How to Plan for Aged Care in Australia: Costs, Assessments, and Financial Decisions

Australia's aged care system is publicly subsidised but means-tested - the government contributes to the cost, but individuals with assets or income above threshold levels also contribute. Understanding the structure prevents expensive surprises.

• Two main service types: home care (support services delivered at home) and residential aged care (living in an aged care facility); most people use home care before transitioning to residential care when needs exceed what can be managed at home
• Assessment process: accessing government-subsidised aged care requires an assessment by the Single Assessment System (formerly ACAT - Aged Care Assessment Team); the assessor determines the level of care needs and what services you are eligible for
• Support at Home program: from 1 July 2025, the new Support at Home program replaces the previous Home Care Package (HCP) system; it provides more flexible, needs-based support at home with a revised funding structure - if planning for a parent entering home care, check the current program details as the transition changes eligibility and funding
• Government subsidy: the federal government subsidises a significant portion of aged care costs; the individual contributes through means-tested fees based on their income and assets
• Means testing: aged care means testing considers both income (from all sources including pension, rental income, and investment returns) and assets (including financial assets, business interests, and - partially - the family home in residential care); the test determines how much the individual must contribute
• Aged care and the Age Pension are separate but interact: Centrelink administers age pension means testing; the Department of Health and Aged Care administers aged care means testing; they share some information but the asset and income definitions differ in important ways

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Most older Australians want to remain at home as long as possible. Government-subsidised home care provides a funding allocation to purchase approved support services.

• Home Care Package levels (pre-July 2025 system): four levels of funding based on assessed care needs; Level 1 (basic care needs) through Level 4 (high-level care needs), with government subsidies ranging from approximately $9,000 to over $60,000 per year in annual subsidy value
• Support at Home (from 1 July 2025): replaces HCPs with a more flexible needs-based system; eight classification levels; budget is assessed annually against individual needs; transitional arrangements apply for existing HCP recipients
• What home care covers: personal care (showering, dressing), domestic assistance (cleaning, laundry), meal preparation, nursing care, physiotherapy, transport, home modifications, and social support - services must be approved under the program
• Waitlist: under the previous HCP system, waitlists for higher-level packages were lengthy (12+ months for Level 4 was common); the Support at Home program aims to reduce this through faster needs-based allocation
• Basic daily fee: most home care recipients pay a basic daily fee (a small flat fee per day of service); means-tested income-assessed fees apply for those with higher income - these are in addition to the government subsidy
• Using a provider vs self-managing: individuals can choose a registered approved home care provider, or (under some programs) self-manage their funding with a support coordinator; self-management provides more flexibility but requires more administration
• Planning ahead: home care assessments are not urgent requests - waiting times exist; apply for an assessment well before care is urgently needed, especially if there is a known degenerative condition progressing over time

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When a person moves into residential aged care, they pay for accommodation separately from care fees. The accommodation cost - either a large lump sum (RAD) or a daily fee (DAP) - is one of the most significant financial decisions families face.

• Refundable Accommodation Deposit (RAD): a lump sum paid to the aged care facility; the facility holds and uses the money interest-free during the resident's stay; the full amount is refunded (within 14 days) when the resident leaves or passes away; RADs in major city facilities can range from $300,000 to over $600,000
• Daily Accommodation Payment (DAP): an alternative to the RAD; a daily fee equivalent to the interest on the RAD at the Maximum Permissible Interest Rate (MPIR) set quarterly by the government; if the RAD is $500,000 and MPIR is 8% per annum, the DAP is $500,000 × 8% ÷ 365 = approximately $109 per day
• Combination payment: residents can choose to pay part of the accommodation cost as a RAD lump sum and the rest as an ongoing DAP - a common approach that preserves some liquidity while reducing the daily fee
• Which is better, RAD or DAP? Financial modelling is required; if the family retains the RAD capital and earns more than the MPIR rate after tax, paying the DAP and investing the capital may be more efficient; if the capital would otherwise sit in cash earning less than the MPIR, paying the RAD avoids the ongoing DAP cost
• Basic daily fee: a flat daily fee applicable to all residential aged care residents; set at 85% of the single basic Age Pension rate (approximately $60–$65 per day in recent years, indexed annually)
• Means-tested care fee: an additional daily fee for those with assets and income above the low-threshold levels; calculated based on an income and assets assessment; a maximum annual cap and lifetime cap apply - the annual cap is approximately $33,000 per year and the lifetime cap approximately $78,000 (reviewed annually)

