03 February 2011
Did you know that life expectancy in Australia is extending by three months each year? That's not bad going for a developed society that, not too long ago, many had assumed had almost reached the longevity limit. It is also terrific news to those of us hoping for a long and healthy life.
But it does create its own issues. Currently, there are about 2.1 million people aged over 70. By 2020, there will be 3 million. And that is before the tidal wave of baby boomers begins to make its presence felt. There is a real question as to whether there will be enough aged care beds to look after all these people. Just to keep up with demand, an extra 8,500 aged care beds will need to be constructed across Australia every year for the next decade - and then the real pressure begins.
Investors need to develop an understanding of this critical issue both for their own sakes and for that of their loved ones. In quick summary form, here are the key issues:
- To get into an aged-care facility, individuals are assessed to determine whether they require low (hostel) or high (nursing home) care.
- Fees and charges are generally based on formulas set by the government. In low care, there is a government-stipulated basic daily care fee, a daily income-tested fee and an accommodation bond. In high care, there is a government-set basic daily care fee, a daily income-tested fee and an accommodation charge.
- Centrelink conducts the asset and income testing that determines the level of fees to be paid. The assessment is not compulsory, but someone who opts not to complete it will pay the highest level of fees.
- Accommodation bonds are not set by the government and are negotiable. They can be between $100,000 and $600,000, depending on the type and location of the facility and the level of services provided. In Victoria, the average bond is about $270,000, but in NSW it is higher.
- Anyone entering a standard nursing home is not required to pay an accommodation bond unless they opt for 'extra-services' like a choice of meals and massages.
- The maximum total of the fees in nursing homes is just under $50,000 per year, depending on an individual's financial circumstances and needs.
All of this can obviously create a significant financial strain that stretches beyond the individual. Frequently families want to put their loved ones in homes offering 'extra services'. Many are already reaching into their own pockets to do so.
In these circumstances, it pays to get any decision about aged care right. Here are some tips that might help:
- Plan, plan, plan: start thinking early about a suitable residence, because the process of finding the right place and getting assessed always takes time. Visit potential residences and do thorough inspections. There are websites that can be of assistance, like:
- Seek specialist financial advice to assess the options: There are a host of issues to be considered and with proper planning it is often possible to reduce the costs of the care significantly.
- If the payment of an accommodation bond requires the sale of a home, remember to leave time for it.
- Don't forget your bond - it is really an interest free loan and can be reclaimed by a resident or representative upon a move from one home to another and upon death.
Aged care is one of those topics that most of us prefer not to talk about. But from a lifestyle and financial perspective it can be one of the most important decisions we ever make - whether we are making it for ourselves or for loved ones. For that reason, it is vital that we take the proper time to consider the issues and get the appropriate specialist advice. In these fortunate times of longevity, the issue will not go away any time soon.
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Head of Funds Management
t +61 3 8610 2811
Chris Andrews is the Head of Funds Management for the La Trobe Group and has responsibility for the La Trobe Australian Mortgage Fund.
Read full profile here.
La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 115 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.
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