Author: James Black

The wave of older Australians will continue to grow over the coming decades. As such, we can no longer afford to ignore the issues around aged care with over 1 million retirees already accessing aged care services in Australia.

Planning ahead can help to demystify aged care and reduce stress levels. With awareness and pre-planning, you can maintain control and choice, have access to the financial resources to pay for care and minimise the stress on you and your family. This article discusses the steps you should consider when planning to move to residential aged care.

Step 1 – Plan ahead

We are often reluctant to think about a potential move into care. This means we fail to plan and ignore the warning signs until a crisis emerges. At this point, the time available to evaluate options is limited and decisions may be rushed. Also, our families may start to argue and conflicts arise.

Step 2 – Assessing options

Aged care help can be accessed in your home or in a residential service. To help you decide which option is best, arrange a free assessment by an Aged Care Assessment Team/Service (ACAT/ACAS).

You will need to have ACAT/ACAS approval before you can access a government subsidised home care package or residential care.

Step 3 – Searching for services

If residential care is required, think about what criteria is important in deciding where to live. Make a list. This should include location, amenities and your health care needs.

This list will help you develop a shortlist of potential services which you might like to contact or visit. But first check what fees will be asked for accommodation and ongoing services to ensure it is affordable for you.

Once you have selected your preferences you can fill in an application form to add your name to the waiting list. You can put your name on the waiting list for more than one service to increase your chances of finding a place.

Step 4 – Understanding the fee structure

Most people are often surprised by the level and range of fees. How much you have to pay may depend on:

• The service you choose
• Your assessable assets
• Your assessable income

Your adviser can help you to understand the fees as the total amount payable can be hard to calculate without good advice.

Step 5 – Structuring finances

Accommodation costs are set by market forces with prices published on the MyAgedCare website. But if assets and income can be reduced to low enough levels (to become a low-means client) before the move, the government may subsidise accommodation and regulate how much the resident pays.

In this way, the accommodation cost may be cheaper, but is not always better. Choice and control may be lost. Residents may be faced with accepting a place in whichever service has a low-means place available and could even be a shared room.

Your adviser can review your full financial situation and provide advice on how to:

• Make appropriate decisions
• Structure assets to pay for accommodation and as well as create sufficient cashflow
• Minimise fees or maximise Centrelink or Veterans’ Affairs benefits

Step 6 – Estate planning

Anytime your circumstances change it is important to consider the impact this has on your estate plans. This includes when you move into aged care.

You should speak to your solicitor about the ability to review and redraft your will to reflect your wishes.

As dementia is a leading factor behind the need for care services, when the time comes it is likely that the client will need to delegate financial decisions to someone else. This is easier if an enduring power of attorney (and guardianship) is in place. So it is important to have the appropriate powers in place before a person has lost legal capacity as once capacity has been lost, it will be too late to set up the powers and a trip to the Guardianship Tribunal will be needed.

The cost of aged care in retirement

Planning your retirement is likely to be exciting. While it may be less fun to think about the potential for physical and cognitive decline in the later part of retirement – our frailty years – this is an important period to plan for if we want to maintain independence for as long as possible.

The reality is that we are all likely to experience some cognitive decline or lose some of our physical ability as we age. This is a natural process but does not mean we will all develop dementia or lose the ability to live independently.

It does mean however, that at some point we may need to ask for help with our normal activities of daily living. This might be help we access in our own home. Or we might need to move into residential care for a higher level of support.

What should I plan for?

Figures from the Australian Institute of Health and Welfare^[1] estimate that on average approximately 17-25% of your retirement years could be “frailty years”.

Example: If you expect a potential of 30 years in retirement, on average the frailty years would represent 5-7 years. Planning for this length of time and planning early enough might help you to have the resources to pay for care and prevent leaving the planning until crisis point.

If asked, most of us would prefer to stay in our own homes as we age. Staying at home may be possible if we have lower care needs or we can rely on the support of a capable spouse/family or if we have sufficient financial resources to pay for help at home.

But if our care needs are too high for the people around us to cope, or we don’t have support networks, residential care might be a better option.

In any case, planning the financial aspects of your retirement should also include an estimate of how much you might need to pay for care. This is difficult to calculate because of the unknown factors around health, opportunities and finances.

Historically, the approach to retirement planning has been to decide what income you need and then calculate how much you need to save to generate this income. Most people assume a flat (or declining) level of income which grows with inflation. However, if you consider the cost of care, the pattern is more likely to follow an upwards curve as shown in the graph below.

In your early retirement years, you may spend more on leisure activities. This spending may decline as you age but is likely to be replaced with the costs of care or to pay someone to do the activities you used to do yourself.

What does care cost?