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The family home is the most valuable asset for most Australians entering aged care - and decisions about what to do with it have significant implications for both the Age Pension means test and the aged care means test.

• Age Pension assets test: the family home is exempt from the Age Pension assets test if a protected person lives in it (spouse, carer who qualifies, or dependent child); an empty home after the resident enters care remains exempt for up to 2 years while the other partner is assessed
• Aged care means test and the home: for residential aged care means testing, the value of the home is counted as an asset, but only the amount above a capped value ($206,039 in recent figures - reviewed periodically); if one partner remains in the home, the home is excluded entirely from the aged care assets assessment
• Selling vs keeping the home: if one partner moves into care and the other remains at home, keeping the family home typically maximises both the Age Pension entitlement and minimises the aged care means-tested care fee; selling the home converts an excluded asset into assessed financial assets, potentially increasing both the care fee and reducing the pension
• Renting the home instead of selling: if a resident's home is rented after they enter care, the rental income is assessed; however the home value continues to be excluded from the Age Pension assets test (not the aged care test); rental income can offset some care costs
• Two-year exemption: a home left vacant when a person enters aged care is exempt from the Age Pension assets test for up to two years; after two years it becomes an assessable asset - plan around this timeline if selling is eventually intended
• Granny flat interest arrangements: some families transfer the family home to adult children in exchange for a right to occupy (granny flat interest); complex Centrelink deprivation rules apply; this arrangement should only be considered with specialist aged care financial advice to avoid inadvertent pension reduction

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The best time to plan for aged care is well before it is urgently needed - when decisions can be made calmly rather than in a crisis with immediate placement pressure.

• Prepare legal documents now: enduring power of attorney (financial) and enduring guardianship (medical decisions) must be in place before cognitive capacity is lost - once capacity is gone, a VCAT or tribunal order is needed at significant cost and delay; these documents should be prepared in your 60s–70s, not when a crisis occurs
• Understand your parents' financial position: adult children who will be involved in aged care decisions need to understand what assets exist, where they are held, and what income is available; this is not about inheritance - it is about making good decisions under time pressure
• Get a My Aged Care assessment early: register with myagedcare.gov.au as soon as there is any concern about future needs; the assessment queue takes time and earlier assessment opens access to home support services that may delay residential care
• Aged care financial advice: aged care is a specialist area combining social security law, family law, taxation, and facility-specific fee structures; a specialist aged care financial adviser (look for FAAA membership and aged care accreditation) can model different scenarios for RAD vs DAP, home sale vs retention, and pension impact
• Consider care insurance: some income protection and life insurance policies have living benefits or advance payment provisions for terminal illness; separately, Long Term Care insurance products (limited availability in Australia compared to the US) can offset some residential care costs
• Review estate planning in the context of aged care: aged care costs can significantly reduce the estate value; ensure the estate plan accounts for the possibility that the family home may need to be sold to fund care; update BDNs, wills, and testamentary trust provisions to reflect this reality

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Aged care financial decisions - RAD vs DAP, selling the family home, the Age Pension interaction - can mean the difference of hundreds of thousands of dollars. These decisions deserve specialist advice, not guesswork.

Roopon members access partner discounts on aged care financial planning and estate advice - plus FREE included prize-draw entries per your plan and published campaign terms. Join from $19.99/month at roopon.com.au.

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