People usually think this is expensive. And many assume they need to sell their home to pay for a lump-sum deposit.
But that’s not necessarily the case. Here’s what you need to consider.
You may get some financial support
Fees for residential aged care are complex and can be confusing. Some are for your daily care, some are means-tested, some are for your accommodation and some pay for extras, such as cable TV.
But it’s easier to think of these fees as falling into two categories:
To find out how much government support you’ll receive for both these categories, you will have a “means test” to assess your income and assets. This means test is similar (but different) to the means test for the aged pension.
Generally speaking, the lower your aged-care means test amount, the more government support you’ll receive for aged care.
With full support, you don’t need to pay an “entry deposit”. But you still need to pay the basic daily fee (currently, $52.71 a day), equivalent to 85% of your aged pension. If you get partial support, you pay less for your “entry deposit” and ongoing fees.
You don’t need a lump sum
You don’t have to pay for your “entry deposit” as a lump sum. You can choose to pay a rental-style daily cost instead.
This is calculated as follows:
You multiply the amount of the required “entry deposit” by the maximum permissible interest rate. This rate is set by government and is currently at 4.01% per year for new residents. Then you divide that sum by 365 to give a daily rate. This option is like borrowing money to pay for your “entry deposit” via an interest-only loan.
You can also pay for your “entry deposit” with a combination of a lump sum and a daily rental cost.
As it’s not compulsory to pay a lump sum for your “entry deposit”, you have different options for dealing with your family home.
This allows you to use the rental-style daily cost to finance your “entry deposit”.
Pros:
Cons:
If you have some savings, you can use a combination of a lump sum and daily rental cost to pay for your “entry deposit”.
Pros:
Cons:
If you sell your house, you can use all or part of the proceeds to pay for your “entry deposit”.
Pros:
Cons:
Keeping your house and renting it out (option 1 or 2) can give you a better income stream, which you can use to cover other living costs. And if you’re not concerned about having access to liquid assets in an emergency, option 2 can be better for you than option 1.
But selling your house (option 3) avoids you being exposed to a changing rental market, particularly if the economy is going into recession. It also gives you more capital, and you don’t need to pay a rental-style daily cost.
This article is general in nature, and should not be considered financial advice. For advice tailored to your individual situation and your personal finances, please see a qualified financial planner.
Colin Zhang, Lecturer, Department of Actuarial Studies and Business Analytics, Macquarie University
This article is republished from The Conversation under a Creative Commons license. Read the original article.
Why Is it always presumed that people get the aged permission – it seems to me that self funded retirees are the ones that are propping up the aged care homes as they have to pay ( often ) a million dollar bonds for aged care