Tom’s Choices

Tom is an aged pensioner who wishes to keep and rent his home while he lives in residential aged care. His family have received a rental appraisal from a local real estate agent of $530 per week and the estimated costs associated with keeping the property are $10,500 per year.

Tom’s Chosen Aged Care Facility has a market price Refundable Accommodation Deposit (RAD) of $480,000.

Value of Home $500,000
Cash $20,000
Investments $100,000 Term Deposit
Personal Effects $20,000
Total $640,000
Incoming Costs
Refundable Accommodation Deposit (RAD) $50,000 Of a market price RAD of $480,000
Total $50,000
Pension entitlement $21,380 p.a.
Net Rent $17,060 p.a.
Investments at 2% $2,206 p.a. on $70,000
Total $40,646
Ongoing Costs
Basic daily fee $21,528 p.a. $58.98 per day
Daily Accommodation Payment (DAP) $32,076 p.a. $87.88 per day
Means Tested Care Fee $4,555 p.a. $12.48 per day
Living Expenses $3,650 p.a. $10.00 per day
Total $61,809
Tom's cash flow ($21,163)

As you can see, including the rent from the family home in the Age Pension Income Test has significantly reduced Tom's pension entitlement. While his Means Tested Care Fee reduced, his pension reduced by a third, creating an even greater cash flow deficit.

Under the general exemption, after two years in care, the asset value of Tom’s home will be included in the calculation of his age pension entitlement. When that happens he will also receive the benefit of the higher asset threshold that applies to non-homeowners (Lane & Whittaker, 2016).

If Tom sold his house and paid his RAD in full, his pension would increase to $27,664 per year and his means tested care fee would be approximately $17.06 per day. From a cash flow point of view Tom would have $140,000 to invest, which would need to earn $3,714 per year (2.8%) to fund his cash flow. If he can only earn 4%, his cash flow surplus will be $1,307 although he is no longer getting any capital gains (which he could get if he kept his home).

Lane, R., & Whittaker, N. (2016). Aged Care Who Cares? In R. L. Whittaker, Aged Care Who Cares? (pp. 137 - 140). Noel Whittaker Holdngs Pty. Ltd.

Steve Jenkosky trading as Golden Age Advisory is an Authorised Representative of Synchron AFS License No. 243313.
Unless specifically indicated, the information contained in this 'Case Study' is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek personal advice from a financial adviser.