Moving into residential aged care may not need a lump sum payment

Understanding how aged care accommodation payments work and getting advice on your options can help to avoid the panic of trying to find a large lump sum.

One of the main concerns we see as an Aged Care Financial Adviser, is clients in a panic about the large lump sum payment they need to make and the fear of being forced to sell the family home in a near fire sale situation.

The relief I see when I explain their options are actually a lot more open and flexible than this is obvious, and one of the benefits of getting financial advice when a family member is entering residential aged care.  We help them to navigate the complexity of aged care with ease and help to find an affordable solution.

While the average RAD we see is somewhere around the $600,000 mark, there are many options lower and far into seven figures depending on where you are located and how the facility positions themselves.

There are two main ways of assessing the accommodation fee that I find works well with clients.  You can either buy a room by paying a RAD (refundable accommodation deposit), and this is refunded at the end of care much the same way as a house is sold (but doesn’t increase in value), or you can pay a DAP (Daily Accommodation Payment), which is like rent, has no refund after care ends.  You can also do a mix of both, and pay the DAP from cashflow or deduct from the RAD.

Case Study:

Let’s say an aged care facility has a RAD (refundable accommodation deposit) of $600,000.  Residents have the options of paying the RAD in full (buying a room), paying a DAP (daily accommodation payment) instead or a mixture of the two.

If someone entered care in September, the DAP would be calculated as follow:

$600,000 x 5.00% / 365 days = 30000/365 = $82.19 per day

If the same situation but October 1st and onwards it would look like this:

$600,000 x 6.31% / 365 days = 37860/365 = $103.73 per day

This is a significant increase of more than 25% and a result of the increase in interest rates this year.

If you are assessed as low means the rules are quite different and the higher interest rates don’t impact your daily room price, but it can make the lump sum option relatively cheaper.

Fortunately if you are already in care the DAP stays the same as the day you enter to help with budgeting and cashflow.  If you leave or change care facilities, this will reset and needs to be considered before moving.

Aged Care Financial Advisers can give advice to review your total financial situation and not just at the start, but over your lifetime. One thing we know about paying for aged care is that it is complicated, and nothing stays constant. If you need help to make your decision, call us 1300 550 940 and schedule your free introductory call.

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