Longevity brings hidden financial risks
Affording aged care in later life involves making complex financial decisions that many people underestimate, but a new tool being developed by Dr Colin Zhang and a team of collaborators will help inform seniors.
Preparing for retirement and ageing
A move into aged care involves sudden decisions with serious financial implications for whole families, such as whether to sell the family home to fund the move.
Navigating the world of accommodation deposits, daily fees, a mix of the two, what to do with a family home and how to factor in social security and tax implications, along with means tests, is a hugely complex undertaking that involves stress, time pressure and often needing to make decisions before always understanding the full implications.
Dr Colin Zhang is part of a team trying to unravel the strands, and apply analytical skills to develop a sophisticated but simple to use calculator tool for people to evaluate what makes most sense, undertaking this work with Professor Henry Cutler, from the Centre for the Health Economy.
This builds on previous work by Professor Tim Kyng, who looked at the true costs and financial risks associated with retirement villages, revealing hidden fees for consumers and significant delays in releasing funds. For those leaving retirement villages, it could mean they may not be able to afford accommodation deposits for aged care if there’s a gap between the amount released from the retirement village accommodation and the deposit needed for entering aged care. This can happen when exit fees are high, or funds are not available when needed.
A wider range of scenarios is now being factored so older people and their families will better understand financial strategies available to them, whether they are considering entering a retirement village and some years off needing aged care, or choose to remain in their own home until this time.
Development of a new enhanced online calculator is at the core to the approach, taking into account complicated factors that include pension entitlements and tax thresholds.
This work directly benefits not only those considering retirement village living, but those preparing to meet future aged care costs in different living circumstances by quantifying the risks and costs of different choices.
The original Retirement Village Calculator was a first important step to break down complex retirement village contracts to benefit consumers through greater transparency.
The online calculator has attracted considerable media attention, and is now linked to many consumer websites that support older Australians, including the Council of the Ageing, the retirement village residents’ associations in NSW and Victoria, and the financial capability website of the Australian Securities and Investments Commission, recognising the importance of this work in helping older people make informed decisions and the need for more work to increase the range of scenarios that can be applied to.
Dr Colin Zhang, Associate Professor Timothy King, Professor David Pitt and Dr Sachi Purcal from Department of Actuarial Studies and Business Analytics started the calculator project, which will now also involve Professor Henry Cutler and his team from the Centre for the Health Economy for the next stage.