Understanding The Cost of Aged Care In Australia

Did you know the average cost of a room in an aged care facility in Australia starts at around $470,000? It can be even higher in major Australian cities and the most sought-after locations.

That makes financial planning for aged care a key consideration for Aussies of all ages. But it’s a decision PrimeAdvisory’s aged care expert, Liz Holland, says many families don’t make until they are forced to.

“People often care more about their wealth than their health… until they are no longer healthy,” Holland explained. “It’s generally when they no longer have their health that they start to care about it a lot.”

Holland worked for 20 years as a registered nurse, before swapping the high-pressure stakes of operating theatres for the slightly more sedate surrounds of the financial services industry. 

She’s since helped a diverse spectrum of clients do more with their money for the past 20 years, and says aged care is something just about everyone needs to think about at some stage of their lives.

However, she also believes the industry’s complexity and the emotions that go into making aged care decisions leads many Australians to put off what can sometimes be a difficult conversation.

‘You Don’t Always Need To Sell The House’

While Liz is a relative newcomer to PrimeAdvisory, she’s long been accredited in the aged care sector. 

She says there are several myths attached to the cost of residential aged care—including the belief that moving into a facility automatically means having to sell the family home.

“It’s actually a very complex area financially—more complex in some ways than just normal financial planning—because there are so many different fees and ways to fund moving into aged care,” Holland explained.

“People often talk to other people, or they hear the wrong things, and they immediately think: I’ve got to sell my house! 

“But of course you don’t have to sell your house.”

“There are all sorts of ways you can fund moving into aged care, but you have to take into account the various fees.”

The Biggest Cost? That’s Your RAD

For Australians thinking about moving into an aged care facility, the biggest cost to consider is undoubtedly the Refundable Accommodation Deposit (RAD). This is the fee, set by the aged care facility, that residents must pay before moving into a managed home.

It’s a fully refundable, lump sum fee paid back to the resident should they choose to leave the facility, or otherwise returned to the resident’s estate should they pass away.

Holland says that while the size of the RAD can be significant—particularly in a city like Sydney—it’s not the only thing to consider when it comes to ongoing costs.

“There’s the expense of buying your new house in the aged care facility, and there’s your ongoing day-to-day expenses and how you’re going to fund those, especially if you can’t sell your house because somebody’s currently living in it,” Holland explained. 

“Centrelink’s not going to tell you. And the aged care facility isn’t going to tell you.

“They’ll say that there is a Refundable Accommodation Deposit or you have to pay a Daily Accommodation Payment (DAP) and these are your basic daily care fees, but nobody’s going to tell you how to structure your finances.

“When it comes to paying for aged care, you basically want to be able to fund the cash flow and you want the best possible estate outcomes,” she said.

Navigating The Complexity Of Aged Care Costs

Although the RAD is a fully refundable lump sum cost, it’s also means tested—and one in which anyone with total assets worth more than $193,219.20 are liable to pay in full. 

That means anyone who owns their family home must pay that average fee of $470,000 up front—and often far more in major cities—or otherwise pay a DAP fee that comes with high interest rates attached. 

“It might actually be better to sell some assets to put towards a Refundable Accommodation Deposit, because that will give you better estate outcomes and also provide better cash flow,” Holland explained.

“That’s what we do at PrimeAdvisory—we look at all the different scenarios and say: well, you might want to sell the house… but not right now.

“So, how do you fund everything until you sell the house? And when you do sell the house, what do you do with all the proceeds?

“You may pay the Refundable Accommodation Deposit, but then there’s money left over.

“So, it’s quite complex—and I don’t think people realise how important it is to get professional advice before they make these big, life-changing decisions.”

The Importance Of Seeking Professional Advice

For older Australians considering a move into an aged care facility, Holland says one of the worst outcomes of failing to seek professional advice beforehand is simply paying more than is strictly necessary.

“You could sell the house when you don’t have to,” Holland explained.

“Or you could alternatively not sell the family home, then end up with a significant shortfall when it comes to paying your RAD.

“If you put nothing down, then you rent your room through the Daily Accommodation Payment.

“That’s currently calculated at 7.9% of the outstanding RAD per annum—which is quite a lot.

“So if you put $250,000 down as a deposit on a $500,000 room, you’ll be paying 7.9% interest per annum on the outstanding $250,000,” she said.

While the figures can seem overwhelming, Holland says it’s better to have a conversation about aged care now, rather than putting it off until the time comes—and emotions are highly charged.

“It’s an emotional issue, people are worried about losing control, and they’re often making these big decisions at some of the most vulnerable times of their lives.”

Talk To PrimeAdvisory About Your Aged Care Requirements

As tempting as it can be to treat the issue of aged care as a topic for tomorrow, Holland says the sooner families have a conversation about their aged care needs, the better prepared they are for when the time comes.

“It doesn’t have to start with a conversation about residential care,” Holland said.

“It can just be something simple, like: how are you coping? Have you thought about getting some help?”

There are many steps you can take before making the move into an aged care facility. But like any major life decision, it should start with a conversation.

If you need a hand putting together a financial plan for your aged care costs, simply drop Liz a line at [email protected] or give her a call on 02 0415 1511 to schedule a chat. 

When it comes to aged care, we’re here to make more possible.