The costs of aged care have been increasing and opportunities expanding. The government is increasingly focused on helping to expand and improve the home care opportunities

Australia has a good system of care compared to many other countries, with safety nets to ensure people with lower financial capabilities can access care. But the ability to choose and the options available may be more limited if relying on the low-means concessions.

How much you will need to pay can be difficult to predict. Currently, it can roughly vary from $100 a week to $6,000 a week depending on the options chosen. This covers the wide-range of opportunities from basic home care packages to full-time nursing care at home.

Access to government subsidies and rules for calculating the fees based on your finances helps to make care affordable, but having adequate savings opens up your choices and your ability to control the level and type of care you receive.

* Additional service fees may also apply if selected and agreed with the service provider

These figures are current to 19 September 2018 and only cover the cost of care. Regardless of which option you choose you also have the costs of accommodation and other personal expenses.

What should I start thinking about?

While you don’t know what your future holds, with some planning you can help to make your retirement a comfortable one and live it the way you choose.

Some of the things you can start to do include:

• Ensure you have a safe and secure income in place for life – this might be pension income, lifetime income streams or drawdown strategies from other investments.
• Include your home as a financial resource available to provide a safe place to live – this might be a physical building but it might also be access to equity to pay for care needs by drawing regular income under an equity release arrangement or renting to generate extra income if you move into residential care or selling to access the sale proceeds for other purposes.
• Consider the impact you would have on family and friends if relying on them to provide care and how you can help with financial support.

Planning to make sure you have resources available is important. Equally important is to ensure you have an Enduring Power of Attorney in place in case someone else needs to take on the responsibility of making the decisions and paying the bills on your behalf.

How do I get help?

Advisersure specialises in aged care advice and matters to help provide our clients with a full retirement planning service.  Ask us today for how we can help you plan for a secure and comfortable retirement throughout all phases of your retirement – including the frailty years.

Call 03 98368399

Or email us at info@advisersure.com.au

Dementia Awareness Month

Did you know that dementia is now the second leading cause of death in Australia, and is the leading cause of death for women? Become involved in Dementia Awareness Month.

Dementia is not just one illness, but rather is described by Dementia Australia as the progressive decline in a person’s functioning that may result in a loss of memory, rationality, social skills or physical functioning. It is a broad term and there are many types of dementia.

Dementia mostly affects people over age 80 but can also be experienced at a younger age. Every three seconds someone in the world develops dementia. In Australia there are around 250 new cases every day, with 30% of Australians over age 85 experiencing dementia.

Caring for someone with advanced signs of dementia can be difficult and the carers need lots of support. In the advanced stages, more specialised care and a move into a residential care service may be needed.

Each year in September, Dementia Australia run Dementia Awareness Month to encourage greater awareness and understanding of dementia. The focus this year is on Small actions Big difference with the key message that we can all take small actions to create big differences for the people impacted by dementia as well as their families and carers.

Contact Dementia Australia to become involved or find out more about the resources available to help people experiencing dementia or the people who are close to them.

Website: www.dementia.org.au

Did you know?

Creating a funding plan to cover the increasing costs of care may allow greater independence and control. Plan ahead and consider the costs in your home or residential care.

Quick facts:

• There are currently around 425,416 Australians living with dementia
• While three in every 10 people over age 85 have dementia, over 26,000 people have younger onset dementia
• If dementia were a country, it would be the world’s 18th largest economy
• In 2018, dementia is estimated to cost Australia more than $15 billion. This is expected to increase to more than $36.8 billion by 2056
• The total estimated worldwide costs of dementia were US$818 billion in 2015
• Dementia is now the second leading cause of death in Australia. In 2016, an average of 36 people died per day with dementia identified as the underlying cause of death
• Dementia is the greatest cause of disability in Australians aged 65 or over
• Over half of the people in residential care facilities experience dementia.

https://www.dementia.org.au/statistics

[1] AIHW 2017 report Life expectancy and disability in Australia: expected years living with and without disability, based on expectancies of a 65-year-old.

Fidelity’s Investment Director, Tom Stevenson, shares his thoughts on investing in 2018.

Most of the time investors don’t need to think too much about market timing or asset allocation. The long-term trajectory of financial markets is up and the only sensible thing to do is to be fully invested and allow the odds to work in your favour. As we enter 2018, however, it doesn’t feel like ‘most of the time’. Nine years into the current equity bull market and with well-known and successful investors like Jeremy Grantham and Neil Woodford muttering darkly about investment ‘bubbles’, every investor’s New Year Resolution should be to look at their portfolio and understand the risks they are taking.

If you try to call the top of the equity market, one of three things will happen. You will get it just right, be too early or too late. The chance of the first is vanishingly small, so it is prudent to assume that if you try and time the market peak you will get it wrong. The only question that matters is how you want to be wrong. Do you care more about losing what you have accumulated in recent years or watching from the side-lines as others make profits that you have consciously foregone?

