If you are planning how much you need to save for retirement, don’t forget to include the costs of aged care. This is not just the cost of residential care, but should also include care in the home or support services to help you live independently as you age.

Factoring in the costs of aged care is becoming increasingly important with the emergence of home care, increasing longevity (living longer) and the rising incidence of dementia. Having the capacity to pay for services increases your range of choices and your ability to retain some independence.

If you ignore the costs of aged care when planning the adequacy of retirement savings, you may fall short of predicting your real retirement income needs and run out of money too early.

The costs of home care

The costs of aged care have been increasing and are likely to continue to increase at a rate higher than inflation. When planning your retirement, consider the costs that you may incur in your latter years for:

  • Home care – home care costs can be difficult to predict and can vary from $100 a week to $5,000[1] a week depending on your care needs, family circumstances and your choice for what type of care you want. Government subsidies may help to drastically reduce the cost to you, but having adequate savings opens up the choices and ability to control the level and type of care received.
  • Capital expenditure – to make the home suitable for you as you age (e.g. widening doorways to enable wheelchairs and ramps).

Example

Francis is single and retires at age 67. She estimates that she will need $43,695 per annum in retirement[2] indexed to inflation. Her adviser calculates that she will need to save a superannuation balance of $658,000 (based on an investment return of 6% pa and ignoring Centrelink benefits) to fund her income requirements to age 90.

Francis would prefer to keep living in her own home in her older years. If she adds in the need to pay home care costs of $26,000[3] per annum (in addition to government subsidies up to $50,000 per annum) and one-off costs of $50,000 to modify her home when she reaches age 85 (in today’s dollars and indexed to inflation of 2% pa), the amount she needs to save is more like $750,678.

Her current goal leaves her short by $92,000 and her money is more likely to run out by age 87. This may also put more pressure on other family members.

Next steps

Call us if you want to review your retirement plans and factor in the costs of aged care. Don’t delay the conversation as starting sooner can increase your opportunities to meet all your retirement goals.

Quick facts on Aged care

 

[1] Estimate of cost for 24-hour a day private nursing.

[2] ASFA Retirement Standard for a comfortable retirement, June quarter 2017.

[3] Assuming full user maximum contribution for home care of $14,000 per annum plus $1,000 per month additional private.