Retire with confidence – How an income stream can boost aged care planning

January 17th 2024 | Categories: Retirement |

With costs, human vulnerability, the diagnosis of terminal illnesses, and grounds for disputes; securing aged care is a sensitive issue for a growing number of families Australia-wide.

While the potential need for aged care accommodation is often expected, families find it a difficult concept to plan for. In fact, most don’t even consider aged care options until the need for it realistically emerges through illness, incapacity, injury or the death of a partner.

We’re here to support at all points in your journey

When it comes to aged care, you adviser can help with the following:

Understanding your situation and the funding required (including ‘entry’ and ongoing fees, such as refundable accommodation deposits, daily accommodation payments and contributions)
Minimising costs and fees
Retaining or maximising social security entitlements
Decisions regarding the family home
Investment advice
Cashflow management
Estate planning

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Much of the work of planning for aged care is integrating it within your overall financial plan. For most, the goal is to maximise access to aged care at minimum cost. But other considerations, such as the disposal of property, ‘Bank of Mum and Dad’ gifts and loans, tax, estate planning – can make the process more complicated.

Social security opportunities

Modern products, like lifetime income stream accounts, offer some strategic flexibility when navigating challenges. Only 60% of the purchase price is assessed under the age pension assets test, and that discount can grow to 100% with time and planning. Plus, there’s no income test on deferred lifetime income streams. These advantages can allow an adviser to gain more Social Security income for you.

Case study: Jackie’s story

Let’s take a look at how a lifetime income stream can help boost your income in aged care with the help of a financial adviser. Jackie, 78, is a homeowner, receives the full age pension and has $10,000 cash in the bank. Due to deteriorating health, she’ll soon transition into an aged care facility, with a Refundable Accommodation Deposit (RAD) of $500,000. To fund the RAD she sells her home for $1,200,000. The below table outlines how Jackie’s net cash flow changes if she invests $200,000 of the proceeds in a lifetime income stream (non-super). We’ve assumed in both scenarios Jackie makes a downsizer contribution of $300,000 to super and takes out an ABP (drawing down the minimum). She invests her remaining funds outside super.

		Home sold, proceeds used to pay $500,000 RAD, $300,000 in an ABP, $400,000 in personal investment portfolio, retain $10,000 in cash	Home sold, proceeds used to pay $500,000 RAD, $300,000 in an ABP, invest $200,000 in a lifetime income stream, $200,000 in a personal investment portfolio, retain $10,000 in cash
Income	Age pension	$14,697	$20,816
	Account based pension (minimum drawdown)	$18,000	$18,000
	Investment income	$20,000	$10,000
	Annuity income	Nil	$14,557
Expenses	Basic daily fee	$21,528	$21,528
Expenses	Means-tested care fee (MTCF)	$17,659	$18,345
Net cash flow		$13,510 per annum	$23,500 per annum

By investing part of her home sale proceeds in a lifetime income stream, Jackie and her adviser reduce the amount assessable for the income and assets tests, increasing her age pension entitlement. While that extra income does increase the Means-Tested Care Fee by $686 a year, this is more than offset by the extra age pension of $6,119 in the first year. When she reaches 84, the further reduction in Centrelink accessibility (from 60% to 30%) may further increase Jackie’s age pension entitlement and create cost savings on the Means-Tested Care Fee. Results can vary due to a range of factors, including life expectancy, investment returns, RAD costs and more. Your adviser will consider your circumstances when considering the value of lifetime income streams and helping you plan for aged care.

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_{Disclaimer: Numbers in this case study reflect age pension rates, thresholds and aged care fees as 1 July 2023.}

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