One of key planning issues for retirees increasingly will be the cost of aged care facilities and the potential ‘accommodation bonds’ that can be required for entry into low-level (hostel) or “extra services” aged care facilities.
Currently, it is not feasible for such investments to be made from within super so it really comes down to considering options for the 2 most significant assets left behind for most retirees at that time: the family home and their remaining super assets.
If a spouse remains in the family home, then currently the value of the home will be exempt for assets testing the accommodation bond required at the time of entry into the aged care facility which can assist in lowering the amount of the bond required. However, it may mean drawing down funds from the remaining super pension account to pay for the bond and given the likely ages of the retirees involved, no further contributions would be able to be made back to super at a later stage to replenish the super account.
Alternatively, if the home is rented out, then a Bond can be paid on a periodic basis to mitigate the impact of finding larger initial lump sum contribution amounts. This prevents selling the home at that time. Any net rental payments are exempt from the ongoing income testing of daily care fees and for aged pension income testing purposes as well. The value of the home would also be exempt under the age pension assets test while it is rented out to pay the bond. This also keeps the value of any remaining super accounts intact to assist with ongoing future retirement income support needs.
Depending on the circumstances and ages of the individuals involved, the home may be sold earlier (downsizing the family home) in order to realise some surplus cash that could be potentially invested in super before age 75 to build up future retirement funds. Then either of the previous options for the residual principle home could be considered at the time of subsequently entering into the aged care system.
If funds are not readily available for paying an accommodation bond and the family home is desired to be kept, then the other option to consider would be to borrow against the home to pay the relevant accommodation payment. However, the ramifications of this should be assessed carefully before undertaking any such borrowing program.
Planning your retirement carefully now has another element to consider: future aged care needs.
Tim Wedd
Executive Director
Crystal Wealth Partners
m: 0408 608 349
tim@crystalwealth.com.au