American crooner Frank Sinatra may have sung about a few regrets in his classic My Way, but his lyrics also boasted that he “planned each charted course, each careful step along the byway” of life.
Regardless of whether Ol’ Blue Eyes’ choices were wise or not, the song’s message should resonate with anyone wishing to avoid financial decisions that lead to hardship and regret in old age.
The introduction of new aged care rules on July 1 are an opportunity to “do it your way” by planning now for a time when you may no longer be able to live independently.
The so-called ‘Living Longer Living Better’ reforms are intended to encourage the elderly to stay at home for longer before entering residential care. To this end, low-cost home care packages are available for those who, though partly incapacitated, still choose independence.
When the time comes to enter an aged care facility individuals must undergo a means test on all income and assets, including the family home, to ascertain if they can afford to pay for all or part of the service.
There are concerns, however, that unintended consequences of the new rules could leave some pensioners worse off if they decide to sell their home to pay for nursing home bonds that reduce daily care fees.
The complexity of the rules, and the fact that families are often forced to make hasty decisions at an extremely emotional time, make it doubly important to seek expert advice before liquidating assets ahead of entering a care facility.
An adviser can help families work out the best financial option, taking individual circumstances and preferences into account. They include an upfront lump sum payment, periodical payments, or a combination of the two.
In addition, there is a basic daily fee and a means-tested care fee for daily living costs such as food and laundry.
Among the reforms is the requirement for providers to advertise their rates. Lump sum payments range from approximately $250,000 to $550,000 for a room of around 14 square metres with an ensuite. Top-end accommodation with more than one room can command lump sum payments upwards of $1 million plus steep daily fees of $200 or more.vi In other facilities, service fees can vary between about $45 to $100
Sell or rent
Homeowners with insufficient cash to cover the cost of accommodation could consider renting out their property rather than selling.ix A combination of rental income and part-pension may provide enough money for living costs while preserving the family nest.
Under the new rules the value of the family home is capped at $154,179, where it is not resided by a spouse or an eligible person. But selling up to fund care could reduce an individual’s pension entitlement if the value of the home far outstrips the cost of care.
The means tests applies differently to couples where one individual remains in the family home, those who are living alone and individuals who still have a dependent in the home. On the plus side, annual and lifetime caps apply to the means-tested portion of fees.
Time to plan
The new rules only affect people moving into care after 30 June, 2014. Once you enter a facility, you have 28 days to choose how you wish to pay.
While the reforms offer more payment flexibility, they could also create a financial minefield for the unprepared.
Sitting pretty in his Beverly Hills mansion, Sinatra may have been able to fondly reminisce about his mistakes. But ordinary folk need to plan ahead for aged care to avoid costly regrets. If you would like to discuss your financial preparations and your aged care needed, don’t hesitate to speak with Joseph.