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Navigating the options of aged care

Successfully transitioning between in-home care services, retirement villages and full-care accommodation is all about making timely, well-informed decisions.

Buying, selling and moving house are among the most stressful times in life. Even more so when you are retired and your health begins to decline, along with your financial assets.

But that’s the position many of us will find ourselves in – unless we plan ahead.

“The earlier you start planning and putting money aside before you retire, the easier it is,” says Michael Rowland of Rowland Financial Advisory, on Queensland’s Sunshine Coast.

The difficulty is that no-one knows how long they will live or what their future healthcare and accommodation needs will be.

To make the most of your finite retirement assets, it’s important to understand your aged care options and what each will cost. Making a false move at this stage of life can be costly.

Retirement villages

Retirement villages are a lifestyle choice for retirees who want to downsize from their family home to a more manageable unit, but continue to live independently.

Most villages offer opportunities for social activities and some offer onsite medical support.

As recent media coverage has highlighted, village life doesn’t always live up to the glossy brochure.

Contracts can be complex – up to 100 pages or more – so seeking professional advice to understand them is highly recommended.

To work out the total cost of village living, you need to take account of ingoing, ongoing and exit fees and charges.

  • Ingoing costs. Village operators offer three main finance models: outright ownership via freehold or strata title; a lease agreement; or a licence agreement, where the ingoing contribution is treated as a loan to the operator in return for a licence to occupy the unit.
  • Ongoing fees. Operators also charge weekly, fortnightly or monthly fees to cover the costs of running the village (utilities, maintenance of common areas, staffing costs).
  • Exit fees. Often a percentage of the ingoing cost or sale price. An example is a deferred management fee where a percentage is charged for each year of residency. For example, a retirement village may retain an amount of up to 40 per cent after 10 years. Depending on the contract, you may or may not share in any capital gain. You may also be asked to contribute towards refurbishment of your unit before it’s sold.

Due to the ways exit fees work, you get better value out of village living the longer you are there, says Rowland. Often, though, the availability of in-home care services means people leave the decision to move later than is ideal.

It’s not uncommon for people to go into a retirement village quite late in life and then need to move to aged care soon after. In such circumstances, a large exit fee may be charged, which reduces the pool of assets otherwise available to fund entry into an aged care facility. When this occurs, it may have been better to consider other options from the outset, such as getting more in-home care or moving straight to aged care.

Rowland gives the example of an elderly woman who moved from her home into a retirement village, paying $330,000 for her unit. She agreed to pay an exit fee of 25% of the ingoing purchase price if she left in the first year, with that exit fee increasing to a maximum of 40% for year two onwards.

After just 18 months, her health deteriorated and she sold up and move into aged care. After exit fees and other costs, she walked away with $220,000. If she’d had higher-level care in her own home or gone straight into aged care, she would have been better off.

Retirement villages can, however, be a good stepping stone into full care. They offer enjoyable community-based activities and access to onsite care and general home care services such as cleaning and personal assistance.

Aged care accommodation

If failing health leaves you needing a higher level of care, you may need to move into an aged care facility. Costs will depend on the facility and level of services as well as your Centrelink Income and Assets Assessment, but generally break down into:

  • Basic daily care fee. This covers costs such as meals, cleaning and laundry. It’s set at 85% of the maximum single age pension and for some people will be the only fee payable. Others pay an additional means-tested fee.
  • Accommodation payment. You can pay this as a lump sum refundable accommodation deposit (RAD); periodically as a non-refundable daily accommodation payment (DAP); or a combination of the two. The RAD is refunded when you leave, less any agreed deductions. The DAP is calculated as the RAD multiplied by a predetermined interest rate and divided by 365 days.
  • Fees for additional optional services. These vary depending on your choice of facility and cover extras such as a higher standard of accommodation, wine with meals and hairdressing.

Being prepared for the next step is important. Where a person moves into a retirement village and then on to full aged care soon after, they could easily find themselves with substantially less assets in a relatively short time.

In the example above, the elderly woman had to fund an RAD of $450,000, but was left with only $220,000 from the sale of her retirement villa. To meet the shortfall, she had to pull extra out of her investments to cover the difference.

The difficulty is that no-one knows how long they will live or what their future healthcare and accommodation needs will be.

An integrated plan

Decisions about aged care accommodation are best made as part of a broader financial and estate planning process. Rowland makes sure clients seek legal advice to ensure they have a valid will and powers of attorney.

He gives the example of a client with dementia who needed to go into aged care.

“Her money was in super and her family couldn’t get it out to pay the RAD because there was no power of attorney. They had to go to the state government to apply for guardianship to act on her behalf.”

When you are working and building wealth, it’s difficult to see what might happen in 30 or 40 years.

“My advice,” says Rowland, “is to build the best asset base you can because it will give you more flexibility and a wider range of options for whatever needs arise in future.”

Getting the best advice

With so many options available, rules to navigate and investment strategies to consider, getting financial advice is likely to make a significant difference. You can find an adviser here.

Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) is the issuer of super, pension and investment products. This document may include general advice but does not take into account your individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) carefully and assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. A PDS for Colonial First State’s products are available at or by calling us on 13 13 36.