Whichever misjudgement you choose, it will probably be expensive especially if you are over-exposed to the equity market as most investors are. A year ago, you could have looked at the valuation of the US stock market and concluded that it was over-priced. Shares cost about 25pc more as a multiple of profits than their long-term average. If you had de-risked your equity portfolio at the beginning of 2017, you would have missed out on a 20pc rise in the S&P 500 and even more on the basis of the Dow Jones Industrials index or the Nasdaq.

Anyone bailing out of the market today risks a similar opportunity loss. In every market peak since the 1920s, returns have tended to accelerate in the six months before the market changes direction. On average, missing out on the final year of a bull market has meant leaving 20pc of gains on the table for someone else.

Being late is just as painful. Between 2000 and 2002, the same US benchmark index fell by nearly 50pc. Between the peak in 2007 and the bottom of the market in 2009, the fall was closer to 60pc. These are the exception not the rule but there are plenty of other examples of market falls of between 10pc and 20pc. Even these are worth avoiding if you can. Remember, a 50pc fall in the value of a portfolio requires a 100pc recovery simply to get back to square one.

So if like most people you feel the pain of a loss more than you enjoy the pleasure of a gain, you are probably thinking about protecting what you’ve got. How might you do that?

If you are really risk-averse, you may decide that the market has been driven by excessively loose central bank policy which is now reversing, that valuations have gone too far and that the market has had a fantastic run. You will swap all your investments for cash. Anyone doing this needs to understand that it comes with a significant cost. It’s not just the opportunity cost, it’s the fact that assets like cash with the lowest risks also guarantee the lowest returns. All the while that you are ‘de-risked’ you will be losing money in real terms.

The good news is that you don’t need to do this. If you are prepared to accept that a portion of your portfolio will indeed go ‘over the cliff’ when the market inevitably turns you can still minimise your losses and maintain some exposure to any final ‘melt-up’ phase in the market by injecting some balance into your investments.

To see how this worked the last time an equity market bubble burst, let’s jump back in time to the 1999-2003 boom and bust. In 1999, emerging market equities delivered a total return of 72pc while Japanese shares returned 67pc. A well-diversified global equity fund would have given you 31pc while the defensive assets in your balanced portfolio would have looked drearily pedestrian at 6pc for cash, 3pc for corporate bonds and a modest fall in the value of any government bonds you held.

The following year as the equity bubble burst, the emerging market equities that topped the table in 1999 were the worst performers, losing more than 25pc of their value and the Japanese shares were not far behind. Offsetting those falls, however, were cash, with a slightly higher return than the previous year and double digit returns from all types of debt: emerging market, corporate and government. In 2001, it was the same story. By 2003, however, the tables had turned with emerging market equities the top performer and government bonds at the bottom of the list.

One of the problems with how we think about our investments is that we are encouraged by the media to think it is all about equities. This is natural. Shares are more newsworthy because they bounce around more than bonds and are more closely linked to the ups and downs of corporate news. But this focus on shares encourages us to think in black and white terms about the market. If your New Year’s Resolution is to take some risk off the table, don’t overdo it and don’t swap one unbalanced portfolio full of equities for another stuffed full of cash. At this uncertain point in the cycle you can’t be too diversified.

Source:

Written by Tom Stevenson, Investment Director, Fidelity Australia.

Reproduced with permission of Fidelity Australia. This article was originally published at https://www.fidelity.com.au

This document has been prepared without taking into account your objectives, financial situation or needs. You should consider these matters before acting on the information. You should also consider the relevant Product Disclosure Statements (“PDS”) for any Fidelity Australia product mentioned in this document before making any decision about whether to acquire the product. The PDS can be obtained by contacting Fidelity Australia on 1800 119 270 or by downloading it from our website at www.fidelity.com.au. This document may include general commentary on market activity, sector trends or other broad-based economic or political conditions that should not be taken as investment advice. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be taken as a recommendation to buy, sell or hold these securities. While the information contained in this document has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. This document is intended as general information only. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity Australia’s managed investment schemes is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Reference to ($) are in Australian dollars unless stated otherwise.
© 2018. FIL Responsible Entity (Australia) Limited.

Important:
This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Recent decades have seen huge gains made in the financial empowerment of women. However complete financial equality won’t happen soon and in some cases may be unattainable. So what are the areas where women lag financially, and when it comes to retirement planning, what can be done?

