How to Plan for Aged Care Costs in Australia: What It Costs, How to Pay, and What the Government Covers (2026)

Australian aged care services broadly fall into two categories. Home care supports people to remain living in their own home with assistance - personal care, domestic help, nursing, transport, and home modifications. Residential aged care (nursing homes or aged care facilities) provides full-time accommodation, nursing care, and support for those who can no longer live independently.

Most Australians prefer to remain at home for as long as possible, and the government supports this through the Home Care Package program. Entry into residential care typically follows a significant health event (a fall, stroke, or dementia progression) that makes independent or home-based living unsafe. An assessment by an Aged Care Assessment Team (ACAT) is required before accessing government-subsidised aged care services.

Government-subsidised home care is provided through Home Care Packages at four levels:

• Package levels: Level 1 (basic needs, approximately $10,588 per year in government subsidy); Level 2 (low-level care, approximately $18,622); Level 3 (intermediate care, approximately $40,529); Level 4 (high-level care, approximately $61,440). These amounts are the government subsidy - your out-of-pocket contribution is additional.
• Wait times: There is frequently a wait list for higher-level packages. The government has been working to reduce wait times, but Level 3 and 4 packages can involve waits of several months. During the wait, interim services may be available through the Commonwealth Home Support Programme (CHSP).
• Your contribution: Means testing applies. A basic daily fee (currently around $12.40 per day for all recipients) plus an income-tested care fee for those with higher incomes. Financial assets are not assessed for home care - only income.
• Package management: Packages are managed either through a provider (who coordinates services) or self-managed (you arrange services directly). Self-management offers more flexibility and can be more cost-effective by reducing management fees.
• New Support at Home program: The government has announced a replacement for the current Home Care Package system called Support at Home, planned to commence in 2025. Check aged.gov.au for current implementation status as the transition may affect existing package holders.

Residential aged care involves multiple fee components that are assessed separately:

• Basic daily fee: Paid by all residents, currently set at 85% of the single Age Pension rate - approximately $61.96 per day ($22,615 per year). This covers meals, accommodation, and basic care.
• Means-tested care fee: An additional contribution toward care costs assessed on income and assets. Capped annually (approximately $33,309 per year for 2024-25) and has a lifetime cap (approximately $79,942). Once you hit the cap, no further means-tested care fee is payable.
• Accommodation costs: Paid separately from care costs. The facility sets its accommodation price; the government subsidises accommodation for residents below an asset threshold. Those above the threshold pay an accommodation contribution - either a lump sum Refundable Accommodation Deposit (RAD), a daily accommodation payment (DAP), or a combination. RADs are refunded on departure from the facility.
• Refundable Accommodation Deposits (RADs): Often substantial - commonly $300,000 to $1,000,000 or more in metropolitan areas. The RAD is interest-free to the facility (they earn the return on invested capital); the equivalent daily cost is the Maximum Permissible Interest Rate (MPIR) applied to the RAD amount. Paying a full RAD vs DAP is a significant financial decision - model both options based on available assets.
• Means testing assets: For residential care, both income and assets are assessed. The family home is partially or fully exempt depending on circumstances - a spouse or dependent remaining in the home means the home is fully exempt. A capped value applies to the home for those who live alone before entry (approximately $201,231 for 2024-25).

The families who navigate aged care costs most effectively are those who plan before a crisis occurs:

• Understand the family home treatment: The home is often the largest asset in a retiree's estate and its treatment by aged care means testing varies by circumstances. Before making any decisions about selling, gifting, or transferring the family home, seek specialist aged care financial advice - the rules are complex and decisions made under crisis conditions are often suboptimal.
• Gifting rules: The Age Pension and aged care means testing treat gifting (voluntary asset transfers) as 'deprived assets' for 5 years. Giving away $100,000 to children before entering aged care to reduce assessable assets is a common strategy that typically fails - the ATO and Services Australia have specific anti-deprivation rules.
• RAD vs DAP decision: Whether to pay a lump sum RAD or a daily payment (DAP) depends on available liquid assets, the MPIR rate at entry, expected length of stay, and estate planning goals. RADs are fully refundable, so they are not lost - but the opportunity cost of that capital must be weighed against the daily payment burden.
• Aged care financial advisers: This is a genuinely specialised field. A financial adviser with aged care expertise (look for AIOFP members or advisers holding the Accredited Aged Care Professional credential) can model the financial outcomes of different approaches and navigate Centrelink, aged care means testing, and estate planning simultaneously.
• Plan early - ideally a decade before need: The best time to have conversations about aged care preferences, financial resources, and family responsibilities is well before a health crisis. Understanding a parent's financial position (assets, pension entitlements, estate documents) and their preferences for care is much easier when it is a calm planning conversation rather than an emergency.

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