Question 1: How much can a couple have in assets – e.g. money in the bank and house value – before the nursing provider deducts money from them if either one of them go into a nursing home?

The rules can be complex when someone enters an aged care facility.

Firstly, you need approval to be accepted into a nursing home.

The Aged Care Assessment Team (ACAT), or Aged Care Assessment Service (ACAS) in Victoria, is responsible for determining eligibility for the different types of government-subsidised care, including residential aged care.

Your health situation is assessed to determine the level of care you require and whether you are eligible to enter a government-subsidised facility.

Note also that some people get confused between an aged care facility and a retirement village. You do not need a health assessment to enter the latter and both are governed by totally different rules.

If you are eligible to enter into an aged care home, then your next step would be to find a suitable facility.

Once you move into an aged care home, the following fees are payable:

1. Basic daily fee – this is equal to 85 per cent of the single age pension and is payable by almost everyone

2. Means-tested fee – this is determined by a person’s financial position (i.e. their income and assets) and is calculated by Services Australia (Centrelink).

The principal home is exempt from the means test while a spouse remains in the home.

So, if only one of the couple enters a facility then the home is not counted as an asset. In other cases, once the last member of a couple or a single person enters a facility, then the home is included in the means tested fee, capped at $173,075 (as at July 2021), but remains exempt for two years from the date of entry for age pension purposes.

After this time, home is fully assessable, and you would then be assessed as a non home owner.

3. Accommodation payment – This is set by the facility, and it will be based on a number of factors including location, popularity, the size of your room, and the facilities offered by your provider.

The facility must disclose upfront the maximum accommodation payment they will charge. You can then decide whether you would like to pay it via a ‘Refundable Accommodation Deposit’ (RAD), which as the name suggests is fully refundable when you leave, or you can pay via a ‘Daily Accommodation Payment’ (DAP), or via a combination of both.

Note that ‘when you leave’ aged care is often when you die. In this case, funds would go to your estate.

It’s also worth noting that a person must be left with at least $50,500 of assets after the initial payment of a lump sum accommodation payment and cannot be asked to pay an accommodation payment that would breach this rule.

If your assets are below this minimum of $50,500 and your income is below the income-free area, the accommodation payment is fully subsidised by the government and is not payable at the time of entry.

4. Extra service charge – Some facilities charge this fee if they provide additional services. But this would have to be agreed with you upfront.

Although I have outlined the basics above this is definitely a complex area with which most people require assistance.

Aged care facilities themselves can provide you with a lot of information regarding their facilities and charges.

I also recommend looking at the government’s myagedcare website, which outlines the whole aged care process and also has calculators that can help determine possible fees.

Finally, this is an area where personal advice from a licensed adviser can provide comfort and expert insight from a financial perspective, but choosing an aged care home for its level of care and proximity to family and friends may be just as important.

Question 2: I have a super balance of $230,000 in an accumulation fund. As I have now retired, at age 64, I can take this as a pension and consume it all, taking the government’s mandated minimum drawdowns, or take it as a lump sum and, say, invest in shares that offer fully-franked dividends and hopefully over time not diminish the capital. Is the latter a sensible option?

Now that you have retired, and given your age, you have complete control of what to do with your super.

You can start a superannuation pension and draw down enough funds to meet your lifestyle needs. Given your age pension is still three years away, by that point you should be well under the threshold to receive the full age pension, which would supplement your superannuation pension nicely (assuming you do not have significant other assets that you have not disclosed).

The most popular retirement income stream currently in Australia is called an allocated pension, offered by most super funds, that allows you to retain full access and control of your funds.

However, more options are becoming available, such as annuities and lifetime pensions.

These may be worth exploring, for a portion of your funds, if you want to ensure you have an ongoing income for life. However, because these options involve giving up access to your money, I would never suggest putting all of your super into an annuity or lifetime pension.

The other advantage of keeping your money within super is that all income payments are tax-free, and all earnings within the fund are also tax-fee.

You could take out the funds and invest them in a share portfolio and live off the dividends. But this would only pay an annual income of about $10,000 and both the value of the shares and the dividends would be vulnerable to high levels of fluctuation. You may also find that you need to draw down on the shares over time, thus reducing the income that they can produce.

Instead, your superannuation can remain invested in a diversified portfolio whilst in its pension phase, which would give you exposure to a range of different financial investments and not only shares. The other benefit of an income stream is that all investment earnings are tax-free, as opposed to the maximum 15 per cent in superannuation during the accumulation phase.

It is always a good idea to keep some funds available in case you need to access them at short notice and so as not be too reliant on the age pension.

You may benefit from receiving professional advice to help work out, among other things, the amount of retirement income you could live off without completely depleting your capital until well after your expected life expectancy.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives. 

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