Care needs long term planning


When discussing the capital needed for a comfortable retirement, the likely cost of aged care needs to be included in the planning, warns Philip Galagher, head of wealth management at Equity Trustees Limited. 

“The likelihood of care and its associated cost needs to be recognised at the beginning of retirement, not when care looms as an unwelcome necessity,” Mr Galagher said. 

“Retirement plans therefore need to both provide income for the type of active retirement sought, as well as the potential need for a capital sum if aged care accommodation is needed in later years. 

“As retirees grow older, their need for income to support an active lifestyle recedes, and when in care the need for income falls further.  However the need for capital, to make a lump sum payment for aged care, is likely. 

“Typically, a bond for aged care is in the hundreds of thousands of dollars and will be needed for those who have a preferred care accommodation in mind,” he said. 

Mr Galagher added that the Minister for Ageing, Mark Butler, said this week that the aged care system is struggling to meet the needs of older Australians and may not be capable of meeting future needs as demand dramatically increases. 

“The Gillard government is also likely to respond to the Productivity Commission report on aged care reform shortly, and this could well include a number of changes to the financial arrangements underpinning aged care in Australia,” he said. 

“Increased calls for those who can afford it to contribute more towards the cost of their aged care; the reduced ability of governments to provide publicly funded care; and a huge increase in the incidence of diseases such as dementia affecting the elderly, are all issues that retirees must consider if they are to manage their own future.” 

Mr Galagher said that retirees need to think about, and discuss with their family and adviser, what their preferred option might be if faced with this situation, and the time to do this is when they retire so that it can be taken into account in their planning. 

“Apart from anything else, searching for the right aged care home can be overwhelming and thinking about it over time is much the better approach. 

“It makes a big difference to both retirement and estate planning.  

“Retirees may not be able to pass on their family home to their children, may need to set up a reverse mortgage, or not be able to set up the trust they had planned for their grandchildren’s education. 

“In addition to a Will with a trusted executor, retirees should have an enduring power of attorney so that decisions can be made on their behalf if they become mentally incapable,” Mr Galagher said.

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