Aged Care in Australia: Why Financial Planning is the Key to Peace of Mind
Australia’s population is living longer than ever before. With increasing life expectancy, many older Australians are spending more years in retirement, often accompanied by higher health and lifestyle needs. According to the Australian Institute of Health and Welfare (AIHW), around one in six Australians (16%) are aged 65 and over, a figure projected to rise significantly in the coming decades.
Australia’s population is living longer than ever before. With increasing life expectancy, many older Australians are spending more years in retirement, often accompanied by higher health and lifestyle needs. According to the Australian Institute of Health and Welfare (AIHW), around one in six Australians (16%) are aged 65 and over, a figure projected to rise significantly in the coming decades. This demographic shift is placing growing pressure on Australia’s aged care system, making it essential for families to understand both the services available and the financial strategies required to access them.
For many Australians, navigating aged care can feel overwhelming. It’s not just about choosing the right facility or service—it’s also about managing complex fee structures, government subsidies, and financial trade-offs like whether to keep or sell the family home. That’s where financial advice from experts makes a life-changing difference.
In this blog, we’ll explore
Aged care in Australia is designed to support older people who can no longer live independently or who need additional assistance to maintain their quality of life. Services fall into three main categories
While the government subsidises aged care, individuals are expected to contribute according to their means. Key costs include:
- Basic Daily Fee: Paid by all residents to cover everyday living expenses such as meals and cleaning. From July 2025, this is set at $63.82 per day (indexed twice yearly).
- Means-Tested Care Fee (MTCF): An additional contribution for those with higher income and assets, capped at $34,311 annually and $82,347 over a lifetime.
- Accommodation Payments: Can be paid as a Refundable Accommodation Deposit (RAD), a Daily Accommodation Payment (DAP), or a combination. For instance, an advertised RAD might be $400,000. Families must decide whether to pay this upfront (and have it refunded later) or cover an ongoing DAP.
- Extra/Additional Service Fees: Optional fees for enhanced services or lifestyle upgrades.
The government provides significant subsidies through the Aged Care Funding Instrument (ACFI) and other programs, but these are means-tested.
- Income Test: Includes pensions, rental income, and investments.
- Assets Test: Considers savings, investments, and property. The family home may be exempt if a spouse continues living there.
- Caps: Annual and lifetime fee caps prevent unlimited costs.
These rules create complex trade-offs. For example, paying a RAD can sometimes protect Age Pension eligibility, while holding too much in liquid assets may increase aged care fees.
This case highlights how policy reforms can transform a comfortable financial situation into a deficit. Without planning, families may be forced to sell assets unexpectedly or reduce the quality of care.
When facing aged care decisions, families often confront emotionally charged and complex financial trade-offs:
- Timing of Entry
- Entering care before November 2025 could lock in current fee structures and reduce future costs.
- Keep or Sell the Family Home?
- Keeping the home may protect it from means testing if a spouse remains living there.
- Renting it out generates income but can increase means-tested fees.
- RAD vs DAP
- RAD (lump sum) protects Age Pension eligibility and is refunded later, but requires upfront capital.
- DAP (daily payment) preserves assets but is costly long-term, especially with indexation.
- Structuring Investments
- Families need stable, predictable income streams to cover ongoing fees.
- Options include term deposits, diversified portfolios, and annuities.
- Estate Planning and Wealth Protection
- Aged care costs should be balanced against the desire to preserve an inheritance.
Financial Planners in Aged Care Decisions
Financial planners play a critical role in helping families navigate the aged care landscape with confidence and clarity. Their work extends beyond investment advice — it’s about strategy, structure, and emotional support.
Key areas where financial planners add value include:
- Assessing Affordability: Analysing current and projected costs of aged care and aligning them with available income, assets, and entitlements.
- Maximising Government Support: Ensuring clients receive all eligible benefits and optimising means-testing outcomes.
- Cash Flow Management: Creating sustainable income streams to cover daily fees without depleting savings too quickly.
- Strategic Decision-Making: Advising on RAD vs DAP, when to sell or retain assets, and how to reduce unnecessary tax or fees.
- Peace of Mind: Acting as a neutral expert during an emotionally charged transition, helping families make clear and confident decisions.
In essence, financial planners bridge the gap between emotional needs and financial realities, ensuring loved ones receive the best care without financial stress.
One of the most innovative tools available to help families manage aged care costs while protecting wealth is Challenger CarePlus. This product combines an annuity with life insurance to provide predictable income, efficient interaction with government means testing, and estate protection.
How It Works
- Annuity Payments: CarePlus generates a guaranteed income stream to help cover aged care fees. For example, a $1 million investment can produce around $46,048 per year in payments while still interacting favorably with Age Pension rules
- Insurance Component: The structure includes a life insurance benefit. In the example above, the $1m investment results in a $1 million death benefit being paid to nominated beneficiaries, preserving wealth for the next generation.
- Means Testing Advantages: Only part of the investment is counted under the Centrelink assets and income tests. This can reduce means-tested care fees compared to holding cash or term deposits. In the example, just $176,987 of the annuity was assessed for the assets test, rather than the full $1 million
Why It Matters for Families
- Stability and Certainty: CarePlus ensures aged care costs are met with reliable income, easing the burden on families.
- Wealth Protection: The death benefit allows assets to pass on to loved ones, balancing care needs with estate planning goals.
- Tax Efficiency: Payments can be more tax-effective compared to traditional investments, improving net cash flow
Challenger’s aged care solutions don’t replace financial advice—they complement it. Tools like the Challenger Aged Care Calculator help advisers and families compare scenarios, model the impact of RAD vs DAP decisions, and explore the effect of keeping versus selling the family home.
In short, Challenger CarePlus provides a structured way to secure aged care funding while also giving peace of mind about the legacy left behind.
Looking Ahead: The Future of Aged Care
As Australia’s aged population continues to grow, several trends are emerging:
- A stronger push towards home care, enabling seniors to age in place.
- Higher reliance on private contributions, with subsidies focused on those most in need.
- Product innovation, such as aged care annuities like CarePlus, that integrate funding and estate planning.
- Ongoing policy reforms, meaning strategies must remain flexible and adaptable.
Aged care in Australia is complex, emotionally charged, and financially significant. With reforms set to increase fees in late 2025, the importance of planning early cannot be overstated. By working with a trusted financial partner, individuals and families can ensure they secure the right care, protect their wealth and maintain peace of mind. At the heart of it, aged care is about more than numbers. It’s about dignity, comfort, and quality of life. And the right financial strategy can make all the difference.