Factoring the cost of aged care into retirement planning

Abstract: This paper addresses one of the information lacunae that employees face as they plan for their retirement, namely the likely aged care costs that they can expect to face in retirement. It derives lower bounds on the private aged care costs that several representative individuals can expect to face in retirement by estimating their lifetime risk of entry to permanent residential aged care, the most expensive form of aged care, and their expected length of stay in permanent residential aged care (given that they enter). Almost half (49.9 per cent) of women and a third (31.9 per cent) of men aged sixty-five will enter permanent residential aged care at sometime in their remaining life. Of those who do enter permanent residential aged care, women on average stay for 3.5 years while men on average stay for 2.3 years. The total private cost of residential care depends on a care recipient’s income and assets. For a part-pensioner with total income of $30,000 per annum and assessable assets of $160,000 who enters residential aged care, the total private cost would, on average, be $62,000 for a woman and $31,000 for a man. A quarter of part-pensioners with this level of income and assets who enter residential aged care would face a total private cost of more than $133,00