When one member of a couple enters aged care, the financial impact rarely falls evenly. In fact, for many, it feels less like shared responsibility and more like robbing one to pay for the other’s aged care.
That may sound blunt, but it captures a difficult truth about how the system operates.
Aged care means testing assesses couples by splitting income and assets 50/50. On paper, this seems fair. In reality, once one partner moves into care, their lives – and their costs – change dramatically.
Take Jack and Shirley, part pensioners who own their home, have $600,000 in investments and $10,000 in personal assets. Jack is moving into aged care, he is required to cover the cost of his accommodation and make a means-tested contribution towards his care.
His Refundable Accommodation Deposit (RAD) is $750,000, but instead of paying by lump sum, he can pay by Daily Accommodation Payment (DAP) calculated at 7.96 per cent, indexed. If he does that his cost of accommodation alone is almost $60,000 a year.
On top of this, Jack pays the basic daily fee of $67 a day and a hotelling fee of $10 a day. Altogether, his cost of aged care is just over $88,000 a year. This is the base cost, and on top of that are his essential personal expenses like medications, clothing and haircuts. If he wants extras like a glass of wine with his dinner then he will pay a higher everyday living fee on top.
For couples like Jack and Shirley, paying for aged care becomes a one-sided sacrifice.
Jack and Shirley receive an age pension of $2000 per fortnight – just over $52,000 a year – and their investments earn 5 per cent giving them $30,000 annually. Their total combined income is around $82,000. In other words, Jack’s cost of aged care exceeds their total income.
Even when they try to reduce those costs, the outcome is still confronting. If Jack uses his share of the investments – $300,000 – towards the RAD, his accommodation payments fall by around $24,000 a year, and their pension increases by about $10,000.
But even then, his aged care costs sit at roughly $64,000 a year, leaving Shirley with just $14,000 to live on. Shirley is still living at home, she continues to pay for utilities, insurance, rates, groceries and all the everyday costs of living. Those expenses don’t halve just because Jack has moved into care.
The gap has to be filled somehow, in most cases, it is funded from savings, a steady drawdown on Shirley’s assets. So while Jack receives the care he needs – as he should – Shirley is left managing the financial consequences.
This is not about discretionary spending or lifestyle choices. Jack’s care is essential, but so too is ensuring Shirley is not pushed below the poverty line.
For couples like Jack and Shirley, paying for aged care becomes a one-sided sacrifice – one that can see the person who doesn’t need aged care pushed to the financial edge, simply because their partner needed care.
Rachel Lane is the author of Downsizing Made Simple, a book and website aimed at demystifying downsizing.
- Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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Rachel Lane is author of the best-selling book Aged Care, Who Cares? and Downsizing Made Simple with fellow finance expert Noel Whittaker.
