Cashed up Auntie!

[stumunro]

Advice Needed:

My auntie recently sold her property, at the end of the day walking off with about 500k in cash.

She is looking at buying a unit to live in as a PPOR in Sydney, and paying 100% of it.

I wanted to give her some options to better set her up for the future. She is still working part time, but is getting at the age (60) where she wants to stop working in the next 5 years or so.

Here are some things I could think of, but would love some opinions about what you guys would do. I wanted to try and keep her away from the debt side, but it might be worth it if it means getting some investments in the mean time.

Options

A) Buy a PPOR with the cash, and try to live off little what is left over + about 40k in super + pension for the rest of her life.

B) Spend 500k on a PPOR, and use the equity to buy an entry level property investment, something along the lines of taking out a LOC and capitalising interest payments.

C) Buy 350k property investment with a decent yield. And buy 100k worth of income producing shares and then rent with the cash.

I haven't had much time to think about it but she is coming over to see me today so would absolutely appreciate your thoughts,

Stu

 

[VYBerlinaV8]

It's probably worth remembering that many older people are very risk averse. I would think a strategy that protects equity somehow would be fairly important.

 

[alexlee]

If she hasn't invested in anything so far and she's 60, then it's likely she won't want to take on further debt.
Alex

 

[stumunro]

This is what I thought at first, but she insists on investing in some way or form, she has even asked to come to the next SIG to get some ideas off people. Most of my family are trying to talk her into saving the money and buying a less expensive unit and living off the savings, which wouldn't be a half bad idea.

She was saying something about not having to pay any CGT on investments when she sells up due to her age? Can anyone clarify this?

 

[softmonkey]

my advice: stick the money somewhere safe, rent, travel, and enjoy life with the $40k interest a year. Then at around 70 yo consider buying a large 2br unit in a village - they tend to have an excellent community. i have talked to single seniors 80+ who wish they had done this earlier in life. they stayed lonely in their own houses too long and then were forced to skip the unit and go straight into assisted living bedsits at an age where it was harder to cope with change.

 

[wylie]

I realise your aunt is at least 15 or more years from needing a retirement/nursing home type situation, but she needs to keep in mind that some day she may want a nice place for her later years., so she needs to invest somewhere that keeps a good value.

My ex-neighbour went into a retirement home this week - cost $500K to get a place and after five years they stop taking a portion and eventually her estate will get perhaps in the high $400Ks back. People seem to be surprised at how expensive this is, but it seems to be the "norm" for a good place.

Luckily for her this home caters for a few levels of care. She is medium level now only because she is legally blind (can see a little though to get by) and has to have her food cut for her. Unlike some places, when she gets to the next level of care, she doesn't have to move to another home, because this home will cater for her changed circumstances.

She is 88 and really good for her age, but has gone downhill a lot lately and lost a lot of weight because she was having a biscuit for brekky because she could not see well enough to eat well. I am hoping with a good diet, she will put on some weight again.

She also was not happy to go, but she is very social and once she is settled in properly, she will enjoy having other people to talk to. I think she made the right decision, because if she waited too much longer, and had a fall (which she has had several of lately) then she would end up maybe with a broken hip in hospital, and they would ship her off to the first available bed. This way, she was able to put her name down for several, and she waited until one came up that she was happy with.

Just be aware that the cost of getting into somewhere is around $500K now, so your aunt needs to be able to keep enough tucked away for her future, if she ever wants to go somewhere like this.

Of course, she sounds a long way away from needing this type of accommodation, but it is worth keeping in mind that she needs a lot of money if she wants to eventually get in and that may influence how she invests.

 

[steveadl]

Wow, $500k to get in Wylie!!

Excuse my ignorance but how does it work exactly. My Grandpa was in a similar sort of situation back in the 1990's. His house only sold for $70k though, and not all of this was used to get into the home (I think $50k). I know they got his pension, and the estate received some (or all?) of the money back.

I appreciate obviously prices have increased since then, but I never really understood how it worked? So do myself and my GF need $500k each (or much more I guess considering we're 50yrs off) to get into a good aged care facility?

 

[Sheryn]

Re: Aged Care Facilities e.g. high level (Nursing Home) & low level (Hostel)

Everyone is assessed individually and facilities & costs vary.

The Government encourages people to stay in their own home with support e.g care packages.

Agree the 'legally blind lady' who has a history of falls needed to go into 24 hour care.

The following is a very simple basic explanation if you do need to go into 24 hour care at a hostel then then your assets are assessed and you most likely will have to pay an accomodation bond.

The hostel invests the accomodation bond and uses the interest to fund maintenance & improvements at the hostel.

Nursing Homes are funded differently.

The estate will get a large portion of the accomodation bond back when you leave the hostel or die.

If you are on a pension approximately 85% (or thereabouts) goes to the facility for food, care & essentials etc.

It costs a huge amount to run an aged care facility & IMHO they are underfunded and staff poorly paid.

I know of a few retired persons who are buying or seriously looking at buying their own unit in a retirement village that has community care, low care and high care within the complex.


Regards
Sheryn

 

[wylie]

This particular home (which I visited today, it is very nice) has to take a certain percentage of people who cannot afford the bond. Not sure of the percentage, but they must take some people who don't have the bond money. My understanding is that in these cases, they take 85% of the pension. In reality the wealthy ones subsidise the others, just like all our lives.

My understanding (after my parents looked into it for their later years) is that they would each have to provide a bond of $500K (because they are self-funded retirees and have considerable assets). Then there will be a charge per week which looked like it would be about $800 each. It is worked out on asset values.

I know a friend whose grandmother was wealthy and chose instead of paying out the huge bond asked and then a percentage of her investments, to pay a live in nurse to sleep over at night. She did this for as long as she could, until she had no choice but to go into a nursing home.

If my parents had spent every cent they had and were on the pension, then only 85% of the pension is taken, but they would not have the choice that they have with paying a bond (though there is still plenty of competition for the places, and big waiting lists apparently).

Like many other things in life, it is not a very fair system, but I would still rather have the money to make a choice than rely on the pension.

 

[Pushka]

The bonds are a killer! The nursing homes can take all but $29,000 of your assets! My mother who didnt own a home until she and Dad were 70, rely on the aged pension. Yet if she needs a nursing home, they will take everything other than that $29K, and most(maybe all?) of her aged pension. I never want to move into a Nursing home - would far rather contemplate my own departure in my own home but I guess that is another thread topic.

Get proper financial advice from someone who is skilled in pension and nursing home issues to ensure she doesnt get caught by this, especially if she does not own her own home, and everything is therefore regarded as investments by the Social security department (Centerlink?). If she owns her home she may qualify for a part pension; if she doesnt own her own home, then this will work totally against her. But get PROPER advice!