How to Plan for Aged Care Costs in Australia

The average Australian now lives into their mid-80s. That longevity brings an increasingly likely need for formal care - and costs that rival a second mortgage. The 2025 Support at Home reform overhauled the system. Understanding the new rules now, while you or your parents are still healthy, is the difference between a planned transition and a crisis.

• Scale of cost: Residential aged care basic daily fee is currently $64.57/day ($23,568/yr). Add accommodation costs and means-tested care fees and total annual outgoings can exceed $80,000.
• Accommodation deposit (RAD): A Refundable Accommodation Deposit is a lump sum paid to the facility - fully refunded when the resident leaves or dies. The average RAD in a capital city is $550,000–$750,000.
• Daily Accommodation Payment (DAP): If you don't pay the full RAD, you pay a daily charge on the unpaid balance. DAP rate is set by MPIR (Maximum Permissible Interest Rate) - currently 8.38% p.a. On a $500k RAD: $114.79/day.
• Combination: Most families pay a partial RAD lump sum and DAP on the remainder - useful if liquidating assets quickly is not feasible.
• Means-tested care fee: Assessed by Services Australia based on income and assets. Capped at $33,309/yr and $79,942 lifetime (2025-26 figures). Once lifetime cap hit, no further means-tested fee.
• Basic daily fee: All residents pay 85% of the single Age Pension rate ($64.57/day) regardless of means.

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The Support at Home program replaced the Home Care Packages (HCP) and Short-Term Restorative Care programs. This is the biggest aged care funding change in a generation.

• Eight budget levels: Replaced four HCP levels with eight tiers. Annual budgets range from $11,200 (Level 1) to $78,000 (Level 8) - a significant increase at the high end.
• No more unspent funds accumulating: Under the new model, quarterly budgets are set and managed differently. Unspent funds from previous quarters don't roll over indefinitely.
• Contribution model: Residents contribute a percentage of their budget based on income - those on full pension contribute 5%, self-funded retirees contribute up to 50% depending on income.
• Transition: Those already on HCP packages were transitioned. New entrants assessed directly under Support at Home framework via My Aged Care (myagedcare.gov.au).
• Access pathway: ACAT (Aged Care Assessment Team) assessment required for all levels. Request via My Aged Care - wait times can be 3–12 months at higher levels.
• Immediate needs fund: A new emergency component of up to $15,000 for urgent equipment or care after a hospital discharge - a meaningful safety net.

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Whether to sell or rent the family home when entering residential care is the most consequential financial decision in aged care planning. The rules are nuanced.

• Home exempt for 2 years: The former principal residence is exempt from the assets test for the first two years after the resident enters care - even if empty.
• After 2 years: The home is assessed at market value for both the assets test (capped at $197,735 for the home) and means-tested care fee calculation.
• Renting the home: Rental income is assessable income for means-tested fee purposes. But renting often produces more cash flow than drawing down savings - a net positive in most cases.
• Spouse still living in home: If a protected person (spouse, dependent child, carer living in the home) remains, the home is exempt indefinitely from both assets and income tests.
• RAD from home sale: Selling the home to pay a large RAD reduces assets, which may reduce the means-tested care fee and could boost pension entitlements. Model both scenarios.
• Home improvement timing: Spending on the exempt home (renovations, repairs) before entering care is a legitimate way to convert assessable assets to an exempt asset - useful for those close to the assets test threshold.

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Good aged care financial planning involves coordinating the means-tested fee, accommodation costs, Age Pension entitlements, and estate outcomes - often simultaneously.

• Gifting rules apply: Centrelink's gifting rules ($10,000/yr, $30,000 over 5 years) apply in aged care means testing. Gifts above these limits are treated as assets for 5 years - do not gift in anticipation of care.
• Funeral bond strategy: A prepaid funeral bond up to $15,000 is an exempt asset. Useful for those close to asset test thresholds.
• Super note: Superannuation for those under pension age is not included in the Centrelink aged care means test. A younger spouse's super may not be assessable.
• Granny flat interest risk: Transferring assets to family in exchange for a right to live in their home can be a Centrelink-assessed deprivation event. Get specialist advice before any family property arrangement.
• RAD vs DAP modelling: If money is earning less than the MPIR (8.38%), paying more RAD is mathematically better. If investments outperform MPIR, pay less RAD. This changes as interest rates move.
• Aged Care Financial Adviser (ACFA): Only advisers with specific aged care accreditation (ACFA or SMSF/aged care specialist designation) fully understand the interaction between pension, aged care means test, and estate. This is not standard financial advice territory.

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The worst time to plan aged care is during a health crisis. ACAT assessments, facility research, legal documents (Enduring Power of Attorney, advance care directives), and financial modelling all take time. Families who start when parents are still in their late 70s and mentally capable have far better outcomes.

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