The Real Cost of Aged Care: What Most Families Don't Expect
One of the most common questions families ask when considering aged care is:
“How much is this actually going to cost?”
Unfortunately, the answer is often more complicated than many people expect.
Aged care costs in Australia are regulated and subsidised by the Australian Government, but between accommodation costs, daily care fees, means-tested fees, additional service charges and Centrelink implications, the final amount can still vary dramatically from one person to the next.
Some residents may pay only a few hundred dollars per week. Others can pay several thousand dollars per month. Understanding the true financial commitments of later life is often more complex than many retirees initially expect.
Understanding how aged care fees work before a crisis occurs can help families make better financial decisions, reduce stress and potentially save significant amounts of money. These decisions are often best considered within a broader retirement planning framework.
The Four Main Costs of Residential Aged Care
Most residential aged care residents encounter some combination of the following fees:
1. Basic Daily Fee
The Basic Daily Fee applies to almost everyone entering residential aged care.
This basic daily care fee helps cover daily living services such as:
Meals
Laundry
Cleaning
Utilities
General services
The fee is set by the government under the maximum basic daily fee framework and is linked to the single basic age pension.
For all residents, this is currently:
$66.80 per day
or approximately:
$24,000–$26,000 per year
Example
Margaret enters residential aged care and receives the full Age Pension.
Even though she receives government support, she will still generally pay the Basic Daily Fee from her pension income.
2. Accommodation Costs (RAD or DAP)
Accommodation is often the largest cost families need to consider. In practice, aged care accommodation costs can vary significantly based on location and facility type.
Residents can generally choose how aged care accommodation is paid: as a lump sum, a daily payment, or a combination of both.
Refundable Accommodation Deposit (RAD)
A lump sum payment made to the aged care provider.
Daily Accommodation Payment (DAP)
An ongoing daily payment instead of paying a lump sum.
Partial RAD and Partial DAP
A combination of both approaches, often called a combination payment. This means residents can choose to pay part of the accommodation cost as a RAD and the balance as a DAP.
Example
Room price: $700,000
Option 1:
Pay a full RAD of $700,000.
Result:
No DAP payable.
Option 2:
Pay no RAD.
Assuming an MPIR of 8.17%, the annual accommodation cost is approximately:
$700,000 × 8.17%
= $57,190 per year
or approximately:
$157 per day.
Over time, the difference between these options can be substantial.
3. Means-Tested Care Fee
The Means-Tested Care Fee is where residential aged care fees can become significantly more expensive, and in this category costs depend on the resident’s financial situation under a means assessment.
This fee depends on:
Income
Assets
Superannuation
Investments
Property ownership
An income and assets assessment or means assessment
A means assessment helps determine both the Means-Tested Care Fee and whether you may qualify for government assistance, including when the government may contribute toward accommodation costs.
Higher-wealth retirees generally pay more than lower-wealth retirees. For home care, an income tested fee may also apply, while in residential care the fee can range from $0 to more than $370 per day, subject to the current annual cap of $35,238.11. The interaction between assets, income and Centrelink assessments can significantly affect overall aged care costs.
The government applies an annual or lifetime cap to limit how much residents contribute.
Example
John has:
$1.5 million of investments
Significant income
A valuable family home
He may pay a substantially higher Means-Tested Care Fee than someone whose only income source is the Age Pension.
4. Additional Service Fees and Extra Services
Many facilities offer premium services including:
Larger rooms
Better meal options
Wine with meals
Enhanced lifestyle programs
Hairdressing services
Entertainment programs
These fees vary significantly between providers.
Premium facilities can charge hundreds of dollars per week for additional services.
What Does Aged Care Cost Per Year?
The total cost can vary dramatically. Costs also vary significantly across aged care services, and care delivered at home is often cheaper than permanent residential care because government-subsidised in-home packages are structured differently.
Example 1: Pensioner Resident
Basic Daily Fee:
$25,000 p.a.
Accommodation:
Government-supported room
Means-Tested Fee:
Nil
Total:
Approximately $25,000 per year
Example 2: Self-Funded Retiree
Basic Daily Fee:
$25,000 p.a.
DAP:
$57,000 p.a.
Means-Tested Care Fee:
$12,000 p.a.
Additional Services:
$5,000 p.a.
Total:
Approximately $99,000 per year
Example 3: High Wealth Retiree
Basic Daily Fee:
$25,000 p.a.
DAP:
$65,000 p.a.
