Understanding the cost of aged care
The cost of aged care can vary significantly depending on your circumstances. Understanding accommodation costs, ongoing care fees and how these fit into your broader retirement financial planning can help you prepare for the future with confidence.
In 2018, the Australian Government’s spending on Aged Care programs was over $20 bn. This is expected to grow at 4% per annum, ahead of total government spending growth of 2.7%. Older Australians also contribute directly to aged care costs through co-contributions, means-tested care fees and accommodation payments. Despite this, approximately 31% of home care providers and 42% of residential aged care providers report operating losses.
Changes in demographics are likely to see an increasing demand for Aged Care services coincide with a proportionately lower public revenue base to fund those services. To ensure your needs are catered for in the later stages of retirement, a greater emphasis is likely to be placed on self-funding for higher quality care services.
How aged care fits into your retirement plan
A comprehensive retirement plan should consider more than superannuation and investments. Incorporating aged care planning into your financial strategy ensures your retirement income, government entitlements and long-term care needs are aligned.
This raises several questions about how Australians can ensure their quality of life in the later stages of retirement moving forward. If we consider retirement as composed of three stages – early, mid, and late retirement, a common view is that spending is highest earlier in retirement (as retirees travel and take a well-earned break from work), decreasing into middle retirement (where the focus is on spending time and supporting young families and grandchildren) and lowest in late retirement, where the focus is on aging comfortably and with respect. However, as the commission has foreshadowed, substantial funding is going to be required to turn around Australia’s dated aged care system and this burden may increasingly fall to individuals.
Protecting your assets and your family
Effective retirement planning includes protecting your wealth and ensuring your wishes are carried out. Reviewing your estate planning, powers of attorney and financial arrangements can help safeguard your assets while providing certainty for your loved ones.
Careful consideration, therefore, needs to be given to what level of care may be desired/required and a sound retirement plan should ensure sufficient assets are preserved and earmarked to meet these needs. Plans should be made around how to deal with the family home, what assets (if any) should be sold to meet accommodation costs and how the ongoing costs of care will be funded.
Australia’s Aged Care system is complex, and not all assets and structures are assessed equally. By structuring your affairs efficiently, you can minimise the costs of aged care, increase age pension entitlements and ensure assets are preserved for the next generation.
Unfortunately, moving into residential aged care often coincides with a lack of capacity, making updating estate planning documents (such as Wills and Powers of Attorney) difficult, if not impossible. Even where a valid Power of Attorney exists, the person nominated cannot make amendments to their Grantor’s Will or superannuation nominations.
When should you start planning?
The best time to begin retirement and aged care planning is well before care is needed. Starting early gives you more options, more time to understand the financial implications and greater flexibility to achieve your retirement goals.
The Royal Commission outlined the challenges and underfunding issues facing the aged care sector today. While we hope the findings and proposed solutions will address many of these issues, it is clear from changing demographics that funding Aged Care will continue to be a challenge for governments moving forward. Future changes will therefore likely result in an even more user-pays oriented system.
Looking for financial advice? RSM can help you with your financial planning.
An experienced financial adviser can help you develop a personalised retirement plan that considers your lifestyle goals, retirement income, investment strategy and potential aged care needs, giving you confidence at every stage of retirement.
For financial services, contact your local RSM adviser today.
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The Royal Commission into Aged Care Quality and Safety has passed down its final report, outlining an extensive plan to overhaul Australia’s Aged Care system. The two commissioners have differed on a number of recommendations, and the proposed changes are subject to parliamentary hearings, however, if key recommendations are implemented, Australia will see a transformed aged care system in the coming years.
