Gold for the Golden Years

Living in Retirement


Superannuation is a popular media topic. Huge financial figures are headlined. Frequent comments are printed about potential change. This always implies changes to taxation. Or to put it more simply, a reduction in your standard of retirement living.

Invariably there are comments about about Government Policy favouring one group or another. This can be seen as part of the Australian tall poppy syndrome. It can also be related to improvements in welfare. The next step from using Superannuation to live in retirement is to consider what happens when we need help in living in retirement.

The latest estimate of population in Australia over 70 from the Bureau of Statistics is 2,336,596 as at 30th June 2014 (2,194, 389 as at 30th June 2012) and increasing. Superannuation is important to an overwhelmingly large number of this population. A substantial proportion of the population is receiving (and increasing numbers will receive) Aged Residential Care. This is referred to in bureaucratic circles as Beds. Sometimes referred to as Aged Care Places. A better description would be Living Spaces.

According to a study based on the Australian Government’s Annual Aged Care Census the number of Aged Care places in 2012 was 184,993.

So we have an indication of a large demand probably not being met. The possible connection between Superannuation and Aged Care does not seem to receive much attention. The fact that there are a lot of people looking after themselves is a tribute to the Australian Population.

Aged Care Accommodation

There is a big industry supporting Aged Care. Some of this industry is Government Bureacracy. So that means it is complicated. To simplify it we divide it into these categories knowing that there are many grey areas.

  1. High care residential (formerly known as nursing homes). It is for people who find it difficult to look after themselves

  2. Low care residential (formerly known as hostels). For people who can look after themselves most of the time. It can also be temporary or to provide respite . These two additions are two of the grey areas.

  3. Home based care (relatively new) An increasingly popular alternative with visits from health professionals, assistance with their domestic needs,(cleaning/ laundry/ house and garden maintenance/ meals, and similar assistance). It is good for people whom with assistance can continue to live in their home.

  4. Retirement Villages (sometimes combining all 3) can also be relatively low care.

Generally speaking the categories are subsidised by the Government. The higher the level of care/support the greater the Government subsidisation. Increasing costs are inevitable both from increasing demand and higher unit costs of looking after the Aged Care spaces. Changes to the funding arrangements are always being considered to reduce the drain on the taxpayer. The important consideration is that we (the taxpayer) will be looking for some sort of sympathetic accommodation as well. Retirement Villages are not subsidised by Government – except for some home care which may be provided to some residents.

There are two ways of looking at these costs. The first is the obvious one of what will it cost the individual? The second is what is it costing the taxpayer? There may not be a direct linkage but the Government Policy will always effect the costs to the individual taxpayer.

Financing Aged Care

First an obvious disclaimer. Lifestyle villages for people 45 years and over are not being considered. Lifestyle villages are for fit people who want to live in holiday mode all the time. It takes the place of owning a home.

Costs will be higher for higher care. Government subsidies also increase to attempt to keep the costs to a reasonable level.

Financing Retirement Villages and Residential Care

People are only too aware that getting older can be a minefield. The first things springing to mind are Finance and Health. Lifestyle is connected to both. Care is also a significant factor. There is also the adult (and at times dependant) offspring that have a major interest in their parents’ retirement circumstances.

The move to a retirement village can be appealing as a “downsizing” and a different lifestyle option.

However, there are costs to consider:

There are regular monthly facilities levies. A suitable representative figure would be around $400. Most residential living costs would continue to be met by the retiree. It depends on the circumstances of the residential agreement  with the corporate management of the village

Financing the move to a village would normally come from the sale of the family home. When the family house is sold it should pay for a unit in the village . Assume the cost of a unit (noting that it has probably been lived in before but will be in good condition) is $400,000. When the unit is eventually sold the first 30% of gross sale proceeds are retained by the corporate management of the village. This helps to pay for the refurbishment of the unit and a profit margin for the village management.

e.g. if unit is later sold for $400,000 then 70% of the sale price of $400,000 is $280,000 less selling commission(say $22,000) The amount returned to the retiree is a net $258,000.

Residential Care

Financial rules are very complex and can vary significantly depending on personal health and financial circumstances , including eligibility for the aged pension.

Accommodation bonds are requested by each facility. In Western Australia they can vary from between $200,000 to $690,000 per resident.

Any shortfall in the accommodation bonds requested is charged as a daily fee with the amount calculated using a set interest rate – currently 6.23% pa.

Other fees can include:

1. Basic Fee currently $47.20 per day – calibrated as 85% of the single daily pension. It is payable by all residents.

2. Means Tested Fee – A daily fee payable by residents. Centrelink  determines the amount of fee to be paid based on their assessment of income from all sources plus assets. This is a complex area particularly regarding assets -including the family home if it has not been sold nor occupied by a dependant. 

3. Extra Services Fee can be charged by some facilities which provide additional services (other than medical services) for residents. This can be paid ‘upfront” as a bond,e.g.$330,000 or as a daily fee calibrated at an interest rate set by the facility, eg.4.2% on outstanding amount of bond.

Generally, the higher the amount of the accommodation bond the better the standard and amenity of the accommodation, general services and food.

The base line level of essential medical care is universally applied irrespective of individual financial circumstances.

The Extra Services Fee provides residents with additional comforts to feel more like a guest in a high quality private hotel rather than a patient in a hospital facility.

The extent of superannuation income and assets will determine the standard of non medical care in your golden years.

Please note: Some general information for this “Insight” came from an Article entitled Residential Aged Care Policy in Australia by Baldwin, Chenowith and dela Rama in the June 2015 edition of the Australian Journal of Public Administration. Information was not copied