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Living longer presents financial challenges

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Australia’s ageing population means anincreasing number of people will need some sort of living assistance, either at home or in aresidential facility. According to the Productivity Commission, the number of people needing aged care services will increase from more than one million today to 3.5 million by 2030. Demand for services rises considerably once a person reaches 85, with more peopledeveloping disabilities, including dementia.More than 1.6 per cent of the population isalready over 85 and by 2050 this will have risento at least five per cent. As people age, or their parents or relatives age,so will the need to make decisions about care and ongoing living arrangements. Understanding an ageing person’s financial situation, as well as current and future potential health needs can help to ensure they can continue to comfortably meet their living expenses.

Seeking help

Given the complexities around tax, superannuation, government entitlements and an individual’s circumstances, retirement is often a key time to seek financial advice. The aged care system is also notoriously complex, although government plans for a gateway My Aged Care website to be operating in 2013 will go a long way to helping people understand the system better. 2Families and friends who have discussed the matter among themselves or with a financial adviser will undoubtedly be better prepared if and when the time comes to make lifechangingdecisions.

What to expect

Here is a snapshot of what someone or their relatives could expect to face. Before an individual can receive government assisted home care or a bed in an aged care facility, he or she needs to be assessed by an aged care assessment team. Someone assessed as needing a bed in a low care facility may be asked to pay an accommodation bond –similar to an interest free loan to the aged care facility while they live there, however the facility is able to retain a portion of the bond each year for up to five years. The amount is negotiated with the facility depending on an individual’s assets. A person entering a high care facility generally pays an accommodation charge instead of a bond. The value of bonds vary greatly, depending on the facility, an individual or couple’s circumstances and the financial advice they may receive about the best way to pay a bond. Rather than paying a lump sum it may be able to be paid in full or in part as instalments, with interest charged on the remaining amount. After the bond there is a basic daily care fee and a daily income-tested fee, which the Department of Health and Ageing determines. The daily care fee depends on a person’s pension status and the date on which they enter care, while income as assessed by Centrelink determines the income-tested fee. In most cases, the value of a person’s home or other assets will determine the entry cost and ongoing care costs. Once a bond is paid, it is no longer assessed for asset or income test purposes.

The family home dilemma

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The biggest dilemma facing families whose remaining living parent is looking at moving into aged care, which requires an accommodation bond or an accommodation charge, is whether to sell the family home. While selling a home may provide extra income on which to live, it can also affect a person’s aged pension. An added complication is that care may not always be available when and where you would like. Illness and injury can increase emotion and stress levels considerably. When this happens, even the best plans can go astray.

Jenny’s story

Take Jenny Li’s mother, Val. At 84 and with a debilitating illness she was no longer able to live alone in her own home. Jenny was lucky to find her mother a bed in a facility which, based on the value of her house at the time, required a $350,000 bond. The plan was to settle Val in, sell the family home and pay the bond once the house was sold.

It took 18 months for the house to sell and then Val got less for it than expected, leaving her with a substantial interest bill on top of the accommodation bond. After seeking help from a specialist aged care financial adviser, Val moved to another slightly more affordable facility closer to Jenny. The adviser negotiated the bond on Val’s behalf in such a way that Val was able to pay minimal care fees and keep her aged pension. Jenny would have preferred not to have sold the family home and may not have had to if she been presented with some alternatives earlier. However, the most important thing was for her mother to be safe, well cared for and happy in her new accommodation.

Making the best out of tough times

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While many people plan for significant life events, few, if any, plan on the emotional and financial impact of divorce. Yet planning for a separation is important when dealing with the major changes that will affect a couples’ financial circumstance. Data gathered by the Australian Bureau of Statistics indicates that 49,000 marriages end in divorce in Australia each year.

  • Of these, nearly 50 per cent involve children under the age of 18.
  • Under Australian law, assets such as the family home, other properties, businesses, investments, savings and superannuation are all eligible for division between a couple.
  • When you consider the rules and legislation governing each of these areas, it quickly becomes evident just how complex divorce can be.

The need for professional advice before, during and after a separation is essential in dealing with your assets as well as creating immediate and long-term financial security, especially where children are involved.

Who do I turn to?

Certainly, a lawyer is necessary and can guide you through the divorce process and explain the law. Similarly, an accountant can provide essential tax advice. But gaining support from a financial adviser, who has a top-down view of your entire financial position and the potential impact of a separation, is critical. Dividing assets like superannuation, savings and investments can be very complex and is often made all the more challenging due to heightened emotions and anxiety involved.

This is not the time to go it alone. With detailed knowledge of your existing asset structure, investments and estate plan, your adviser can give you the tailored advice you need. In fact, your adviser can not only work closely with other external parties, but can also help you manage the whole process and coordinate the many professionals involved, such as lawyers, accountants and even counsellors.

How will a financial adviser work with me??

Regardless of the level of income earned within the relationship, your financial status and position will have changed after a divorce.

Often one person might end up with greater assets, but due to custody arrangements may need to work less and receive a lower income, making it difficult to meet day-to-day expenses.

Your financial adviser can help assess your new level of income and expenses to re-establish your short and longer-term financial goals. At a more detailed level, your adviser will also consider a wider gamut of issues such as funding your children’s education, splitting and transferring your investments and superannuation, review life insurance policies, estate planning considerations and
wills to make sure they reflect your changed circumstances.

When should I seek advice?

With divorce, it’s a case of the sooner, the better. At such an emotional time, it is easy to become overwhelmed by all the decisions that need to be made. While divorce settlements are largely financial, there is a huge toll on everyone involved. Your adviser can explain the benefits and risks of each financial decision and draw together an accurate picture of your current position.

This can help you reach a settlement quicker and with a more realistic idea of your new financial position. Talking to your adviser can help you feel prepared and better able to find solutions that avoid disrupting the lives of children who may be involved. It can also provide better financial outcomes than merely liquidating assets or splitting them down the middle.

Lara’s experience

Jake and Lara had been married for 12 years with two young children in primary school. While the couple had both been working after the children began school, they had few assets beyond their superannuation and a joint mortgage on the family home.

After some major problems, they decided to divorce. However, Lara was concerned that she would not be able to support the children and herself after the split. While she and Jake had agreed on joint custody of the children, they were unsure as to how to split their assets or what to do with the family home.

Lara’s financial adviser demonstrated that with her income and the probable settlement, it would be unlikely for her to take on the present mortgage, but could buy a smaller home, with a much-reduced mortgage, for her and the children. At the same time, with the help of her lawyer, Lara was able to settle with Jake for a larger portion of the house sale – to be invested into her superannuation – reflecting her years spent at home when the children were toddlers. Her adviser was also able to advise her on government assistance that might be available for a single parent with young children.