Aged Care Financial Planning Strategies for a Family Facing Alzheimer’s
Background: John and Margaret
We were contacted by our long-term client, who was increasingly worried about her parents, John and Margaret. Margaret has Alzheimer’s, and as her health has progressively deteriorated, Sarah became concerned not only for her mum’s wellbeing but also for the strain it was placing on her dad.
While the family’s priority was to provide home care for as long as possible, it was becoming clear that residential aged care would eventually be necessary. They were understandably overwhelmed by the financial implications of this transition.
John and Margaret were age pensioners but had built a reasonable retirement nest egg to help fund their lifestyle. They also had a Self-Managed Super Fund (SMSF), although the balance was relatively low.
Key Results at a Glance
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Boosted Pension:Improved Age Pension entitlement by $13,300
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Family Home Secured:Retained the family home while still funding aged care and retirement needs
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Reduced Costs:Invested funds personally and not in SMSF, saving on administration fees
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Protected Family Wealth:Saved children money by properly calculating financial implications of gifting parents $100,000
Why Did They Seek Advice?
- Understand how their financial future would look following Margaret’s Alzheimer’s diagnosis.
- Compare the financial impact of home care versus residential aged care options.
- Determine if they could afford to keep their family home if aged care became necessary.
- Assess whether it was worthwhile to maintain their Self-Managed Super Fund (SMSF) given its low balance.
- Get advice on how to manage cash flow and invest their savings, most of which were held outside superannuation.
- Understand how their daughters’ $100,000 contribution could improve their overall financial position.
Strategies Implemented
Centrelink & Age Pension Review:
- Reviewed their Centrelink details and identified they were being underpaid Age Pension.
- Assisted with updating their information, increasing their Age Pension entitlement by approximately $13,300 per annum.
Aged Care Planning:
- Compared multiple funding options for aged care, including paying the full $300,000 RAD themselves, part RAD ($150,000) with an ongoing DAP, pay nothing towards the RAD but pay the full ongoing DAP or having their daughters support them by paying their RAD in full.
- After analysing each scenario, we recommended that John and Margaret pay the full $300,000 RAD themselves, as this produced the most beneficial outcome.
- A key reason for this was that the RAD amount is not assessed by Centrelink. By paying the full $300,000, they effectively shifted this amount from being counted in the assets test to being exempt, resulting in a higher Age Pension entitlement.
- Our projections showed that this strategy would make them eligible for the full Age Pension.
- Additionally, paying less of the RAD meant more funds would be deemed as income, which would increase their means-tested care fees.
- Showed them that it was possible to retain the family home and fund Aged Care, as well as provide for their retirement need.
Daughters’ $100,000 contribution review:
- Analysed the impact of their daughters contributing $100,000 toward the aged care costs.
- Determined that this would not improve their financial position and would, in fact, reduce their Age Pension entitlement whilst also increasing their means-tested care fee.
Superannuation & Investment Strategy:
- Since John and Margaret were not yet ready to move into aged care, we helped them choose an appropriate investment platform that matched their risk profile and investment timeframe, ensuring the funds would be available when needed to support the transition later.
- We also identified that maintaining their SMSF was no longer in their best interest. Instead, we recommended withdrawing the balance and investing the funds personally, as this approach was simpler and more cost-effective.
- Our analysis showed that, based on the fund’s size, they wouldn’t need to pay tax on the investment earnings outside of super for several years, if at all.
- This change meant they could reduce administration, cut costs, and simplify their finances without losing any meaningful benefits.
Cash Flow & Lifestyle Planning:
- Outlined clear strategies to manage their cash flow effectively while maintaining their lifestyle.
- Provided education on Home Care entitlements, ensuring they could access government support to stay at home longer before moving to residential care.
Outcomes and Benefits
- Age Pension entitlement increased by $13,300 per year, improving ongoing cash flow.
- They were able to retain the family home while funding aged care and supporting their retirement needs.
- Received clear, tailored scenario analysis for aged care funding options, helping them make confident and informed decisions.
- Avoided an unnecessary $100,000 gift from their daughters that would have reduced Age Pension entitlements.
- Simplified their investments by closing the SMSF and investing personally, reducing administration and costs.
- Planned investments in line with their risk profile and aged care timeline, ensuring funds are available when needed.
- Gained clarity on government support options, including home care entitlements, allowing them to stay at home longer.
Key Takeaway
Starting aged care financial planning early and working with experts helped John and Margaret secure their retirement, retain their home, and avoid costly financial missteps.
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Important Note
Produced with our client’s permission. Names within this case study have been changed to protect the client’s right to privacy. The content of this case study has been based on a real-life client. Any information provided here is general advice only and does not consider your objectives, financial situation or needs. This information should not be taken as comprehensive and does not constitute legal or financial advice. You should seek legal, financial or other professional advice before relying on any content. Yield Financial Planning is not responsible to you or anyone else for any loss suffered in connection with the use of this information. Information is only current at the date initially published.
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