation sooner rather than later. This often isn’t an easy conversation to have, so I have prepared this article about just that.

It’s also important to see a qualified financial planner, preferably with experience in aged care financial planning, before your start approaching aged care homes or services. Although there are choices for every circumstance, every situation is unique and should receive professional, individualised advice.

The more knowledge you have, the easier the process will be. Once people get true information – they have a real choice.

The names used in this story have been changed to protect privacy but every situation described is real.