Aged care might not need a large lump sum
Understanding how aged care accommodation payments work and getting advice on your options can help to avoid the panic of trying to find a large lump sum.
If the prices for a room in residential care, have caused you alarm and led to concerns about how to find such large lump sums, you are not alone. We have seen many clients and their families facing the same stressful situation and have helped them to navigate through to an affordable solution.
Aged care room prices are quoted as a lump sum, with prices ranging up to $2 million for a room. On average, you might expect to be quoted around $400,000 - $700,000. This might cause you to panic if you don’t have that much money sitting in a bank account or you don’t want to sell assets.
The good news is that you have choices on how to pay. You might choose to pay a lump sum, but you could also choose to pay a daily fee and effectively “rent” the room instead. With a bit of research and good advice, you can choose the option that works best for you.
The bad news however, is that with interest rates going up, the daily “rental” price – called a daily accommodation payment (DAP) is getting more expensive.
For example, assume Mary is looking at an aged care room with a price of $500,000. If Mary moves in before 1 October 2022, at the current interest rate of 5% per annum this converts to $68.49 per day ($25,000 per year). If she moves into care from 1 October when the rate increases to 6.31%, the same $500,000 room would cost $86.44 per day, an extra $6,550 per year.
The Government reviews and resets the interest rate each quarter, and it is on the way up. October’s increase will set this rate at its highest point since 2015 and it is likely to continue increasing if cash rates keep rising. Although once you enter care, the rate becomes fixed so that you have some certainty with your planning. Only if you move rooms or move to a new provider will the rate change.
We would expect that this increasing interest rate, may see more people make the choice to sell assets and pay the lump sum but every family is different, so it does require full analysis of your cash flow and estate planning objectives.
When you are making the choice, it is not an all or nothing choice. You could choose to pay a part lump sum and then convert the unpaid balance into a daily fee. This is called “the DAP from the RAD strategy” and can help to stretch your money further.
We can give advice to review your total financial situation and not just at the start, but over your lifetime. One thing we know about paying for aged care is that it is complicated, and nothing stays constant.
If you need help to make your decision, call us on 02 6583 2211 to make an appointment.