Is it worth selling my house if I’m going into aged care?
<p><em><a href="https://theconversation.com/profiles/colin-zhang-1234147">Colin Zhang</a>, <a href="https://theconversation.com/institutions/macquarie-university-1174">Macquarie University</a></em></p>
<p>For senior Australians who cannot live independently at home, residential aged care can provide accommodation, personal care and general health care.</p>
<p>People usually think this is expensive. And many assume they need to sell their home to pay for a lump-sum deposit.</p>
<p>But that’s not necessarily the case. Here’s what you need to consider.</p>
<h2>You may get some financial support</h2>
<p>Fees for residential aged care are complex and can be confusing. Some are for your daily care, some are means-tested, some are for your accommodation and some pay for extras, such as cable TV.</p>
<p>But it’s easier to think of these fees as falling into two categories:</p>
<ul>
<li>
<p>an “entry deposit”, which is usually more than <a href="https://www.health.gov.au/sites/default/files/documents/2020/06/eighth-report-on-the-funding-and-financing-of-the-aged-care-industry-july-2020-eighth-report-on-the-funding-and-financing-of-the-aged-care-industry-may-2020.pdf">$A300,000</a>, and is refunded when you leave aged care</p>
</li>
<li>
<p>daily “<a href="https://www.myagedcare.gov.au/aged-care-home-costs-and-fees">ongoing fees</a>”, which are $52.71-$300 a day, or more. These cover the basic daily fee, which everyone pays, and the means-tested care fee.</p>
</li>
</ul>
<p>To find out how much government support you’ll receive for both these categories, you will have a “<a href="https://www.myagedcare.gov.au/income-and-means-assessments/#aged-care-home">means test</a>” to assess your income and assets. This means test is similar (but different) to the means test for the aged pension.</p>
<p>Generally speaking, the lower your aged-care means test amount, the more government support you’ll receive for aged care.</p>
<p>With full support, you don’t need to pay an “entry deposit”. But you still need to pay the basic daily fee (currently, <a href="https://www.myagedcare.gov.au/aged-care-home-costs-and-fees">$52.71</a> a day), equivalent to 85% of your aged pension. If you get partial support, you pay less for your “entry deposit” and ongoing fees.</p>
<h2>You don’t need a lump sum</h2>
<p>You don’t have to pay for your “entry deposit” as a lump sum. You can choose to pay a rental-style daily cost instead.</p>
<p>This is calculated as follows: you multiply the amount of the required “entry deposit” by the maximum permissible interest rate. This rate is set by government and is currently at <a href="https://www.health.gov.au/sites/default/files/documents/2021/03/schedule-of-fees-and-charges-for-residential-and-home-care-schedule-from-20-march-2021_0.pdf">4.01%</a> per year for new residents. Then you divide that sum by 365 to give a daily rate. This option is like borrowing money to pay for your “entry deposit” via an interest-only loan.</p>
<p>You can also pay for your “entry deposit” with a combination of a lump sum and a daily rental cost.</p>
<p>As it’s not compulsory to pay a lump sum for your “entry deposit”, you have different options for dealing with your family home.</p>
<h2>Option 1: keep your house and rent it out</h2>
<p>This allows you to use the rental-style daily cost to finance your “entry deposit”.</p>
<p><strong>Pros</strong></p>
<ul>
<li>
<p>you could have more income from rent. This can help pay for the rental-style daily cost and “ongoing fees” of aged care</p>
</li>
<li>
<p>you might have a special sentimental attachment to your family house. So keeping it might be a less confronting option</p>
</li>
<li>
<p>keeping an expensive family house will not heavily impact your residential aged care cost. That’s because any value of your family house above <a href="https://www.health.gov.au/sites/default/files/documents/2021/03/schedule-of-fees-and-charges-for-residential-and-home-care-schedule-from-20-march-2021_0.pdf">$173,075.20</a> will be excluded from your <a href="https://www.servicesaustralia.gov.au/organisations/health-professionals/services/aged-care-entry-requirements-providers/residential-care/residential-aged-care-means-assessment">means test</a></p>
</li>
<li>
<p>you can still access the capital gains of your house, as house prices rise.</p>
</li>
</ul>
<p><strong>Cons</strong></p>
<ul>
<li>
<p>your rental income needs to be included in the means test for your aged pension. So you might get less aged pension</p>
</li>
<li>
<p>you might need to pay income tax on the rental income</p>
</li>
<li>
<p>compared to the lump sum payment, choosing the rental-style daily cost means you will end up <a href="https://www.smh.com.au/money/super-and-retirement/seek-help-when-weighing-up-how-to-pay-for-your-aged-care-20191202-p53g16.html">paying more</a></p>
</li>
<li>
<p>you are subject to a changing rental market.</p>
</li>
</ul>
<h2>Option 2: keep your house and rent it out, with a twist</h2>
<p>If you have some savings, you can use a combination of a lump sum and daily rental cost to pay for your “entry deposit”.</p>
<p><strong>Pros</strong></p>
<ul>
<li>
<p>like option 1, you can keep your house and have a steady income</p>
</li>
<li>
<p>the amount of lump sum deposit will not be counted as an asset in the pension means test.</p>
</li>
</ul>
<p><strong>Cons</strong></p>
<ul>
<li>
<p>like option 1, you could have less pension income, higher age-care costs and need to pay more income tax</p>
</li>
<li>
<p>you have less liquid assets (assets you could quickly sell or access), which could be handy in an emergency.</p>
</li>
</ul>
<h2>Option 3: sell your house</h2>
<p>If you sell your house, you can use all or part of the proceeds to pay for your “entry deposit”.</p>
<p><strong>Pros</strong></p>
<ul>
<li>
<p>if you have any money left over after selling your house and paying for your “entry deposit”, you can invest the rest</p>
</li>
<li>
<p>as your “entry deposit” is exempt from your aged pension means test, it means more pension income.</p>
</li>
</ul>
<p><strong>Cons</strong></p>
<ul>
<li>if you have money left over after selling your house, this will be included in the aged-care means test. So you can end up with less financial support for aged care.</li>
</ul>
<h2>In a nutshell</h2>
<p>Keeping your house and renting it out (option 1 or 2) can give you a better income stream, which you can use to cover other living costs. And if you’re not concerned about having access to liquid assets in an emergency, option 2 can be better for you than option 1.</p>
<p>But selling your house (option 3) avoids you being exposed to a changing rental market, particularly if the economy is going into recession. It also gives you more capital, and you don’t need to pay a rental-style daily cost.</p>
<hr />
<p><em>This article is general in nature, and should not be considered financial advice. For advice tailored to your individual situation and your personal finances, please see a qualified financial planner.</em></p>
<p><em>Correction: this article previously stated the amount of lump sum deposit will not be counted as an asset in the aged-care means test, as a pro of option 2. In fact, the amount of lump sum deposit will not be counted as an asset in the pension means test.</em><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/161674/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /></p>
<p><a href="https://theconversation.com/profiles/colin-zhang-1234147"><em>Colin Zhang</em></a><em>, Lecturer, Department of Actuarial Studies and Business Analytics, <a href="https://theconversation.com/institutions/macquarie-university-1174">Macquarie University</a></em></p>
<p><em>Image credits: Shutterstock </em></p>
<p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/is-it-worth-selling-my-house-if-im-going-into-aged-care-161674">original article</a>.</em></p>
