When moving into residential aged care, you might find the thought of paying a large lump sum to be confronting, but don’t be afraid of a RAD. The full name of this payment – a Refundable Accommodation Deposit – provides a clue why you should not be afraid.
When you move into residential care, you are effectively moving into a new home. And just like any move to a new home, there is a cost to secure your accommodation - you either need to find a lump sum to buy the accommodation or create cashflow to pay rent.
With a move into care, one of the first expenses you will face is the cost of your room. This is likely to be quoted as a lump sum but you have the choice to either pay the lump sum (called a Refundable Accommodation Deposit - RAD) or turn it into a daily fee (called a Daily Accommodation Payment - DAP). You can also choose to pay a part lump sum and part daily fee.
While many people hesitate at the idea of a lump sum, paying a RAD can often be a financially sound choice, if you have the means to do so.
Four things to know about RADs
Firstly, the RAD is mostly refundable when you leave care or pass away. The provider can only deduct and keep a small retention amount (up to 2% each month for the first five years) and any outstanding fees. The majority of your money remains as part of your estate.
Example:
Carol pays a $750,000 RAD. If she passes away two years later, the care provider will have deducted $29,432 in retention amounts, leaving $720,568 to be refunded to her estate.
The refund of the RAD is guaranteed by the Federal Government. So, the second thing to know is that even if the aged care provider experiences financial difficulty, your deposit is protected.
Thirdly, if you choose not to pay a RAD, you’ll pay the Daily Accommodation Payment (DAP) instead. This is effectively interest (currently at 7.96% per annum) on the unpaid amount. And none of this interest paid is refundable.
Example:
If Carol opts to pay just the DAP, she would pay $163.56 per day ($59,700 per year) as “rent”. This stops when she passes away, but none of the DAP paid is refundable.
And fourthly, the RAD paid is exempt when calculating age pension entitlements. This can potentially increase your entitlements and help offset lost investment income.
Review your whole situation
Deciding how to pay for aged care is rarely easy, due to the many any moving parts with cashflow, age pension, care fees, taxation and opportunity cost.
But you don’t have to work through it alone. With the right advice, you can understand your options clearly and make confident decisions for you and your family. This is where our experience and expertise can help.
Contact us on (08) 8223 6880 to discuss your situation or visit our website to make an appointment at: www.agedcarefinancialspecialist.com.au.
Important information: Denise Kipling (ARN 235861) is an Authorised Representative of Financial Success SA Pty Ltd (ACN 105 603 058) ATF the Financial Success Trust ABN 68 114 614 838 t/as Financial Success specialising in Aged Care Financial Advice is a Corporate Authorised Representative No 235520 of InterPrac Financial Planning Pty Ltd AFSL 246638 ABN 14 076 093 680. The advice contained in this document is of a general nature and has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on the advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs; obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS and seek financial advice. No responsibility is taken for persons acting on the information within this document. Persons doing so, do at their own risk.