Leslie Massey
It is a common misconception that older Australians must sell their homes to pay for aged care. However, there are several alternatives to selling one's home to fund aged care in Australia. For instance, one could consider borrowing against their home, using other assets such as savings or stocks, or opting for a care home with lower fees. It is important to seek professional advice and understand the various options available to make an informed decision.
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What You'll Learn
Seek financial advice from a professional
When it comes to paying for care, selling your home in Australia is not your only option. It is a significant financial decision that can impact aged care costs and pension benefits. Seeking financial advice from a professional can help you explore alternatives and make informed decisions. Here are some reasons why seeking professional advice is essential:
Navigating Complexities
The world of aged care and financing options can be complex, with various factors influencing your choices, including means-testing rules, exemptions, and asset planning strategies. A financial advisor can help you navigate this challenging process, providing personalised advice tailored to your unique circumstances. They can guide you through the different options, such as accommodation deposits, daily payments, reverse mortgages, and government schemes, ensuring you understand the implications of each choice.
Protecting Your Assets
Your home is a valuable asset, and selling it can have a significant impact on your financial situation and future options. A professional advisor can help you explore ways to retain ownership of your home while still affording the necessary care. They can advise on strategies such as leasing your home, generating rental income, or accessing other assets or government assistance to cover costs. This way, you can maintain your property while receiving the care you need.
Maximising Pension Entitlements
Selling your home may affect your pension entitlements, potentially reducing the amount you receive. Financial advisors can help you structure your income and assets in a way that minimises aged care fees and maximises Age Pension or DVA entitlements. They can advise on favourable assessments for Centrelink and aged care purposes, ensuring you make the most of your entitlements while receiving the necessary care.
Weighing Risks and Benefits
Certain options, such as reverse mortgages or borrowing from family members, come with risks and considerations. A financial advisor can help you understand these risks and make informed decisions. For example, they can explain the implications of a reverse mortgage, where you borrow against the value of your home, ensuring you are aware of any potential pitfalls. Similarly, borrowing from family can impact estate planning and assessments for Centrelink and aged care, and a professional can help you navigate these complexities.
Peace of Mind
Seeking professional financial advice gives you peace of mind, ensuring you have considered all available options and made the right decisions for your financial goals and values. It can be a challenging and emotional time, and an advisor can provide impartial guidance, helping you and your family make tough choices. They can offer a fresh perspective, ensuring you take the time to consider all aspects before deciding whether to keep or sell your home.
Remember, selling your home is not the only option to fund aged care in Australia. By seeking financial advice, you can explore alternatives, protect your assets, and make informed choices that align with your financial well-being and future security.
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Understand the home care package pricing
Understanding home care package pricing can help you explore alternative options for financing your care needs. The Australian Government subsidises the cost of care for eligible individuals, making it more affordable to access the services they need. The government subsidy varies depending on the package level and changes annually. For instance, the subsidy for Level 1 - Basic care needs was $10,271.10 per year. The budget for the Home Care Package is a combination of the government subsidy and any additional fees that the individual may have to pay.
The basic daily fee is charged based on a percentage of the single basic age pension and varies depending on the Home Care Package level. This fee is adjusted every 6 months in line with the age pension and is published on the government website. Some individuals may not have to pay the basic daily fee, such as full-time pensioners or those below the income threshold.
There is also an income-tested care fee, which is an additional contribution determined by an income assessment. This fee varies based on the individual's income, including their pension. If an individual's income exceeds the tested threshold, they may have to pay up to $35.95 per day.
The Refundable Accommodation Deposit (RAD) is a lump sum payment that covers the cost of accommodation in an Aged Care Home. The RAD is comparable to buying a house, and it will be refunded when the individual leaves the home. The price of the RAD is set by the Aged Care Home and depends on factors such as the size, location, and amenities of the room. RAD amounts can range from $200,000 to over $1 million.
Individuals have the option to pay the RAD in full or choose a rental-style payment, known as the Daily Accommodation Payment (DAP). The DAP is calculated based on the RAD amount for the room, the maximum permissible interest rate (MPIR), and then divided by 365 to get a daily rate. For example, if the room cost is $400,000 and the MPIR is 8.15%, the DAP would be $178.63 per day. Individuals can also choose to pay a partial amount of the RAD and cover the remainder with a DAP.
It is important to note that each Home Care Package service provider charges differently, and their prices depend on the set prices, services required, and timing of those services. All home care providers must publish their price lists online to ensure price transparency, allowing individuals and their families to compare prices easily.
