Putting aged care costs into perspective – a story

A growing number of Australians are encountering the challenges of assisting elderly relatives with the move into aged care. One of them was a new client of ours, let’s call him Rob. Recently, he had to help his formerly active 78-year-old mother, Mary, with the painful decision to move into care when she was struggling to fully recover from a broken hip. It meant leaving the family home she had lived in for decades, separation from most of her possessions, and moving into an unfamiliar environment surrounded by strangers. It was a time of great emotional stress for both of them, and adding to that stress was the discovery that Mary’s care would cost many thousands of dollars each year.

Sharing the costs

Australian aged care policy is based on the view that those who are financially able should contribute to the cost of their care. While people with little money will have their accommodation costs paid by the Australian government from their pension, a means test sees wealthier individuals paying for part or all of their aged care.

In Mary’s case, once the proceeds from the sale of the family home were added to her savings she had total assets of $1.2 million. This left her facing the following fees:

• A basic daily fee of $50.66[1]. Everyone entering aged care can be asked to pay this fee. The maximum basic daily fee is 85% of the single person rate of the basic Age Pension.
• Accommodation fees. These are set by the aged care facility and can be paid as a daily fee, by a refundable accommodation deposit (RAD), or a combination of the two. Mary opted to pay a RAD of $600,000. This sounds enormous, but the RAD is effectively an interest-free loan to the aged care facility. The interest the facility earns on this deposit covers the cost of accommodation, and following Mary’s death the RAD, less any deductions initially agreed with the care provider, will be repaid to her estate.
• A means-tested care fee of $50.30 per day.[2]
• Charges for optional services such as physiotherapy, hairdresser and internet access are in addition to these fees.

Mary’s base fee added up to $100.96 per day or $36,850.40 per year. That proved a bit of a shock for both Rob and Mary, but there was something they were forgetting which we were able to highlight.

The cost of independent living

When presented with an annual aged care amount in one hit, it’s easy to overlook the costs of independent living. In her own home, Mary’s living expenses were spaced out over weeks and months, and she really wasn’t aware of what they added up to.

In care, the fees cover most living costs. There would be no more council rates, insurance premiums, energy bills, food and related expenses to pay. Mary will still need to pay for personal items such as clothing, gifts and private health insurance, but the cost of her accommodation and care was not much more than what she was spending living at home.

A grim reality

Naturally, mother and son are concerned about how long Mary‘s remaining liquid funds will last, but the grim reality is that people who require high level aged care are frail. Only 20% of residents will survive more than five years, and one quarter will pass away within six months.

However, this may not be the case for Mary with both of her parents having lived to their early 90s. In other words, longevity will most likely be the biggest determinant of Mary’s total aged care costs.

This was a difficult conversation to have with Mary and Rob, but after a few weeks Mary was happy making friends at her new residence and Rob could relax knowing that his Mum was in good hands.

More information:

My Aged Care website www.myagedcare.gov.au “Income and assets assessment for aged care home costs”; “Residential Care Fee Estimator”

[1] As at September 2018

[2] As calculated by the Residential Care Fee Estimator at https://www.myagedcare.gov.au/fee-estimator/residential-care/form using $600,000 of financial assets and $600,000 of other assets (the RAD) as at September 2018