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Buy or rent your room in aged care

Think you can’t afford aged care? Advice on your options can help to understand what is affordable and how to best structure your finances.

When you move into residential aged care, the room price might be quoted as a lump sum, but you will have the choice to pay for your room as a lump sum or a daily fee or a combination.

In the same way that you can choose to buy or rent a home, so can you effectively choose to “buy” or “rent” your room in aged care. This choice can help with affordability if you don’t have enough assets to pay the full lump sum or don’t want to sell your assets. But there are a number of important things to consider.

If you pay a lump sum (called a refundable accommodation deposit – RAD) this is not lost money. The balance will be refunded to you or your estate when you leave, with repayment guaranteed by the Federal Government.

While you live in the aged care service, you are giving up access to your money and do not earn interest, but you will reduce the fees that you might otherwise have paid for renting the room. As interest rates increase, so may the benefits of paying the RAD. As a bonus, you might also qualify for additional age pension because the RAD is exempt for Centrelink and Veterans’ Affairs assets testing.

The decision whether to pay the lump sum or the daily fee is not an easy one and requires full analysis of your finances. You need to analyse the benefits and make sure you retain enough liquidity to meet your other ongoing expenses. Your estate plans and family situation may also impact which choice is better.

When making your choice, it is important to look beyond just the impacts when you enter care, but also what might change over time and what happens to your estate. Make your choice easier with advice. Contact us to arrange an appointment to discuss your situation.

IMPORTANT INFORMATION: This document has been prepared by Aged Care Steps Pty Limited, ABN 42 156 656 843 AFSL 486723, registered tax (financial) advisers (25581502) based on our understanding of the relevant legislation at the time of writing. While every care has been taken, Aged Care Steps Pty Limited makes no representations as to the accuracy or completeness of the contents. The information is of a general nature only and has been prepared without consideration of your individual objectives, financial situation or needs. Before making any decisions, you should consider the appropriateness for your personal investment objectives, financial situation or individual needs. We recommend you see a financial adviser, registered tax agent or legal adviser before making any decisions based on this information. Current at 1 October 2022.

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