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Smart Investing
By Robin Bowerman

Everyone understands that having children is an expensive exercise. But don't fall into the trap of thinking that growing old is cheap.

There has been a lot of focus on getting people to save more for their retirement with the emphasis on people being able to afford an active lifestyle. But how much time do people spend planning for the aged care requirements that increasingly are needed thanks to our longer life expectancy?

Unexpected financial shocks can derail the best of retirement plans and the aged care issue is one where people would perhaps rather not deal with the issue until it happens - but that can be both expensive and emotionally stressful.

For the baby boomer generation the first they may have to deal with this issue is not their own situation but when their parents need hostel or nursing home accommodation.

Deteriorating health can often mean this issue has to be dealt with suddenly - particularly where elderly parents have been happily self sufficient in their own home and living comfortably on investment income or social security or some combination of both.

Suddenly if hostel or nursing home accommodation is required a whole new set of rules and regulations have to be confronted.

Centrelink rules are central here - even for high net worth people and the rules are complex because of the many combinations.

The first issue of course is actually finding a space in a nursing home.

And the laws of supply and demand are at work here as well - an investor seminar by financial planning group Retirement Tasmania in Hobart recently heard that because of scarcity of places in nursing homes some people were offering to pay higher accommodation bonds in order to secure a place.

It may appear a little unseemly to be jumping queues at that age but no doubt shows a level of desperation. The accommodation bonds are repaid to the estate on a person's death - less annual fees - but in the meantime the institution running the aged care facility is entitled to the interest or earnings from the bond payments so the commercial value of higher bond payments is clear.

Essentially there are four possible levels of fees you may pay - the accommodation payment or bond, a base daily care fee, an income-tested daily care fee and an additional fee if you are in an "extra service" place.

One of the principals of Retirement Tasmania Scott Donoghue says the fees are determined by Centrelink rules - so the asset and income tests come into play and whether you are a homeowner or not.

Then there is the issue of the type of care a person needs - low level care or high level care. The level of care is determined by an Aged Care Assessment Team.

The emotional impact of putting a parent into aged care can be significant with just getting general agreement among family members be a challenge on its own.

When you are confronting the nursing home dilemma a financial planner may not seem a likely person to talk to but the rules that govern nursing home places and pension entitlements are not well understood and some specialist advice can be a real help.

Most of the focus within financial planning is about accumulating wealth to fund retirement but in the future there is going to be a greater need to get advice on how to drawdown your retirement income and the appropriate investments and structures to do that.

Scott Donoghue says that where financial planners can help is with the use of products like allocated pensions or annuities that can favorably impact the Centrelink assessment rules.

Then of course there are other basic issues - like ensuring powers of attorney and wills are correctly drawn up and in place - because failing health or incapacity can really pose major hurdles if correct steps are not taken.

Regrettably none of us can avoid getting old but some early planning can help avoid some nasty financial shocks when we get there.