A growing number of Australians are encountering the challenges of assisting elderly relatives with the move into aged care. One of them is David. Recently he had to help his 82-year-old mother, Jan, with the painful decision to move into care. It meant leaving the family home she had lived in for decades, separation from most of her possessions, and moving into an unfamiliar environment surrounded by strangers. It was a time of great emotional stress for both of them, and adding to that stress was the discovery that Jan’s care would cost many thousands of dollars each year.

Sharing the costs

Australian aged care policy is based on the view that those who are financially able to should contribute to the cost of their care. While people with little money will have their accommodation costs paid by the Australian government, a means test sees wealthier individuals paying for part or all of their aged care.

In Jan’s case, once the proceeds from the sale of the family home were added to her savings she had total assets of $1.2 million. This left her facing the following fees:

  • A basic daily fee of $48.25 [1]. This is the same for everyone.
  • Accommodation fees. These are set by the aged care facility and can be paid as a daily fee, by a refundable accommodation deposit (RAD), or a combination of the two. Jan opted to pay a RAD of $600,000. This sounds enormous, but the RAD is effectively an interest-free loan to the aged care facility. The interest the facility earns on this deposit covers the cost of accommodation, and following Jan’s death the RAD, less any deductions initially agreed with the care provider, will be repaid to her estate.
  • A means-tested care fee of $50.96 per day.[2]
  • Fees for additional, optional services such as physiotherapy, hairdresser and dentist. Jan declined this option.

Jan’s fees therefore added up to $99.21 per day or $36,211.65 per year. That proved a bit of a shock for both David and Jan, but there is something they are forgetting.

The cost of independent living

When presented with an annual aged care bill in one hit, it’s easy to overlook the costs of independent living. In her own home Jan’s utility bills, council rates, insurance, food costs and visits to the movies were spaced out over weeks and months, and she really wasn’t aware of what they added up to. However, based on the ASFA Retirement Standard, it’s fair to assume that her annual expenditure was in the range of $23,160 and $38,587[3], depending on her standard of living.

In care, the fees cover most living costs. Jan will still need to pay for items such as clothing, gifts and private health insurance, but the cost of her accommodation and care may not be very much different to what she was spending living at home.

A grim reality

Naturally, David and Jan are concerned about how long Jan‘s remaining liquid funds will last, but the grim reality is that people who require aged care are frail. Only 20% of residents will survive more than five years, and one quarter will pass away within six months. In other words, longevity will most likely be the biggest determinant of Jan’s total aged care costs.

Supportive advice

The myagedcare.gov.au website provides a wealth of information. However, a move into aged care is one of life’s most stressful events and many financial and non-financial decisions need to be made, either by the person making the move or their family. A financial adviser with experience in aged care matters can provide both good advice and valuable support at this emotional time.

[1] As at June 2016

[2] As calculated by the Residential Care Fee Estimator at http://www.myagedcare.gov.au/fee-estimator/residential-care/form using $600,000 of financial assets and $600,000 of other assets (the RAD) as at June 2016

[3] As at March 2016