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Use other assets to cover costs
Aged care costs in Australia can be expensive, and you may feel pressured to sell your home to cover these expenses. However, there are several alternatives to consider before resorting to selling your home.
Firstly, you can opt to use other assets to cover the costs. This includes your bank savings, shares, superannuation, or retirement savings. It is important to note that certain assets, such as your principal home, may not be included in the assessable assets by Services Australia. They will determine the fees you need to pay based on your income and other assets. Additionally, if you are eligible for government assistance, the government may contribute to your accommodation costs, further reducing the financial burden.
Another option is to borrow against your home to access funds to meet aged care costs. This can be done through a reverse mortgage, but it is important to understand the risks and implications of such an arrangement before proceeding.
Furthermore, you can explore alternative financing options by considering care homes with lower Refundable Accommodation Deposit (RAD) amounts and fewer extra service fees. You may even choose to pay rental-style payments instead of a lump sum, or a combination of both.
By utilising these strategies, you can cover aged care costs without having to sell your home. It is always recommended to seek professional financial advice to ensure you are making the right choices for your unique situation.
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Consider a care home with a lower RAD amount
If you are looking to avoid selling your home to pay for care in Australia, one option is to consider a care home with a lower Refundable Accommodation Deposit (RAD) amount. The RAD is a lump-sum payment that covers the cost of your accommodation in an aged care home. The price of the RAD is set by the care home and can range from $200,000 to over $1 million, depending on the quality and amenities of the facility.
When considering a care home with a lower RAD amount, it is important to understand that you do not have to pay the full RAD upfront. You have the option to pay a partial amount of the RAD and cover the remaining cost through Daily Accommodation Payments (DAP). The DAP is similar to paying rent and is calculated based on the RAD amount and the maximum permissible interest rate (MPIR). By choosing a care home with a lower RAD and utilising the DAP option, you can reduce the upfront cost and avoid selling your home.
It is worth noting that the RAD is fully refundable when you leave the aged care home. However, if you choose to pay through the DAP option, the daily payments are not refundable. Additionally, paying a RAD may lock away your capital, and the level of RADs may overstate the actual cost of aged care accommodation. Therefore, paying through the DAP option might be a more suitable approach if you have considerable capital that you intend to leave as an inheritance.
When considering a care home with a lower RAD amount, it is advisable to seek financial advice and understand the potential risks and implications of different payment options. Each person's situation is unique, and a financial advisor can help you navigate the complex world of aged care financing and make the right choices for your specific circumstances.
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Take out a reverse mortgage
Reverse mortgages allow you to borrow against your home equity without needing to sell your home. This can be a good option if you're looking to improve your long-term retirement funding and want to access the savings in your home.
There are a few things to keep in mind when considering a reverse mortgage:
- Interest and fees are payable on a reverse mortgage, and the interest rate is typically higher than on a standard home loan.
- You don't need to make regular repayments on a reverse mortgage, but the amount you owe will grow over time as interest compounds.
- Reverse mortgages taken out after 18 September 2012 have negative equity protection, which means you can't owe the lender more than your home is worth.
- You can usually take the loan as a lump sum, regular payment, line of credit, or a combination of these.
- Your reverse mortgage loan is generally repaid from the future sale of your home, such as if you downsize or move into residential aged care. If you pass away while still in your home, the loan will be paid from the proceeds of your estate.
- A reverse mortgage may affect your ability to pay for aged care costs, future living expenses, medical bills, and home maintenance. It may also reduce the value of your estate when you pass away.
It's important to seek independent professional financial advice before taking out a reverse mortgage to ensure you understand the risks and implications.
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Frequently asked questions
No, you do not need to sell your home to pay for care. Your home is your own, and it is a common myth that older Australians must sell their homes to pay for care.
There are several ways to avoid selling your home to pay for care in Australia. You can use other assets such as bank savings, shares, or superannuation to cover costs. You can also look for a care home with a lower Refundable Accommodation Deposit (RAD) amount and fewer extra service fees.
A RAD is a lump sum bond that a nursing home will ask you to pay upon moving in. The RAD covers the cost of your accommodation and will be refunded once you leave. You do not have to pay the full RAD amount upfront and can instead pay a combination of the RAD and a Daily Accommodation Payment (DAP).
A DAP is a daily payment that covers the cost of your accommodation, similar to paying rent. The amount is based on the RAD for your room plus the maximum permissible interest rate, divided by 365 to get a daily rate.
Yes, it is recommended to seek advice from a financial advisor or aged care finance specialist before making any decisions about paying for care. They can help you understand the different options and choose the best course of action for your situation.
