Opinion
Why your funeral could be a great investment
Rachel Lane
Money contributorThere’s an investment you may not have considered that can achieve good returns, and it’s guaranteed that you’re going to need it one day: your funeral.
A 2023 study from Australian Seniors shows that the cost of funerals increased by 20 per cent between 2019 and 2023 with a basic burial funeral costing $18,652 and up to $5953 for a basic cremation funeral.
Funerals are becoming increasingly expensive, so its worth thinking about the costs early on.Credit: Louie Douvis
The money you spend on your funeral is exempt from pension and aged care means testing, so on top of the savings you get by paying for your funeral in today’s dollars, there can be benefits for your pension and aged care fees.
From a pension point of view, if you are affected by the asset test, then each $1000 you spend on your funeral could increase your pension by $78 a year. If Shirley is getting a part pension of $500 a fortnight, and she pays $50,000 for her funeral and plot, her pension would increase by $3900 a year. If Shirley lives for another 13 years, her increased pension payments have paid for her funeral.
In aged care, the means testing of your assets is tiered. If your assets are between $59,500 and $201,231, you will have 17.5 per cent of your assets included in the means test, so for every $1000 spent on your funeral could save you $175 a year in aged care fees.
For example: Jack is a full pensioner with assets worth $150,000. If he pays $25,000 for his funeral, his aged care costs will reduce by $4375 a year. If Jack lives in aged care for six years, the savings on his aged care fees have covered the cost of his funeral.
If organising your own funeral has you feeling a little squeamish, then a funeral bond is a suitable alternative. Funeral bonds are offered by friendly societies and life companies and pay the accumulated investment value to your estate in as little as two days.
Typically, the investments are chosen by the bond provider and are very conservative. As a result, the returns can be less than what you could get from cash and fixed interest. There are a few funeral bonds that will give you investment menus which include cash, fixed interest, shares and property.
While pre-paying your funeral does not have a price limit, the amount you can invest in a funeral bond and have it exempt from pension and aged care means tests is $15,500.
If you’re thinking about paying for your funeral, or buying a funeral bond, it’s important to realise that one may exempt more than the other. If your funeral and final resting place will be a large sum of money, then a funeral bond is not going to cover it.
On the other hand, if you want a simple affair, there may be money left over from a funeral bond (in which case it is distributed by your estate). If you are a couple, be careful about having a joint funeral bond as it will only pay when the last person passes away. Given you are unlikely to both pass away on the same day, it may be best to have individual bonds.
Covering the cost of your funeral can be a good financial investment. It can also ease the stress on your family at a very difficult time by avoiding the disputes that arise when people’s wishes are not known. With the added benefits of pension and aged care exemptions, you may find that your final expense doesn’t cost you anything at all.
Rachel Lane is the author of the bestselling book Aged Care, Who Cares? and Downsizing Made Simple with fellow finance expert Noel Whittaker. The new edition of Downsizing Made Simple is now available online.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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