It usually starts with a phone call. A fall, a hospital stay, a doctor saying the words "she really can't go home." And somewhere in the fortnight that follows, someone hands you a piece of paper with a number on it that has six figures in it, and you think: we don't have that.
That number is almost never the real cost of aged care. It's one part of it — usually the part that looks worst on paper and is the most refundable in practice. But nobody explains that at the time, so families decide in a panic: selling a house in a week, or ruling out a good home because of a figure they misread.
So here is the whole picture, calmly, before you need it. Aged care costs in Australia come in four buckets, and they behave very differently from each other.
Bucket one: everyday living
Everyone in an aged care home pays the basic daily fee. It covers meals, laundry, cleaning, heating — the ordinary business of living somewhere. It's set at 85% of the single basic Age Pension, so it moves every March and September with pension indexation. At present it runs to roughly $69 a day, or about $25,000 a year.
On top of that, people with more income or assets may pay a hotelling contribution toward the same everyday services. It's capped at around $22 a day. If your means are modest, you pay none of it; the government picks it up. Nobody pays more than the cap, however wealthy they are.
Bucket two: care itself
This is the bucket most people get wrong, and the good news is genuinely good.
Clinical care — nursing, medication management, allied health — is fully funded by the government for everyone. It doesn't matter how much money you have. You are never billed for the clinical side of your care.
What you may contribute to is non-clinical care: help with showering, dressing, moving about, the daily assistance that isn't nursing. That's the non-clinical care contribution, and it's means tested, capped at about $109 a day for those who pay the maximum.
Two limits matter enormously here, and they're the part families rarely hear about. The contribution stops after a lifetime total of roughly $140,000, or after four years of paying it — whichever comes first. After that you pay nothing more toward care for the rest of your life. Someone who lives ten years in residential care does not pay for ten years of care.
Bucket three: the room — RADs and DAPs
Here is where the six-figure number comes from. Every aged care home publishes a price for its rooms, and you can pay that price in one of two ways, or in a mix of both.
A RAD — refundable accommodation deposit — is a lump sum. Think of it as an interest-free loan to the aged care home rather than a purchase. A room priced at $500,000 means you hand over $500,000, and when the resident leaves or dies, it comes back to the estate. Homes can't charge more than $789,686 without approval from the Aged Care Pricing Authority, so if you're quoted more than that, ask why.
The one change worth knowing: for people entering care since 1 November 2025, the home may keep 2% of the RAD each year, for a maximum of five years. On a $500,000 room that's $10,000 a year, capped at $50,000 in total. The rest is still refunded. It is no longer the perfectly whole lump sum it used to be, but it is still overwhelmingly refundable — which is exactly the opposite of how most families read it.
A DAP — daily accommodation payment — is the same price expressed as rent instead. It's calculated by applying a government-set interest rate, the maximum permissible interest rate, to the unpaid room price. That rate has been 8.43% since 1 July 2026. So a $500,000 room paid entirely as a DAP costs about $115 a day, or roughly $42,000 a year — and unlike the RAD, none of that comes back.
You can also split it: pay part as a lump sum, and a smaller daily payment on the balance. Many families do exactly this, because it lets them keep some cash accessible.
Bucket four: what the family home has to do with it
This is the question behind every kitchen-table conversation about aged care, and the answer is kinder than most people expect. For the means test, the former home is counted only up to a capped value of about $220,000 — no matter what it's actually worth. A $1.4 million house in Brisbane and a $400,000 house in Bendigo are treated identically. And the home is exempt altogether if a "protected person" still lives there: a spouse, a dependent child, or in some cases a carer or close relative who has lived there long enough.
So the house does not have to be sold. Keeping it, renting it out or selling it are all open, and the right answer depends on cash flow, capital gains tax and who else lives there — not on a rule that forces your hand. If someone tells you the house must go on the market by Friday, get a second opinion.
What to watch, and what to do if you're behind
If a parent entered residential care before 1 November 2025, they stayed on the old fee rules under a "no worse off" guarantee. Don't apply this article's figures to their situation — check their fee letter instead.
All of these amounts are indexed, most of them twice a year in March and September, so treat the numbers here as the shape of the system rather than a quote. Services Australia sends a formal fee advice letter after a means assessment, and that letter — not a brochure, not a website, not this article — is the number that binds.
And if the honest answer is that there simply isn't much money, the system is built for that. People with limited means pay the basic daily fee and little else, and accommodation is government funded for those who qualify as fully supported residents. Nobody is turned away from residential aged care in Australia because they can't pay — worth saying plainly, because the fear of it drives some genuinely poor decisions.
The most useful thing you can do at 50 or 55 isn't to save a specific sum for aged care. It's to know how the four buckets work, to have an enduring power of attorney in place, and to have had the conversation once, badly, over a cup of tea — rather than for the first time in a hospital corridor.
Aged care is one of the last chapters of a retirement plan, and it goes far better when the rest of the plan is in order. In Retirement Made Simple (6th Edition), Noel Whittaker walks through the whole picture — the Age Pension, your super, the family home, and how aged care fits at the end of it — in the same plain language he's used for forty years. It's updated for the current financial year, and you can buy direct from the author for $19.95 in PDF and EPUB.
This article is general information only and doesn't take account of your personal circumstances. Figures are current at time of writing and change each financial year. Consider seeking advice before acting.