EXPLOREMY LIBRARY
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Money Australia

RETIREMENT UNIT V AGED CARE: WHAT IT COSTS

Mary is an 83-year-old widow who has lived at home independently for many years. Her home was sold at auction, generating net proceeds of $1.1 million after she repaid a mortgage of $420,000. She has a bank account with $5000 and is on a full age pension (currently $916.30 a fortnight for a single).

Mary is a social person but her health has deteriorated to the point where she struggles with her mobility. She believes she is not yet ready to move into residential aged care and thinks that an apartment in a retirement home would suit her better. An aged care assessment approved her for both residential respite and low-care residential permanent aged care.

She prefers a one-bedroom apartment in a large retirement village that has just undergone a major refurbishment.

The advertised upfront payment to enter the retirement village was $650,000. Under a typical retirement village contract, this amount would be subject to a deferred management fee during Mary’s occupancy (3% deducted for each six month period in the first 18 months, then 1% each subsequent six months, up to a maximum of 30%). Mary would be responsible for all daily living expenses and utilities, just like any other homeowner.

When she left, the amount repaid would have the deferred management fee deducted as well as the costs of reinstatement and refurbishment, selling costs and legal costs.

At Joseph Palmer we prepared financial modelling to compare the retirement village option against a low-care aged care facility. At the latter the refundable accommodation deposit (RAD) was $750,000 plus a services fee of $50 a day.

After starting with $1.1 million in assets, Mary would be left with $900,000 if she left the retirement village after five years (this does not include the home care costs, which would probably go into thousands of dollars each year). By comparison, the aged care option would leave her with $1.05 million in net assets over the same five year period, which includes all the care services and nursing support that she would require.

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