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Understanding Aged Care

Leaving the family home and transferring into aged care is a major life change for individuals, partners and families

For many people this is a time of financial confusion, coming to terms with a number of new and uncertain demands and commitments. Given the number of potential options, it often requires a specialist with experience in this area who is used to taking all of the potential risk areas into account.

Common questions about Aged Care include:

  • How do I decide which care option to use?
  • Will I have enough money to pay aged care fees?
  • Will I lose the aged pension once I go into aged care?
  • What happens when I die?
  • What should I do with the family home?

Aged Care Advice – making things simple

Given the complexity of personal and family factors, it is important to sort out financial matters early, to make fully informed decisions. An experienced financial adviser is well placed to remove the burden of worry around the cost of aged care, assist with the movement of assets and planning for the future.

Where to start with Aged Care

The first step in aged care planning is to decide what kind of facility is right for the individual. An individual is first assessed by an Aged Care Assessment Team (ACAT) who will decide the level of care required.

Using a professional and qualified Aged Care financial adviser

Knowing the extent of the issues involved, what can be done and how much it is likely to cost can be a major step forward in reducing the stress of moving to aged care. This allows people to concentrate on the emotional issues involved, and relieves one area of major concern.

Tailor-Made Financial Services is an award-winning boutique financial advice business that can help you navigate the complex area of aged care.

We take the time to genuinely understand your needs and we deliver professional advice that ensures you maximise your Centrelink entitlements and minimise costs. To achieve an optimal outcome, we can liaise with other professionals such as accountants and solicitors and help solve the all-important question of what to do with the family home.

Our contemporary professional advice ensures that as you transition to aged care you make the right decisions at the right time.


Jane is 85 and widowed. She was living on her own for some time after her husband passed away, but has become frail with age.

After researching her options with the help of her family, Jane was assessed by an Aged Care Assessment Team (ACAT) as eligible for residential care and found a suitable aged care home to move into.

Jane’s residential aged care home has an advertised accommodation payment of $400,000. She agrees to that amount and sells her home to pay the Refundable Accommodation Deposit (RAD) of $400,000. She now has $350,000 in term deposits and $50,000 in cash and wants to explore other strategies for this money. If Jane leaves her money in cash and term deposits, based on social security and aged care rates and thresholds as at 20 March 2020, her year one estimated Age Pension entitlement is $22,832. Also, her total aged care fees are $30,109 (consisting of a basic daily care fee of $19,071 and a means-tested care fee of $11,038). Jane visits us to find out whether she will be able to pay for her aged care fees and $2,600 per year ($50 per week) of other ongoing living expenses.

The first strategy we consider is to retain her existing portfolio of term deposits and cash.

Under this strategy we estimate that Jane will have a cashflow shortfall of $4,277 in the first year (as illustrated in Figure 1) and a total shortfall of $11,767 over 3 years (as illustrated in Figure 2).

We then explore an alternative strategy to help improve this outcome – an investment in an aged care annuity. We explain that the most appropriate strategy will be one that helps meet her ongoing cashflow and estate planning wishes. The aged care annuity is designed especially for those who are receiving, or planning to receive, Government-subsidised aged care services (including both home and residential care).

This annuity will provide Jane with a guaranteed monthly income for the rest of her life to help cover the costs of aged care and living expenses. In the event Jane passes away, 100% of the amount she invested will be paid to her nominated beneficiaries, in this case her children. It may also help reduce Jane’s aged care fees and increase her Age Pension entitlements from the way it interacts with the means testing rules.

To help Jane achieve her objectives, we recommend an investment of $350,000 into the aged care annuity. The remaining $50,000 will stay in cash in case Jane needs access to funds. Figure 1 compares the outcomes of the different strategies in year one. Figure 2 compares the outcomes over three years.

By investing in the annuity, Jane can improve her cashflow and maximise the value of any benefit payable to her children directly when she passes away.


Figure 1: Illustrating cash flow and estate planning outcomes for year 1


Strategy 1 Strategy 2

Year one

Retain $400,000 in cash and term deposits Invest $350,000 in an aged care annuity, $50,000 in cash
Investment income $5,600 $700
Aged Care Annuity $0 $8,115
Age Pension $22,832 $24,317
Less personal expenses $2,600 $2,600
Total $25,832 $30,532
Aged care fees
Basic daily fee $19,071 $19,071
Means-tested care fee $11,038 $9,829
Total $30,109 $28,900
Net cash flow ($4,277) $1,632
Estate value (at the end of year one) $795,723 $801,632


Figure 2: Illustrating cash flow and estate planning outcomes over three years

Strategy 1 Strategy 2

First three years

Retain $400,000 in cash

and term deposits

Invest $350,000 in aged care annuity, 50,000 in cash
Total cash flow $78,955 $93,122
Total aged care fees $90,722 $87,538
Net cash flow ($11,767) $5,584
Estate value (at the end of year 3) $788,234 $805,585


Strategy considerations

By implementing an aged care annuity strategy, in comparison to the term deposit strategy for the illustrated periods, as described in Figure 1 and Figure 2, Jane has been able to achieve:

  1. a guaranteed income stream for life to help pay for aged care fees;
  2. a $1,485 increase in Age Pension entitlement and a reduction in her means-tested care fee of $1,209 in year one;
  3. improved net cash flow of $5,909 in year one, increasing to $17,351 over a three-year period; and
  4. an increased benefit to the estate of $5,909 at the end of year one, increasing to $17,351 at the end of year three (under each strategy the RAD of $400,000 will be paid to the estate).

The cashflow and estate planning benefits of the aged care strategy can continue past the three-year illustrated period while Jane remains in care.

The value of advice

Seeking advice can ensure you’re following a strategy that will help achieve your goals. We can:

  1. help you develop an income strategy tailored to you;
  2. help you achieve your income and estate planning goals;
  3. address concerns about the steps required to enter aged care;
  4. explain the different aged care fees;
  5. identify ways to reduce aged care costs; and
  6. manage Age Pension paperwork and assessment queries.

Each person’s situation is different and all investments and investment strategies carry some risk. The appropriate level of risk for you will depend on factors such as your age, financial goals, investment timeframe, other investments you may have, and your risk tolerance. Some of the matters you may wish to talk to us about include the risk of locking up your money for an extended period of time, potentially receiving less back than the amount originally invested if you withdraw voluntarily, the risk of inflation, and the ability of the provider to meet the promised payments.

Your next step? Call us now to secure your appointment to ensure you make the right decisions at the right time. Locations and contact details can be found at the bottom of this page.