- Analysis
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- Aged care
How to ensure you don’t end up in aged care limbo
By Rachel Lane
A retirement village with an aged care home on the same property can seem like a great long-term plan, with the idea being that if you need aged care it is ready and waiting for you.
For couples, it can represent the perfect solution in case one person needs to move into aged care, but the other doesn’t. However, while the physical barriers may be low – a path, a driveway or perhaps a lift to a different floor – the financial barriers can be significant.
People with assets above $201,231 need to pay the market price for their aged care accommodation.Credit: Getty
You see while the same organisation may operate both, the village and the aged care home each operate as a separate business. In the aged care home they need to keep a ratio of residents that are financially disadvantaged (known as low means residents) with those who pay the market price for their accommodation.
As a general rule, low means residents receive the full age pension and have assets below $201,231. People with assets above $201,231 need to pay the market price for their aged care accommodation. Moving from a village into aged care you can find yourself in what I call “aged care no man’s land” where your assets are above the threshold but not enough to afford the market price.
Let’s look at a couple of common scenarios.
John and Sally downsize to a retirement village, paying $700,000 for their new home. They have $500,000 in their investments earning 4 per cent per annum, and $25,000 of personal assets when John needs to move into aged care. The Refundable Accommodation Deposit (RAD) in the aged care home is $550,000.
If we assume that they use half of their investments to pay towards John’s aged care accommodation, his cost of care will be $133 per day – $48,545 per year. John and Sally will receive $58,048 per year in age pension and $10,000 in earnings. After they pay for John’s aged care Sally only has $19,500 per year of income.
Betty downsized to a retirement village 10 years ago, paying $400,000 for her home. She has $30,000 of investments and $5000 in personal assets. Betty’s care needs mean that she needs to move into the aged care home.
After she pays an exit fee of 30 per cent, Betty will receive $280,000 from the village. The RAD in the aged care home is $450,000.
While Betty waits for her unit in the village to sell she will need to pay a Daily Accommodation Payment (DAP) of $103 per day on top of her basic daily fee of $62. The DAP is calculated at 8.34 per cent per annum on any amount of unpaid RAD, in Betty’s case $450,000. When she receives the payment from her unit she can pay it towards her RAD, reducing her DAP to $39 per day.
A retirement village with aged care on the same site can be a great long-term plan, but you need to crunch the numbers to make sure that it is a plan you can afford.
Some of the important questions to be asking are: how much care can I receive in the village, under what circumstances would I need to leave the village, is there a guaranteed buyback if my unit doesn’t sell, and what is the price for the aged care home?
Rachel Lane is the author of the bestselling book Aged Care, Who Cares? and Downsizing Made Simple with fellow finance expert Noel Whittaker. The new edition of Downsizing Made Simple is now available online.
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