Many in retirement are travelling comfortably, with three key factors contributing to their happiness – good physical and mental health and enough money to enjoy life.
Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
Pensioners could face $43,000 slug in residential aged-care costs
A typical aged pensioner could face $43,000 a year in residential aged care (RAD) costs under sweeping changes being introduced by the Federal Government to ease soaring welfare costs.
A pensioner splitting their $1 million home between a $750,000 RAD and $250,000 in savings will face a $28,000 annual increase in means-tested fees and a $15,000 a year retention charge from their lump-sum deposit.
“The message is clear – expect to pay more, and get organised,” says Brendan Ryan (pictured), principal of Later Life Advice, an independent financial adviser. “If you’re not across the rules, you risk missing out on entitlements or paying more than necessary.”
Wayne Strandquist, chief advocate at the Australian Independent Retirees, a lobby group for fully or partly self-funded retirees, says the higher fees also mean a reduction in the assets available for beneficiaries.
“Retirees are not keen on RAD providers having another suck on the sauce bottle,” Strandquist says.
He warns that the elderly – and their families – are often under pressure to make complex decisions about RAD when cognitive impairment, physical limitations and lack of knowledge can lead to poor outcomes.
But Brett Lafranchi, national general manager of residential aged care for Australian Unity, says the changes have been introduced to boost services and assist the two-thirds of aged-care providers running at a loss.
Lafranchi says: “These financial reforms will make the sector more viable and stimulate supply.”
A RAD is like a bond paid to an aged-care facility that is fully refundable when the resident leaves. Under the new system, the facility will be able to retain two per cent of the value of the RAD each year for up to five years.
The amount is individually set by each of the estimated 760 providers operating more than 2,600 homes across the nation, a fall of about two per cent over recent years as home-care services continue to increase, according to analysis by the consultancy firm KPMG. The rate must be approved by the government.
The ongoing two per cent RAD cost, which will be introduced from July 1, 2025, comes as the government attempts to restrain rising Age Pension and aged-care costs that have topped $100 billion for the first time, according to the last budget papers.
The “grey” budget is nearly 13 per cent of the total government spend before including the cost of Medicare, pharmaceutical benefits and other entitlements, budget analysis shows.
In addition, rising life expectancy and declining fertility means that more than four million Australians are aged 65 or over, according to the Institute of Family Studies. By 2066, older Australians will constitute up to 23 per cent of the population, its analysis shows. And each year the number of people aged over 85 grows by more than 50,000, according to Australian Unity.
“There’s little room left for additional support in the future,” warns Ryan about growing pressure on government expenditure.
“Amid all the talk about the government’s new aged-care fee rules, the reality is pretty simple: the maximum amount residents can be charged is going up, and the means-testing has changed so that more people will reach that maximum sooner than they would have before,” he says.
RAD amounts involved will also vary depending on the location of the property and provider, experts say. For example, the value of a median house in Sydney is more than $1.6 million compared with about $870,000 in Melbourne.
Those needing accommodation can pay the RAD; a Daily Accommodation Payment (DAP), which is a non-refundable daily fee based on the interest rate applied to the RAD; or a combination of both. The combination is the most popular because it preserves capital and is more flexible.
