When someone mentions the retirement phase of our lives, the Golden Years—a time of leisure, travel, and more time with the grandchildren—are likely what springs to mind. However, did you know that retirement is typically divided into three main stages: the active years, the sedentary years, and the frail years?
While most hope and/or plan to spend big in the active years, it’s important to ensure you also plan on having adequate funds set aside for the frail years. These are the later years of retirement when health and functional capacity may begin to decline, and additional care and support may be required.
Christine Swanson, Senior Financial Adviser at Prominent Financial, emphasizes the importance of early planning: “Forward planning is key. Timely planning enables you or a loved one to transition to aged care with ease and dignity. Clarity amidst confusion – our focus is to provide a central point for accurate and relevant information on aged care.”
When planning for the frail years, there are a number of important things to consider.
Health Care
Health expenditure is predicted to increase per elderly person from $7,439 in 2015 to $9,594 in 2035. This can represent a large portion of the cost of living for older Australians and is an essential expense that needs to be factored into spending throughout the retirement stages.
Quality of Care
While you might be familiar with the amount you need for a comfortable standard of living, you will also need to consider the amount you might need for a comfortable standard of care as well. Factoring in the quality of lifestyle you would expect for the frail years will be critical to determining your expense needs for these years. These expenses might include in-home care (i.e., grocery delivery, meal preparation, home maintenance and cleaning), home and/or motor vehicle adaptations, residential aged care, etc.
Aged Care
Aged care services come in many different forms, from home care and transitional care to respite and permanent residential care. While the majority of older Australians prefer to “age in place,” the likelihood of needing to move into residential aged care increases throughout the later years of retirement. According to the OECD (2020), 18.4% of the Australian population aged 80+ were using long-term care provided by an institution (excluding hospitals).
Residential aged care facilities can come with a range of costs, including:
- Basic daily fees;
- Means-tested care fees; and
- Accommodation costs.
While the basic daily fees are a set amount paid for by all residents, the means-tested care fees and accommodation costs are subject to an assessment of your income and assets.
Longevity Risk
Longevity risk is the risk of outliving your life expectancy, which may require greater levels of retirement assets than originally planned. A good way to allow for this is to include a life expectancy buffer by adding additional years (i.e., 5-10) to your life expectancy when calculating your retirement expense needs.
Strategies for Retirement Planning
There are a number of financial planning strategies available that can help retirees get the most out of their retirement assets. These can include:
- Contributing to superannuation, including downsizer contribution strategies.
- Using account-based pensions and annuity products to structure retirement assets.
- Strategies to optimise age pension entitlements, including prepaying funeral bonds.
- Aged care planning, including the best way to fund care costs and how to best manage the family home.
If you’re not sure how to best approach your retirement plan, reach out to our team here today.
Christine Swanson is a qualified professional adviser and aged care advice specialist who can help guide you in making smarter financial decisions. Book an appointment today!
This information is general in nature only and has been provided without taking account of your objectives, financial situation, or needs. Because of this, you should consider whether the information is correct and appropriate in light of your particular objectives, financial situation, and needs.
