There is a growing reason why retirees with even quite substantial superannuation balances shouldn’t feel too smug.
While their healthy balance might give them plenty of income during their early years of retirement, it is more difficult to be confident that you have enough set aside to cope with increasingly expensive aged care costs.
The new aged care reforms require seniors to make co-contributions even if they only get help to stay in their homes, and some of the amounts required can quickly become prohibitive.
Another conundrum is when one person in the couple needs to enter an aged care facility due to frailty and usually needs to lodge a Refundable Accomodation Deposit (RAD) as well as paying co-contribution costs for a variety of services.
This can leave the remaining spouse in a very tight financial situation, especially if they stay in the family home and have been required to use a lot of their joint savings to fund the RAD.
This is also a highly complex area with the possibility of making some quite expensive mistakes, so it is becoming a fertile arm of financial planning to supply timely advice to avoid some of the pitfalls and also help with choosing the right aged care facility.
Will You Need Aged Care and for How Long?
Perhaps the most difficult part of this is that nobody knows for sure whether or when they might need aged care so decisions are often made quickly and at times of high stress.
The duration of aged care is also an unknown, which makes calculating the most cost effective option difficult.
All of which has made trying to stay independent at home and using support services to help out much more popular—a trend that governments are also keen to promote to reduce costs.
However, even home support has been going through a user-pays transformation after reforms to the government’s home care system under the Aged Care Act.
Retirees Need to Co-Pay for Services
These reforms mean that retirees are now required to contribute co-payments for assistance like social support for shopping, cleaning, cooking, or gardening.
Essential clinical services like nursing or physiotherapy remain fee-free.
This has created a cash squeeze on some seniors with experts warning that those receiving government help to stay in their homes, possibly needing to use up to eight years’ worth of superannuation contributions to pay the contributions.
Previously, under the Home Care Packages Program system, seniors who needed services to remain living at home could access packages in exchange for “minor” payments, but anyone assessed after September 2024 is now subject to paying increased co-contributions.
That is worked out by Services Australia through an income and assets assessment.
Eight Tiers of Funding
The program has eight tiers of funding, for different levels of care—ranging from about $10,000 each year for cleaning, welfare checks, and meal preparation in level one, to almost $80,000 for overnight care and intensive support at level eight.
According to service package provider Trilogy Care, self-funded retirees could pay tens of thousands in out-of-pocket fees each year because of the reforms.
It has calculated co-payments for level five funding under the system, where retirees would be granted about $40,000 each year, could cost them between 0.8 to 8.5 years’ worth of work and superannuation contributions, depending on their pension status.
Self-funded retirees could pay up to 50% for independence support and up to 80% for everyday living services like cooking or cleaning, totalling between $1901 to $26,568 in out-of-pocket fees each year, according to the Trilogy modelling.
Over five years, that would equal a range of $64,944 to $132,840 or up to eight and a half years of superannuation contributions from work.
Trilogy Care CEO Luke Traini said the reforms were adding pressure to people’s retirement income and were much higher than those experienced under the old system.
Financial Stress Starting to Show
“We’re seeing signs of stress in our clients that are pensioners and numerous hardship applications flowing through for people that are struggling to make those payments.
“I think for some people that’s arrived as a little bit of an unpleasant surprise and they are probably now having to adjust their household budgets and other things to accommodate it.”
For a self-funded retiree with a Commonwealth Seniors Health Card or a part pensioner, the program is expected to cost them between $35,640 to $72,900 over five years—up to 5.2 years of super contributions.
A full pensioner would meanwhile pay about $9,504 to $19,440 over five years, or 1.6 years worth of superannuation.
The modelling assumed an annual salary of $100,000—above the national median.
Budget for Five Years of Home Support
Retirees are also staying at home for longer before they transition to residential aged care, increasing to a median duration of 16.1 months under the government’s support program.
Financial planners however recommend budgeting for five years of home support.
While Services Australia can suspend co-payments depending on individual circumstances, there is understood to be a large backlog of hardship claims that have been lodged.
Mr Traini said service providers’ hourly rates were climbing, increasing the pressure on self-funded retirees who had to remain diligent to ensure their costs did not balloon too much.
Under the system, the retiree will be paying up to 17.5% of the amount if they are a full pensioner so the increasing costs are being felt.
Mr Traini said Australians should be considering the costs of home care as part of their preparations for retirement.
“This is now something that people need to consciously think about and plan for in their retirement to ensure that they can live a happy and healthy life and receive the health services that they need,” he said.
