How Aged Care Fees Are Calculated
Residential aged care costs can feel complex until you break each part into its
purpose. Entry usually begins with an ACAT assessment that determines the level of
care, which then guides provider options and pricing. Every resident pays a basic
daily fee that helps cover everyday living costs. On top of this, a means tested care
fee may apply based on assessed income and assets, subject to annual and lifetime
caps.
Accommodation payments are separate from care and living fees. If your means
assessment is above certain thresholds, you will pay an accommodation amount set
by the provider and published publicly. Those assessed as low means may have
some or all of this cost subsidised by the government. Understanding where you sit
on these thresholds helps you forecast both upfront and ongoing costs with more
confidence.
RAD vs DAP: Choosing a Payment Approach That Fits
The Refundable Accommodation Deposit, or RAD, is a lump sum that you pay to the
provider and that is returned when you leave, less any amounts you have agreed
can be deducted. The Daily Accommodation Payment, or DAP, is an ongoing charge
calculated using a government interest rate applied to the equivalent RAD. Many
residents choose a combination, paying a smaller RAD to reduce the DAP and
preserve liquidity. You generally have a short window after entry to decide on your
mix, so planning ahead is valuable.
The right approach often comes down to cashflow, estate goals and pension
impacts. Paying a RAD can reduce assessable assets for the Age Pension, which
may improve your payment, while keeping funds and paying a DAP can reduce
pension entitlements because those assets remain assessable. Consider the
opportunity cost as well, since funds used for a RAD are no longer available for
investing or for other family needs. Balancing these trade offs is a strategic exercise
rather than a one size fits all decision.
Some providers allow “DAP from RAD,” where you draw the daily payment from the
RAD instead of paying it from cashflow. This can ease pressure in the short term yet
steadily erodes the refundable balance over time. It is also important to track the
interest rate used to calculate the DAP, since it affects future affordability. Written fee
schedules and assumptions should be reviewed carefully before you commit.
Cashflow Strategies and Family Home Decisions
Decisions about the family home can shape both fees and cashflow. If no protected
person will remain in the home, a capped value of the home may be counted in the
means assessment, which can change your fees and pension. Some families
choose to rent the property to help fund the DAP while delaying a sale until the
market or family timing suits. Others prefer to sell to fund a RAD and stabilise
ongoing outgoings. Short term options like bridging, redraw or a reverse mortgage
exist, but they require careful risk assessment.
If you qualify as a low means resident, the government may subsidise some
accommodation costs, and a RAD is not required. You may still have to contribute an
amount based on your means, and your provider can explain how this works in
practice. Understanding these thresholds early helps you avoid rushed decisions that
can be costly or hard to unwind. A clear plan also reduces stress for families who are
coordinating care quickly.
Confidence When Care Cannot Wait
Aged care financial planning works best when you map the fee structure to your
goals, cashflow and pension position, then test a few what if scenarios. Clarity on
RAD, DAP, and means testing helps you choose a path that supports both quality
care and family stability. If you want guidance on structuring payments, modelling
pension outcomes and planning for the home, AM Planning in Brisbane provides
tailored aged care financial advice. Start a conversation at our website here or call (07) 3245 2693 to explore your options
with a planner who understands the rules and the real world trade offs.