Aged care might not need a large lump sum
Historical article – pre-1 November 2025 aged care changes
If the prices for a room in residential care have caused you alarm and led to concerns about how to find such large lump sums, you are not alone.
Aged care room prices are quoted as a lump sum, with prices ranging up to $2 million for a room. On average, you might expect to be quoted around $300,000 - $900,000. This might cause you to panic if you don’t have that much money sitting in a bank account or you don’t want to sell assets (including your home).
The good news is that you have choices on how to pay. You might choose to pay a lump sum, but you could also choose to pay a daily fee and effectively “rent” the room instead.
The bad news however, is that with interest rates have been going up, the daily “rental” price – called a daily accommodation payment (DAP) is getting more expensive.
For example, assume Mary is looking at an aged care room with a price of $500,000. If Mary moves in before 30 September 2023, at the current interest rate of 7.90% per annum this converts to $108.21 per day ($39,500 per year).
The Government regularly reviews and adjusts the interest rate every quarter. The most recent increase has brought the rate to its highest level since 2012, and if cash rates continue to rise, it is expected that the interest rate will continue to increase as well. However, once you enter care, the interest rate becomes fixed, providing you with some certainty in your financial planning. It's worth noting that the rate will only change if you decide to move rooms or switch to a new care provider.
With the increase in room rental costs, it is likely that a growing number of individuals will consider selling their assets and opting for a lump sum payment. However, it's important to recognize that each family's circumstances are unique, and making such a decision requires a comprehensive analysis of your cash flow and estate planning objectives.
Careful consideration of your financial situation is crucial before determining whether selling assets and paying a lump sum is the right choice for you. Conducting a thorough assessment of your cash flow, including income, expenses, and any potential fluctuations, is necessary to understand the long-term implications of such a decision.
By taking a holistic approach and engaging in a comprehensive analysis, you can make an informed decision that is tailored to your specific circumstances, providing you with greater clarity and confidence in your financial planning.
If you would like to arrange a meeting to find out how I might help yours or a loved ones’ own position, call me on 0431 414 799 or email jason@burleyagedcareadvice.com.au.
This advice is general in nature and everyone’s circumstances are different. So it’s important to speak to someone like myself who is a licenced financial adviser (I am an Authorised Representative of Count Financial Limited AFSL 227232).
As an Accredited Aged Care ProfessionalTM I have helped many clients to make this choice. I help to find a choice that is affordable, as well as works best for the family and protects the value of the estate.
