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Aged Care Financial Advice (Part One – The Value of Advice)

If you’re getting older and your care needs are changing,  it can be a stressful time for family and friends to help us access the support we need. On the other hand, you might be helping a parent or other elderly relative navigate the process of entering residential aged care and don’t know how to go about it. Aged care can be a complex landscape to navigate, but fear not – your financial adviser is here to help! In part one of our series on aged care financial advice, we’ll be looking at the critical value provided by a financial adviser guiding you through the process, and an illustrative example of how it can stack up financially.

Aged Care Financial Advice – The Role of an Adviser

When it comes time to develop an aged care strategy, including the suitability of residential aged care, there are a few important items that your financial adviser will assess.

  • Assets and income: This one is relatively straightforward – your adviser will determine how your assets and income impact your liability for contributions to aged care fees, as well as any social security to which you are entitled that may contribute to your income sources. They will also help you understand how different types of assets and income are assessed for the means test.
  • Family Home: Many Australians choose to sell or rent out their family home to help fund residential aged care. As with any financial strategy, it is important to seek advice before choosing one path or the other, as certain tax implications (CGT for example) can arise depending which way you choose to go. Your adviser can assist with making the decision best suited to your individual circumstances.
  • Social Security Payments: Combined with savings and investment income, social security payments (e.g. Age Pension) can be an important source of funds, and assists with forecasting aged care fees and other living expenses as you age. Your adviser will help you determine what you’re eligible for, and how this contributes to your cash flow.

Information on the above points, as well as an understanding of you and your preferences, gives your adviser what they need to model the financial side of residential aged care and help you make informed decisions. This means that not only will you be in a better position to enjoy the type of care and location you desire, but will have confidence that funding is taken care of.

Aged Care Financial Advice – Case Study

To contextualise the positive impact of sound aged care financial advice, consider the following case study.

Aged care strategies in action – Margaret’s Story

About Margaret

Margaret is 85 and widowed. She was living on her own for some time after her husband passed away but has become frail with age. After researching her options with the help of her family, Margaret was assessed by an Aged Care Assessment Team (ACAT) as eligible for residential care and found a suitable aged care home to move into.

Margaret’s finances

Margaret’s residential aged care home has an advertised accommodation payment of $400,000. She agrees to that amount and sells her home to pay the Refundable Accommodation Deposit (RAD) of $400,000. She now has $300,000 in term deposits and $50,000 in cash and wants to explore other strategies for this money.

If Margaret leaves her money in cash and term deposits, based on social security and aged care rates and thresholds as of 20 September 2019, her year one estimated Age Pension entitlement is $21,798. Also, her total aged care fees are $29,335 (consisting of a basic daily care fee of $18,845 and a means-tested care fee of $10,490).

Her financial adviser’s recommendation

Margaret visits a financial adviser to find out whether she will be able to pay for her aged care fees and $2,600 per year ($50 per week) of other ongoing living expenses. The first strategy Margaret’s financial adviser considers is to retain her existing portfolio of term deposits and cash. Her financial adviser estimates, as illustrated in Figure 2, if the strategy was implemented, Margaret’s total ongoing aged care costs over the next three years are projected to be $88,496.

After factoring in her total income over the three-year period, including the Age Pension, there is a total shortfall of $13,302 that will need to be funded. Her adviser explains that the most appropriate strategy will be one that helps meet her ongoing cash flow and estate planning wishes. Many specialist aged care annuities are designed especially for those who are receiving, or planning to receive, Government-subsidised aged care services (including both home and residential care).

This will provide Margaret with a guaranteed monthly income for the rest of her life to help cover the costs of aged care and living expenses. In the event Margaret passes away, 100% of the amount she invested will be paid to her nominated beneficiaries, in this case her children. Such investments may also help reduce Margaret’s aged care fees and increase her Age Pension entitlements from the way it interacts with means testing rules.

To help Margaret achieve her objectives, her financial adviser recommends an investment of $300,000 into this annuity, retaining $50,000 in cash in case Margaret needs access to funds. Figure 1 compares the outcomes of the different strategies in year one, and Figure 2 illustrates the outcome after three years. By investing in this annuity, Margaret can improve her cash flow and maximise the value of any benefit payable to her children directly when she passes away.

Figure 1: Illustrating cash flow and estate planning outcomes for year one:

Year One
Strategy 1
Retain $350,000 in cash and term deposits
Strategy 2
Invest $300,000 in annuity, $50,000 in cash
Cash Flow
Investment Income
Age Pension
Less Personal Expenses
Aged Care Fees
Basic Daily Fee
Means-Tested Care Fee
Net Cash Flow
Estate Value (at end of year one)

Figure 2: Illustrating cash flow and estate planning outcomes over three years:

First Three Years
Strategy 1
Retain $350,000 in cash and term deposits
Strategy 2
Invest $300,000 in annuity, $50,000 in cash
Total Cash Flow
Total Aged Care Fees
Net Cash Flow
Estate Value (at end of year three)

As you can see from the figures above, seeking aged care advice and implementing the recommended strategies means Margaret has been able to achieve the following:

  • Guaranteed income stream for life through her annuity to help pay for aged care fees,
  • A $2,320 increase in her Age Pension entitlement, and $1,573 reduction in means-tested care fee for year one,
  • Improved net cash flow of $6,601 in year one, increasing to $19,282 over a three-year period, and
  • An increased benefit to her estate of $6,601, increasing to $19,284 at the end of year three (under each strategy the RAD of $400,000 will be paid to the estate).

Importantly, Margaret will be able to enjoy the cash flow and estate planning benefits past the three-year mark while she remains in care.

How MP+ Can Help

Preparing for life in Aged Care facilities and accessing available services involves a lot of moving parts, and takes time and preparation to get right. They key to getting the best outcome is to partner with an adviser – our Aged Care advice offering helps you understand the entire picture of your aged care journey, not just what you can afford. Your adviser works with you to present strategies and opportunities to maximise your cash flow, add value to your estate, and retain the care and lifestyle needs most important to you. Don’t delay, contact the MP+ team today on 08 9325 2411 (Perth), 08 9301 2200 (Joondalup), or via our website.

written by:

Nick has been in the financial services industry since 2008 as a financial adviser, and has completed a Master of Financial Planning (MFinPlan) and Advanced Diploma of Financial Services (Financial Planning) with specialist accreditations including Margin Lending and Self-Managed Super Funds.

Nick is passionate about helping individuals and families to create, grow and protect wealth so that they can focus on enjoying the things in life that are most important to them – and finds nothing more satisfying in his work than seeing clients achieve their goals – whether that’s a particular lifestyle goal, a comfortable retirement or going from financial distress to financial comfort.

Outside of work, Nick is all about family time with his wife and two young boys. Camping, four-wheel driving, Auskick coaching, surfing, swimming, and watching his beloved Manchester United.

Nick is an Authorised Representative of Fortnum Private Wealth Ltd.

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