Being prepared and knowing that you may eventually need to pay for a place in an aged care facility should form part of your retirement planning. 

Retiring from paid work is a major and life-changing event. But if you plan how you’ll fund your retirement years (including the possibility of aged care) you can avoid a stressful situation down the track.

When creating your retirement plan it may be beneficial for you, your partner, and your family to discuss the possibility of moving into an aged care facility so you will all be prepared for it, and everyone will be aware of your wishes. 

Some things you may need to think about: 

  • How you would manage financially if you required ‘in home’ services or residential aged care 
  • Whether you should sell the family home or rent it out 
  • How to ensure you have an adequate cash flow 
  • Entitlements you may be eligible for 
  • Seeking financial advice to make the best decisions for your situation 

Let’s explore these things in more detail…

Should you sell the family home to fund your aged care costs?

Retirement can trigger questions about your current living arrangements, but so can the need to pay for aged care costs. Have you planned for this phase of your life? 

One of the most important questions to answer is what to do with the family home. Should it be retained or sold, and how will this impact your personal situation? 

This decision may best be made with family and a financial adviser, so the impact can be managed and any entitlements can be maximised. 

Take note that the Federal Government’s Department of Human Services now conducts an income and assets assessment for everyone moving into an aged care home. This assessment takes into account any existing means-tested payments such as Aged or Service pensions. The result of the assessment will determine any contribution you may need to make to your aged care services. 

Selling the family home 

Selling your home is one way of freeing up cash for your retirement, but you need to be aware that this may impact your entitlement to government benefits. 

When you live in your family home, the value of the home is not included as an asset whereas, if you sell your home – say, to downsize – the proceeds will be exempt from assets testing for 12 months as long as you are planning to buy another home. 

Any interest you earn on the proceeds of selling your home will be assessed as income. 

If you sell your home and buy a cheaper one, any surplus funds will be assessed as an asset. 

So...if you are investing surplus funds from selling your house, and are receiving a pension, the income and assets assessment may result in your benefits being amended. 

The asset test limits are updated in March and September each year. More information on asset test limits can be found here. You can also look at the Department of Human Services – Real estate assets website to determine how real estate assets are assessed. 

Renting the family home 

Retaining your family home and renting it out can provide exemptions in your income and assets assessment. 

If you enter a care situation and your home is rented, your home and any rental income may be exempt if certain conditions are met. 

Always check with the Department of Social Services or your financial adviser to make sure you have the latest information for your situation. 

Accessing the equity in your home – reverse mortgage 

A reverse mortgage is a type of home loan used in retirement as a way to access the equity in your home. The loan amount depends on your age, the value of your home, and how it is taken (for example, lump sum, regular payments, or draw down as needed). Interest is added to the loan and does not have to be repaid until the house is sold, usually as part of your estate. 

Talk to the Department of Human Services – Financial Information Service to check how a reverse mortgage could affect your pension entitlements. 

Case study: Louisa

Louisa is 71 years old, is recently widowed, and has decided to sell her large family home. Louisa currently receives the Age Pension and wanted to know if she would lose her pension when she sold her house because she would have ‘lots of money’. Her daughter took her to see a financial adviser to discuss her situation.

OptionsIs Louisa's pension affected?
Louisa could sell her home and move in with her daughterYes. The funds from the sale of her house would become an asset and if Louisa invested the funds, the interest earned would be assessed as income
Louisa could sell her home, buy a smaller one, and invest the balanceYes. The surplus funds would earn an income that needs to be included in her asset test
Louisa could move in with her daughter and rent out her home, or rent out some of the rooms in her homeYes. In addition to affecting the pension payments, there might also be tax implications

Options

What should Louisa do?

In all instances, Louisa should get financial advice or contact the Department of Human Services – Financial Information Service to see what effect the sale or rental of her home will have on her pension. It could be that her pension is only slightly reduced, but it will all depend on the Income and Assets test – everyone’s situation is different.

How to keep the cash flowing

When the day comes and the regular salary stops, you’ll need to be prepared to keep the cash flowing in. This is why the earlier you start your retirement planning, the more options you’ll have to achieve the goals you want. 

Whether you have money in super or other investments, the biggest fear of retirees is “what if my money runs out?”. That’s where these tips may help you. 

Get financial advice

A financial adviser can explain investment and tax strategies that can help you manage the risks of your investments and maximise your potential returns.

Regularly reviewing your retirement strategy is a great way to keep on top of your finances and make your money last as long as possible.

Diversify your investments

With the number of investment opportunities available, it makes financial sense not to put all your eggs in one basket – especially with Australians living longer. Using a mix of assets where some like cash and fixed deposits are returning immediate income, with growth assets which offer a longer-term return like shares and property, can balance out your cash flow to meet your needs.

Manage your spending

It might seem like a good idea to splurge on things when you retire – after all, you have all these funds suddenly available! But you have to think about what will happen next.

You spend your time trying to work out how you’re going to live for the rest of your life…and really, by this time, that plan should be well and truly sorted.

Check your entitlements

If you’re not eligible for the Age Pension, you may still be entitled to other benefits like a Senior’s card or other government benefits.

You could save money on travel, cheaper prescriptions, reduced council or water rates, and some retail services.

You can learn more by checking out the Department of Human Services Commonwealth Seniors Health Card website.

Powers of attorney

It’s important to set down your wishes for how you want to live out your retirement years – whether it’s in your own home, assisted or unassisted, or in an aged care facility – and who should make decisions for you if you are not able to. 

A power of attorney is a legal document that allows you to appoint a person to represent you if you should fall ill or lose the capacity to make legal, financial, or medical decisions for yourself. 

An enduring power of attorney 

An enduring power of attorney can make financial and legal decisions for you if you are unable to make them for yourself. 

A general power of attorney 

A general power of attorney can make financial and legal decisions for you, but usually only for a specified period of time. They cannot make decisions for you if you lose the capacity to make decisions for yourself. 

A medical power of attorney 

A medical power of attorney can only make medical decisions on your behalf if you can’t make them for yourself.

An enduring power of guardianship  

An enduring power of guardianship can choose where you live and make decisions about your medical care and other lifestyle choices if you can’t make them for yourself. 

Alternatively, you could write: 

  • An anticipatory direction to record your wishes about medical treatment in the future 
  • An advance care directive (living will) to document your wishes for your future medical care 

Remember to take the time to discuss your wishes with your family, whatever they may be.

Other info you might be interested in

How to access your super in retirement

Choosing when and how you access your super in retirement is a really important decision, and everyone is different.

Transition to retirement

Transition to retirement – also known as TTR – was introduced to help people ease into retirement.

The role of financial planning

Good financial advice can help you set goals and make confident and informed financial decisions, now and in the future.

Learning Hub

Understand your super and the simple steps you can take to stay in control.

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