Means-Tested Care Fee:
$20,000+ p.a.
Additional Services:
$8,000 p.a.
Total:
Potentially more than $118,000 per year
This demonstrates why aged care planning can have such a significant impact on retirement outcomes.
Does Selling the Family Home Make Sense?
Many families automatically assume they need to sell the home to fund aged care.
In reality, this isn’t always the best option.
Factors to consider include:
Aged care means testing
Rental income opportunities
Estate planning objectives. The decision may also affect broader family wealth transfer goals.
Capital gains tax considerations
Family circumstances
In some situations, retaining the home can be advantageous. In others, selling the home may improve cash flow and simplify finances.
The optimal solution depends on individual circumstances.
How Aged Care Costs Affect Your Estate
One of the biggest concerns for many families is preserving wealth for future generations.
Consider two retirees entering identical facilities.
Resident A
Pays a $700,000 RAD.
After five years, the RAD remains refundable to the estate.
Resident B
Pays a DAP of approximately $57,000 per year.
After five years:
Total accommodation payments exceed $285,000.
This illustrates how funding decisions can significantly affect the value of an estate over time.
Why Planning Early Matters
Many families only begin investigating aged care after a health event has occurred.
By that stage:
Decisions become rushed.
Financial options may be limited.
Tax outcomes may be overlooked.
Centrelink opportunities may be missed.
Before signing anything, ask the aged care provider for clear itemised fee arrangements so you can budget the total costs properly and compare options with confidence.
Planning several years before aged care is needed can often produce significantly better outcomes. The years leading into retirement are often the best time to begin considering future care needs.
Strategies That Can Reduce Aged Care Costs
Depending on your circumstances, strategies may include:
Restructuring investments
Optimising Centrelink entitlements
Reviewing ownership structures
Using partial RAD strategies
Coordinating aged care and estate planning objectives
Even small adjustments can sometimes save tens of thousands of dollars over the course of retirement.
Frequently Asked Questions
What is the average cost of aged care in Australia?
There is no single average cost. Depending on assets, income and accommodation choices, costs can range from approximately $25,000 per year to well over $100,000 per year.
What is the Basic Daily Fee?
The Basic Daily Fee is a government-regulated contribution towards everyday living expenses such as food, utilities and cleaning.
What is a RAD?
A Refundable Accommodation Deposit (RAD) is a lump sum accommodation payment made to an aged care provider that is generally refundable when the resident leaves care.
What is a DAP?
A Daily Accommodation Payment (DAP) is an ongoing accommodation payment calculated using the government’s Maximum Permissible Interest Rate (MPIR).
Can I pay part RAD and part DAP?
Yes. Many residents use a combination of both to balance liquidity and ongoing costs.
Do I have to sell my home to enter aged care?
No. Whether retaining or selling the home is preferable depends on Centrelink rules, aged care assessments, estate planning goals and overall financial circumstances.
How is the Means-Tested Care Fee calculated?
The fee is based on an assessment of your income and assets. Most means assessments for aged care are conducted by Services Australia. To check your means-tested status and aged care costs, start through My Aged Care.
Is there a limit on aged care fees?
Yes. Certain aged care fees are subject to annual and lifetime caps under government rules. If you cannot afford to pay fees, you may apply for financial hardship assistance. In eligible cases, this support may help cover basic daily fees and accommodation costs.
Does aged care affect the Age Pension?
Yes, many retirees are surprised by how significantly Centrelink assessments can affect entitlements. The way assets and income are structured can significantly impact Age Pension entitlements.
Should I get financial advice before entering aged care?
In most cases, yes. Aged care decisions can affect retirement income, taxation, Centrelink entitlements and estate planning outcomes for many years.
Final Thoughts
Aged care is often one of the largest financial commitments Australians face during retirement.
While many people focus solely on accommodation costs, the reality is that aged care fees can include a combination of daily care fees, accommodation charges, means-tested fees and additional service costs.
The difference between a well-planned strategy and a poorly planned one can amount to hundreds of thousands of dollars over a retirement.
Understanding your options before decisions need to be made can help protect your retirement savings, maximise government benefits and provide greater certainty for both you and your family. Professional retirement advice can help families evaluate aged care funding options before major decisions are required.
Government funding also remains substantial, with the Australian Government contributing $39.8 billion to aged care in 2024–25.
At Money Path, we help families navigate aged care funding strategies, Centrelink rules, retirement planning and estate planning to ensure aged care decisions support both lifestyle and long-term financial security.
