You've saved all your life and built up a tidy nest egg. Then along come the big bogeys that suck your wealth dry in retirement.
One of the real ogres in people's minds is the cost of rest-home care. Mum or Dad spends a year or two in a rest home and their life savings are zapped.
The reality is that rest homes don't always eat up a person's entire wealth - although they can. It's worth knowing the facts before starting to worry about rest home costs.
If you've never been confronted with the need for any type of aged care for yourself or your loved ones, you probably know little about it.
There are three levels of facilities offering accommodation and care for retired people - ranging from "resort-style" independent living apartments at one end of the scale to hospital beds for people who need 24/7 care.
The three main style of facilities are:
* Retirement villages.
* Rest or care homes.
* Aged hospital care.
Retirement villages are used by able-bodied older people, who usually buy a licence to occupy an apartment, unit or villa in a gated-style retirement community. A licence is a costly option, which nonetheless is popular with many older folk.
Rest homes cater to the needs of those with a higher level of dependency.
"They may have trouble getting out of bed, they may be incontinent and they may have mild dementia," says Martin Taylor, chief executive of the New Zealand Aged Care Association. Many retirement villages have rest or care homes on site. There are also many standalone rest homes.
Most people who live in rest homes have passed a needs assessment by a needs assessment and services co-ordination agency.
Age Concern New Zealand's chief executive, Ann Martin, says the bar for entry to a rest home is higher than people expect. Usually it's people who cannot be cared for safely at home.
People who qualify for rest home care will either need to pay a "maximum contribution" of about $800 a week ($41,600 for a year) for their stay or apply for the Government's residential care subsidy. Either way the accommodation they get unless they're willing to pay more privately is a basic 12sq m room. Residents of these rooms have to share bathrooms with whomever is thrown in alongside them.
The "maximum contribution" or government subsidy covers accommodation, food, laundry, nursing, GP visits, prescribed medicines, incontinence products and transport to health services.
Many rest-home residents, both subsidised and private payers, choose to buy additional services, such as premium rooms with en suites, private phone, newspapers and magazines, hairdressing, reading glasses, hearing aids and dental care.
Those extras can range from about $3 a day to $100 a day, says Martin Gray of Grant Thornton, which carried out an extensive survey of New Zealand aged care facilities. "Forty-three per cent of facilities have some extra charging, although not all residents in those facilities pay for extra [services]," says Gray.
Age Concern's Ann Martin says it's important to find out before moving into a care facility exactly what will be charged for, and to understand the facility's admission agreement before signing it. "Treat it as you would any other legal document or contract," she says.
Life in rest homes isn't all 12sq m shoeboxes and shared bathrooms. There are more luxurious aged care facilities available, says Taylor. They may suit wealthy individuals or people of lesser means whose families are keen for Mum or Dad to live in better than average or even luxurious facilities. They may only be there for a short time.
The average age of a person going into a rest home is 84, says Gray. The Grant Thornton Aged Residential Care Service Review found that the average length of stay is less than three years for a rest home resident, and less than one year in aged care hospital facilities. To qualify for the residential care subsidy you need to be aged over 65 and have assets valued at $210,000 or less as a general rule.
Those assets include cash or savings, boats, caravans, campervans, investments and loans made to other people or family trusts. Personal belongings such as clothing, jewellery, furniture and household effects are not included.
If you have a spouse or partner in long-term residential care you must have combined total assets of $210,000 or less. If your spouse or partner is in the community you can choose a threshold of:
* Combined total assets of $115,000 not including the value of their house if one partner or a dependent child lives in it, and a car or:
* Combined total assets of $210,000, which will include the value of their house and car.
That's not all. People who pass the asset test for the residential care subsidy, but have income, usually need to contribute to the cost of their care. Their NZ Super, Veteran's Pension, overseas government pensions, contributions from relatives, earnings from investments, business, family trusts or estates can all be taken to pay for the care. The Government can also take 50 per cent of private superannuation payments and life insurance annuities.
Subsidised residents do get a weekly personal allowance and an annual clothing allowance so that they have some spending money, having lost their other income.
For people who do not qualify for the subsidy, but have limited assets with which to pay rest-home fees, the Ministry of Health can provide an interest-free loan against the person's home. The loan stops if you subsequently become eligible for the subsidy. It is repayable when you sell your home or 12 months after your death, whichever is the earliest.
Sadly, unlike Britain, we don't have long-term care insurance, which would pay the costs and leave a resident's assets intact.
On a positive note, aged hospital care is significantly more expensive than rest home care, but the Government pays the extra, whether or not the resident receives a residential care subsidy.
One fishhook to be aware of with the subsidy is that the IRD and Work and Income have different ways of assessing assets and income. Gifting all your assets to a trust in one fell swoop will work against you if you want subsidised rest home care. Although gift duty was abolished under the Estate and Gift Duties Act in October last year, allowing people to gift all of their assets to a trust in one go, the Social Security Act didn't change.
That means that Work and Income only allows residential-care subsidy applicants to gift $6000 a year for the five years before an application and $27,000 a year in previous years. That is not averaged out, which means if you gift $270,000 in one sum 10 years before you go into a home, and no more subsequently, only $27,000 of that gift is allowable. There is a useful factsheet at tinyurl.com/WINZgifting.
Work and Income can, in some circumstances, also claw back gifts from family trusts if the trust appears to be a sham.
Going back to the question of paying for what you get in care homes, there is a new way popular with some of the larger chains of aged care facilities such as Oceania and Summerset. That is a licence to occupy a rest home room or even an aged care hospital room.
You "buy" a better class of room than the 12sq m standard one from the operator for between $150,000 to $190,000, of which about 80 per cent is repaid to you or your estate when you leave, says John Collyns, executive director of the Retirement Villages Association.
Residents who qualify for a residential care subsidy but "buy" a licence to occupy have a portion of the money paid by the local district health board to the rest home rebated to them. The retirement villages industry sees this as a way to get the capital to build new facilities that provide rooms that will be in high demand as the population ages. Grant Thornton estimated that 20,000 more care beds will be needed by 2026.