Most people would think twice before spending hundreds of thousands of dollars on a luxury car. Yet for many Australians, the most expensive financial decision they will ever face isn’t a Ferrari — it’s aged care.
Across much of Australia, the price of entering residential aged care now routinely involves accommodation costs of around $750,000. Some rooms are cheaper — particularly in regional areas, older homes, or rooms with shared bathrooms. Others, in premium locations with newer facilities and hotel-style amenities, can exceed $3 million.
There’s a wide range, but even the “mid-range option” is far from affordable for most households.
How aged care accommodation is paid for
When you move into residential aged care, you generally have three options for paying your accommodation cost:
- A Refundable Accommodation Deposit (RAD) — a lump sum
- A Daily Accommodation Payment (DAP) — an ongoing daily fee
- Or a combination of both
If you pay the full lump sum RAD, there’s no DAP. The RAD is refunded when you leave care, but a retention fee of 2 per cent per year applies, capped at five years.
That means:
- On a $750,000 RAD, up to $75,000 can be retained
- On a $3 million RAD, up to $300,000 can be retained
Stay five years or longer, and the maximum retention applies.
If you don’t pay the full lump sum, the unpaid amount is charged as a DAP. The daily rate is calculated using a government-set interest rate — currently 7.65 per cent.
At today’s rates:
- A $750,000 room can cost around $157 a day, or $57,000+ per year
- A $3 million room can cost more than $600 a day
Unlike a fixed-rate loan, the daily payment is indexed, so it can increase over time.
Accommodation is only part of the cost
Many people are surprised to learn that accommodation is just one piece of the aged care cost puzzle.
On top of accommodation, everyone pays:
- A basic daily fee, set at 85 per cent of the single Age Pension — currently about $66 a day (around $24,000 a year)
Depending on your financial situation, you may also pay:
- A hotelling contribution (meals, cleaning, laundry), up to $22 a day
- A non-clinical care contribution, covering personal support such as showers and mobility assistance, capped at $105 a day
Some providers also offer a higher everyday living fee, which is optional and covers additional services such as upgraded meals, alcohol, entertainment or hairdressing.
How quickly the numbers add up
When you combine accommodation costs with daily and means-tested fees, the totals can escalate quickly.
For example:
- A $750,000 room paid by daily accommodation charges can cost close to $130,000 per year
- Over the average stay of around 34 months, that can total more than $360,000
At the higher end:
- A $3 million room can cost well over $300,000 per year
- Over an average stay, total costs can exceed $850,000, before personal expenses
Why the lifetime cap doesn’t tell the full story
There is a lifetime cap on one component of aged care fees — currently $135,319 — but it only applies to the non-clinical care contribution.
Once you reach that cap:
- Accommodation costs continue
- The basic daily fee continues
- The hotelling contribution continues
In other words, hitting the cap doesn’t stop the major costs from ongoing care.
Importantly, you don’t need to be exceptionally wealthy to reach these limits. It’s possible to hit them with less than $1 million in assets, particularly once accommodation deposits are factored in.
Planning matters — earlier than most expect
Very few Australians budget for a Ferrari. Yet many will face aged care costs that are just as significant — and sometimes higher.
Understanding how the system works, what drives the costs, and how accommodation choices interact with fees can make a substantial difference to long-term outcomes. For many families, the biggest risk isn’t the cost itself — it’s being unprepared for it.
