KEY POINTS:
Older people face a minefield when it comes to the choice between staying at home and moving to retirement facilities.
For those who want to keep their wealth, staying at home is one of the few options available - but even then capital can be eaten up by reverse equity mortgages.
The wealth-eating powers of retirement villages and rest homes are scary.
The cost of basic rest home rooms and care is set by the Government, says Martin Taylor, chief executive of Healthcare Providers New Zealand, which represents aged care operators. Currently that is $794.64 in Auckland city and varies in other parts of the region and the country.
Many older people pay more for additional services such as an en suite or garden and may pay up to $1000 a week. Whatever the cost an older person must fund it themselves until their capital dwindles to an $180,000 asset threshold.
If there is a spouse involved who doesn't need to go into a rest home, that person is entitled to the use of the house and car for the rest of their lives, but the capital is owed to the Government on their death.
Once the capital is gone, they would need to move into a government-subsidised room, if they weren't already in one charged at that rate at the existing rest home, or elsewhere if one wasn't available.
If capital has been gifted to a trust there is a good chance that it will not be taken into account, says Mark Maxwell, director of Integrity Trust. WINZ goes back five years and includes any assets gifted to trusts in that time. It can go back further if it believes that the trust was set up solely to avoid paying rest home fees, says Maxwell.
If the Government is paying the rest home costs to the operator it takes away the older person's superannuation - giving the individuals just $33.75 per week "personal needs payment", which doesn't go very far if you're mentally alert, says Bill Atkinson, Grey Power's retirement villages chair. "People need to occupy themselves," he says.
The needs payment doesn't cover much if an older person wants to buy a newspaper, for example, or gifts for family and children, and take the occasional trip to a cafe or restaurant, a haircut, or a visit to the dentist, optician or audiologist.
Other costs they must pay from that $33 a week include:
* Insurance of personal belongings.
* X-rays.
* Second or subsequent visits to the doctor per month.
"I talk to some older people who shock me and say at least they are alive and have somewhere to live," says Atkinson. "But there is no dignity in it. It is poverty."
The alternative is to stay at home or move in with family. Jeff Matthews, senior financial adviser at Spicers Wealth Management, cites the case of a client who sold her home and moved into a purpose-built granny flat built on her daughter's property. By doing so she protected her wealth from disappearing in rest-home fees or to a retirement villages operator.
Another client was struggling financially to stay in his own home - and one of the children stepped in and began loaning the father a regular amount, which was accounted for and repaid on his death.
"That is exactly what people should be doing," says Alistair Stewart of Age Concern, "thinking outside of the box".
Options could include:
* Downsizing or buying a smaller unit or modifying the house so parts can be let separately.
* Taking in friends or acquaintances as "flatmates".
* Renting the garden to community gardeners.
* Renting out the garage.
* Renting walls for outdoor advertising. Selling to rent and investing the money from the property sale.
Making arrangements within families such as family members buying into the house or loaning money, but only if clear contracts and impartial legal advice are used.
One little known fact is that home-based care provided by the Government for older people to stay in their own homes isn't usually means-tested. That means older people who need help to stay at home can get it for free - no matter their financial position.
For those with assets , this makes an awful lot of sense. Services that are provided for free for those who pass needs assessment (not a means test) include:
* Home modification such as providing handrails and lever taps.
* Respite care - at home or in a retirement facility.
* Bathing, showering and toileting.
* Help getting to bed.
Older people without a Community Services Card don't qualify for some services, says Age Concern, but they can still use a home care agency and pay for nurses or home help.
The disadvantage of home-based government care, says Atkinson is that it's mostly provided between the hours of 8am to 6pm. An elderly person who might need help in the evening or during the night is unlikely to get it - which leaves some with no option other than to move into retirement care. Nor is help going to be on tap, says Taylor. The average is three hours a week.
From a lifestyle perspective, retirement villages suit many older people. Typically they buy a "lease to occupy" an apartment or villa in the village, which in turn provides them with security and facilities such as gyms, swimming pools, nursing care, social activities and so on.
The trouble is that the economics of living in a village are weighted hugely against the older person. Licences to occupy often cost around $350,000 says Atkinson - although outside of Auckland they start around $250,000.
Typically owners then pay a "facilities fee", which Atkinson says in his case is 25 per cent of the capital, which is spread over five years.
In most cases the contract stipulates that the older person gets no capital gain and must pay for refurbishment back to the original standard when they leave - although a new act of Parliament allows for reasonable wear and tear not to be deducted for those who moved in after September 25, 2006.
Over and above that there is a weekly charge, which ranges from around $120 to $240 a week in Auckland, Atkinson adds. In 60 per cent of cases, retirement village residents are living solely on government superannuation, which is $297.79 net a week for a single person living alone or $462.74 for a couple, which doesn't leave a huge amount for food and other necessities such as doctors' visits and medicine. "For those living in a retirement village, we don't qualify for things such as rates rebates that we would do if we lived in our own home," says Atkinson.
By staying in your own home, says Matthews, in a rising market you will see your property and other investments that you may have sold to buy into a retirement village continue to appreciate in value.
Even if an individual needs to pay for extra care to keep him or herself in their property, it can still make economic sense - that's providing they have the money to pay for the care in the first place.
One proviso to this is that people who use reverse equity mortgages and borrow against their own homes to pay for that care, will also be eating up their capital rapidly.
Matthews says he has met younger people who are bitter that their parents' capital has disappeared this way and their inheritance whittled down to virtually nothing.
He adds that it is younger people who really ought to be concerned about the costs of care in their old age. He cites figures from Milford Asset Management that in 2005 there were 500,000 people aged 65 and over in New Zealand with a ratio of four 25 to 64-year-olds to every older person. By 2030 that will be 1.008 million in the 65-plus age group with a ratio of two 25 to 64-year-olds for every older person.
The country won't be able to afford to pay superannuation and health care to older people at the same rate it does now, he says.
On the web
Residential care subsidy:
www.adhb.govt.nz/rcline/mic/mic - subsidies.htm
www.adhb.govt.nz/rcline/mic/mic - subsidies.htm
Retirement villages:
www.sorted.org.nz/life-stages/60plus/retirement-villages
www.sorted.org.nz/life-stages/60plus/retirement-villages
