What? Do I need to plan for the cost of aged care?

It’s official … we’re a population of ostriches when it comes to planning for the cost of aged care.  Most of us over the age of 50 are gazing into the middle distance with our fingers and toes crossed when it comes to considering we might ever need aged care.  That’s according to new research undertaken by advocacy group, National Seniors in conjunction with retirement investment company, Challenger, that found 66.8 per cent of us either had no plans to consider aged care options and their costs or will ‘worry about that when we need to’.

Entitled, Planning for aged care costs: Hesitancy, ignorance and denial, the research among over 5000 Australians over the age of 50 found that, while some older Australians have THOUGHT about aged care (38 per cent), and approximately a third of Australians 65 and older actually USE some form of aged care, only 14 per cent have done any financial preparation for the potentiality of one day needing it themselves.   

There are some interesting findings and observations in the report that provide some important learnings, some of which can be addressed by government and other agencies, like the financial planning sector.  But, as the title of the report suggests, there are other findings we may be reluctant to hear.

Part of the problem is a general lack of awareness that there are costs associated with aged care. The research found that most of us see age care costs as primarily a government responsibility. While this is partly true (the Government pays for 78% of all age care), people still have to pay a user contribution for services, depending on the care they need and their income and/or assets. 

The report explains that there are many fees and charges, co-payments and deposits required by the aged care system which people “are understandably ignorant about until they need to access care.”  The concern, however, is that many people will be “caught off guard by these unplanned costs and […] may not be able to access the level or type of care they need.”

You can’t plan if you don’t know

Of course, to be able to plan for potential aged care costs you do need to understand the system and how the costs work.  Unfortunately understanding is poor and so planning tends to fall into the ‘too hard basket’. According to this research, the largest group (38 per cent of respondents) had thought about aged care – but still made no plans. Approximately 12 per cent of the people surveyed said they didn’t know enough about aged care costs to plan for them and a similar number didn’t think they had enough money to plan. Alarmingly, the proportion of respondents who struggled to understand aged care costs is ‘much higher’ among those who are currently accessing care.  This suggests the need for simplification and greater clarity in aged care client billing systems, to say the least.

Ironically, what is best-known about the aged care system is its complexity, coupled with the fact that very few people know where to look for information.  While the Government’s My Aged Care website does provide service costings, research undertaken as part of the Aged Care Royal Commission shows that relatively few people – nine per cent – use it as an information source.  [Roy Morgan Research. What Australians Think of Ageing and Aged Care. 2020] 

The National Seniors report says another factor that undermines the motivation to include age care costs in financial planning is that Australians tend to equate age care with residential aged care.  This contributes to hesitancy about planning for two reasons: one, because residential aged care has such a negative image that most people “deny the need for planning, financially or otherwise, for such an unattractive and distressing prospect.”  The other reason is that people assume they will sell their house to fund a move to residential care, so it is something that they will do in the future, only if or when it is required.

The big flaw in this thinking is that it overlooks the reality that the majority of aged care is actually delivered to people at home – via either a home care package or home support service – and not in residential care (or nursing homes).  Contributions to the cost of home care are usually required, but most people will not want to sell their home to pay for it.  

How can we plan for the costs of aged care? 

While the report argues that a shift in focus is needed, so that age care costs are built into later life financial planning, it also observes that our current hesitancy to plan is not entirely our own fault. The Financial Planning Association of Australia, it notes, argues too much focus is placed on the early phase of retirement – when people generally have good health – and people “underestimate the amount of savings needed during retirement, particularly if timely and appropriate aged care is required in later years”.   

However, the financial sector is yet to do much to address this from their perspective.  The report points out that, while the Association of Superannuation Funds of Australia (ASFA) has developed a Retirement Standard that provides a general guide to the amount of superannuation needed to support a comfortable retirement lifestyle, it does not include age care costs.  If it did, maybe more of us would be making provisions and things would be different.  

Being in control of aged care

Broadly, the report finds that we need to shift the community’s mindset so that we do start to incorporate aged care costs into our retirement plans.  Alongside initiatives from the financial sector, the reports calls for clearer information about aged care, with better access to it; as well as a concerted effort, in the form of a sensitive but concerted ‘campaign’, to counteract public fear and negativity and shift the way we think about aged care.

“A better understanding of the benefits of home support and home care could increase motivation to include care costs in financial plans for later life,” it says.  “As a society, we need to shift the perception of age care and age care preparation as being undesirable admissions of vulnerability and dependence to being proactive choices that enable us to live the best life possible, financially and otherwise, in our later years.”

Making it easy to get informed

You don’t know what you don’t know!  Mable is committed to providing clear, factual and easy to read information about Australia’s home care system and how older Australians and their family members can remain in control of their care and support needs.  

  • This article offers helpful information about understanding the role of home care, including how to flip your perceptions and take control over the choices that work for you.
  • This article provides a clear overview of the home care system, how it works, what you need to know, and where to find more details.
  • This article lays it out – what you need to be focusing on if you plan to age well at home and avoid going to a nursing home.