4 key issues

• Gender pay gap. Across all industries, including those in which female workers outnumber males, men are, on average, paid 18% more than women. For non-managerial clerical workers the gap is relatively small at 8.8%, but in key management positions women receive 26.6% less than their male peers. Large gaps also occur in the legal and medical professions.
• Lower superannuation balances. While the pay gap is one reason why women have less in superannuation savings than men, another big contributor is time out of the workforce to raise children. Of 20 OECD countries, surprisingly Australia has the third lowest employment rate for mothers, particularly sole parents.
• More expensive disability insurance. While pure life insurance is cheaper for women, income protection and disability insurance is more expensive. This is because women have longer life expectancies than men, but they make more claims, and for longer periods, on both temporary and permanent disability policies. For trauma insurance younger women pay more than men of the same age, and older women pay less than their male counterparts. Future advances in medicine may help to even out these differences.
• Being single. Single women (and men) lose out on the financial economies of scale enjoyed by cohabiting couples. About 24% of Australians live in one-person households, and across all age groups, 55% of those living alone are women.

Focusing on super

While it will take significant social and political change to redress some of the financial imbalances between the sexes, there are things that women can do to improve their long-term financial position:

• Understand the situation. If you are planning on taking time out of the workforce, what are the implications? As an example, 35-year-old professional Simone earns $120,000 per annum and has a super balance of $60,000. She plans on having three children and expects to be a full-time mum for seven years before returning to full-time work. As a result she may likely have around $77,450 (17%) less in super at retirement at age 67[1] than if she didn’t take time off.
• Consider the options. Simone’s partner could plug some of this gap and potentially receive a tax benefit each year by making spouse contributions to her super fund while she is out of the workforce. This isn’t an option if Simone is (or becomes) single.

Another possibility is to increase contributions upon her return to work. If Simone salary sacrifices 2.9% of her pre-tax income to super, she could wipe out the estimated shortfall by the time she retires.

She could also consider changing her investment strategy or, less appealingly, delaying retirement.

Planning is the key

It certainly isn’t fair, but the reality is that more women, particularly single women, face greater financial hurdles than men. Planning for the range of scenarios is essential. To make sure you’re on the right track with insurance, superannuation and saving, talk to your licensed financial adviser.

For more information about planning for your future please contact us on 03 836 8399.

Millennials – take a bow. Not only are you concerned about how your super is invested, you are more likely than other age group to act on your beliefs when choosing a super fund.

Research commissioned by the Responsible Investment Association Australasia (RIAA) reveals that 75% of Millennials prefer to invest in a responsible super fund than one that only considers maximising financial returns. Well ahead of Gen X on 66% and Baby Boomers on 68%.

Across all demographics, the proportion of people who would rather invest in a super fund that “considers the environmental, social and governance (ESG) issues of the companies it invests in and maximises financial returns”, as opposed to a fund that focuses solely on maximising returns, has risen by 27% since 2013.

That’s a pretty strong trend which sends a clear message not only to superannuation and investment fund managers, but also to the wider corporate community – people care about more than just profits. They also want their investments to contribute to the greater good.

What makes an investment ethical?

Ethical investment funds may use positive screens to select companies that are doing ‘good’ things, or negative screens to exclude companies doing ‘bad things’. Or they may do a bit of both.

There are, of course, different views as to what is ‘ethical’. Someone with strong religious convictions may be interested in a very different range of investments than someone with deep environmental concerns. Typically, though, ethical funds tend to avoid investing in companies involved in weapons manufacture, alcohol, tobacco, gambling or fossil fuels while favouring renewable energy companies, sustainable technologies or healthcare.

Even then it can be difficult to decide if a particular company is ‘good’ or ‘bad’. Many people avoid investing in companies that mine uranium, but those same companies may also extract the materials needed to build wind turbine towers. Or a bank that finances coal mines may also lend to solar farms and energy efficiency projects.

Given the wide range of ethical considerations, you may need to do some in-depth research to find the fund or funds that best match your values.

Is your fund doing the right thing?

While you may have an ‘out of sight, out of mind’ attitude to your super, it’s important to remember it’s your money and you get to choose where and how it’s invested. Start with your fund’s website or disclosure documents and look for the environment, social and governance section.

Most large super funds offer a range of investment options, only some of which may match your idea of ‘ethical’. However, there may be a direct share option, allowing you to construct your own portfolio of shares in companies that are compatible with your values. Or you may look to the increasing number of investment managers that apply ethical filters across their entire range of funds.

Advice moves with the times

Fortunately it’s becoming easier to track down the investment funds that suit you.  Talk to us about the issues that are important to you so we can help you invest your super where your heart is. For more information about ethical investing please contact us on 03 9836 8399.

Sources:

“From values to riches. Charting consumer attitudes and demand for responsible investing in Australia.” Responsible Investment Association Australasia https://responsibleinvestment.org/

Important:

This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee takes any responsibility for their action or any service they provide.