The Age of Care

Having enough money for retirement is always at the forefront when it comes to retirement planning but there are finer details, like the actual physical space you will live in and the care provided, which need to be thought about too.

The most recent statistics (2017-2018) provided by the Federal Government’s Australian Institute of Health and Welfare (AIHW) state there are 207,695 places in aged care residence around the country. 

Those allocations have increased from approximately 184,600 in 2012, with there currently being a 90 per cent occupancy rate, and New South Wales, Queensland and Victoria accounting for 79 per cent of aged care locations.

Samantha Geelan, senior financial adviser aged care professional at Rethink Financial, said there would be a shortage of quality aged care providers in the future as different requirements were coming into effect which would put pressure on aged care facilities to provide a high standard of quality.

“The issue being it requires a level of expertise and staffing, a lot of facilities may not be able to provide that optimally,” Geelan said.

“If they want to be in the best type of facility, there are huge waiting lists that apply to those ones that do it well.”

With the ever-increasing ageing population, advisers must keep this a priority when it comes to planning their clients’ futures.

But is moving to an aged care residence the best fit? Or if leaving the family home that has been occupied for decades is undesirable, then is home care feasible?

According to the AIHW, the government spends around $18 billion on aged care, with $12.4 billion being spent specifically on residential aged care and $5.1 billion on home care.

WHAT CAN ADVISERS DO?

Louise Biti, director of Aged Care Steps, said aged care planning is just part of normal retirement planning.

“As soon as you start retirement planning, you need to contemplate aged care needs and issues,” Biti said.

“The last 15-20 per cent of our retirement years are likely to be periods of frailty where we need extra support and help.

“When planning for retirement, we need to be thinking about the adequacy of savings to get through not just the fun parts of retirement, but also the frailty parts.”

Figuring out how clients are structuring their assets, and making sure they appropriately select powers of attorney, naturally comes with the start of retirement planning.

It’s important to make sure there are adequate resources left for when they reach that frailty period, when there could be a struggle with independence and autonomy.

“It’s when they move from being in their active years to their quieter years, where they’re less keen to travel and are finding things a little bit more difficult,” Biti said.

“Whether where they’re living is going to be appropriate for the longer term or not, whether they need to make a change and how they start funding for those needs as well.”

Geelan said advisers with the proper background and client relationship should be able to flag the areas in which clients need the specialist support.

“That can include a review of the standard investments, but it should also be access to entitlements and government support services through retirement and ageing,” Geelan said.

“You also need to consider impact for wills and powers of attorneys — if it’s been structured correctly — and the impact these things have to their aged care, Centrelink, tax and legal matters.”

BUILDING THE FUND-ATION

Biti said everybody has different needs for aged care, and the finances and cost are quite different. 

“If we’re looking at all options, cashflows are the key to being able to pay them, once they get to residential care, they’ve got choices around paying lump sums instead of cashflow,” Biti said.

“But if they have cashflow, they know they can afford it whether it’s paying privately for services, people helping them, a home care package or residential care.

“It’s about making sure they’ve got investments that will create regular steady cashflow that can ramp up in the later years to cover those additional needs.”

Claudine Siou, senior technical services manager at IOOF, said one of the key considerations is the family home, especially if there’s a single person moving into an aged care facility.

“There are practical considerations that relate mainly to the locality of the facility, whether it’s within a certain distance of relatives and friends,” Siou said.

“But in terms of financial considerations, we’re looking at cashflow and if the person can afford to pay the fees, and whether they can afford to keep the family home.

“Especially if it’s being rented out to a related party or relative and they might not be getting the full amount of rent in that situation.”

The other common alternative is selling the family home, which can be used to cover funding of an aged care residence.

“We need to change the mindset that our home provides us somewhere safe to live,” Biti said.

“If they can no longer live in their home, then it provides the money to buy the next home, which might be residential care.

“Or it can be turned into equity that creates an income stream and cashflow to pay for the care needs.”

Siou said the most common decision she sees is to sell the family home because from a capital gains tax (CGT) point of view it can be exempt, as it’s been the main residence for the period of time they’ve owned it.

“It’s just more practical, often the home can be in a state of disrepair and that on-going maintenance can be a burden on relatives who might have to look after that person’s financial affairs,” Siou said.

Not everyone owns a home, and this will be a potential issue for many Australians in the future, for which planners will have to find alternative solutions.

“If they don’t own a home, you can’t fund a lump sum refundable accommodation deposit,” Siou said.

“If they do have the means to pay for some of their care, they’re paying high daily accommodation payments because they aren’t able to fund that lump sum which becomes a cashflow issue.

“If they don’t have other people who can support them in paying that, they would be better off staying in their home and paying the fees and receiving care in that situation.”

Geelan said it’s a fundamental flaw to assume people who don’t have substantial amounts of money can’t get value out of receiving advice in this respect.

If they can’t afford to pay their up-front accommodation costs because they don’t have a house or reach the asset threshold, clients may be able to be supported by the government.

“A lot of the lower means or lower socioeconomic clients can actually get the most amount of value,” said Geelan. 

“There’s actually a requirement with aged care facilities that receive government subsidized funding and support, they are required to have at least 30 to 45 per cent of residents in aged care facilities to be supported.

“If these clients don’t receive that advice beforehand, they’re worse off because they don’t have the money to be able to pay the full upfront accommodation costs.”

CARING AT HOME

Having a real estate asset to sell can work if they’re moving into an aged care residence, but if they choose to remain at home, this can create a funding hole if they require home care.

They might have the cashflow to cover it, but if not, there are other options to provide funding to cover home care.

Equity release is an important and valuable strategy available that can be used as an alternative solution.

“If it’s equity release using a reverse mortgage product, the government has improved its equity release program, the pension loan scheme, so that could also be an option,” Biti said.

“There are different sales schemes emerging in the market around where you sell part of your property off and continue progressively selling parts of it off.

“You still own it, you still have the right to live in it, but you’re progressively selling parts of it and getting extra capital which you can then use to pay for your care needs.”

ENDURING POWERS OF ATTORNEY

As wills only come into effect when you die, clients still to need to appoint an enduring power of attorney for when they lose capacity.

“There are studies that indicate your capacity to [make decisions] can actually start to decline from age 60,” Siou said.

“It’s really important to consider this, not when someone’s moving into aged care, but at an earlier stage in life.”

It’s a necessary appointment, regardless of whether you’re going to be staying in an aged care residence or going the home care route.

“Every single person should have an enduring power of attorney in place, which says ‘if I can’t make the decisions, or I choose not to make those decisions, here’s who I nominate,’” Biti said.

“They’re nominating who is going to act in their place and they can specify what sort of decisions they’re going to be able to make.

“Then they also need to look at whether you might need somebody to make decisions around what sort of care you get where you live.”