The five numbers you need to know when choosing aged care

As Australia's population ages, more and more people face the challenge of helping a parent move into aged care. It’s stressful for many reasons, and what people often overlook is that it can also be one of the most tricky financial decisions a family will ever make. 

Age Care guru, Rachel Lane, explains that aged care can be a financial minefield, and unless you understand the five separate fees involved – and your options for paying them – it's easy to make very expensive mistakes. 

When most families begin looking at aged care homes, they focus on one number: the Refundable Accommodation Deposit (RAD). 

That's understandable. It's the largest figure you'll see, often around $500,000, though it can be as high as $3 million. It's also the number featured most prominently on aged care websites and brochures. 

But concentrating on the RAD is a mistake, because it is only one part of the overall cost of aged care. There are now five separate fees that determine what you will pay. Understanding them before signing an aged care agreement could save you many thousands of dollars. 

The RAD is your accommodation cost: the lump sum price for your room. If you choose to pay by RAD, 2% will be deducted each year of your stay up to a cap of 10%. 

Alternatively, you can pay by Daily Accommodation Payment (DAP), calculated at a government-set interest rate on any unpaid RAD, currently 8.43% and indexed.  

Or you can combine the two by paying part as a lump sum and the balance as a daily payment. You can even deduct the daily payment from your lump sum.  

Many people assume paying the full RAD is always the best option. Sometimes it is. Sometimes it isn't. The right answer depends on your investments, your pension entitlement, your cash flow and how it will impact the overall cost of your aged care. 

Every resident pays the Basic Daily Fee. It is set at 85% of the single basic age pension, currently $67 a day, and helps cover everyday services such as meals, cleaning, laundry and utilities. 

Because it is linked to the age pension, it increases whenever pension rates are adjusted. This is one fee you can safely assume will apply regardless of your financial circumstances. 

Think of the Hotelling Fee as contributing towards the hospitality side of aged care. It helps pay for services such as meals, housekeeping, linen services, and maintaining comfortable communal areas. Unlike the Basic Daily Fee, not everyone pays the same amount: your contribution depends on your assets and income. This fee is capped at $22 a day. 

The Non-Clinical Care Contribution fee is designed to help fund personal support such as assistance with showering, dressing, mobility, and other everyday activities that are not clinical or medical in nature.  

Like the Hotelling Fee, it is means tested, but in this case the cap is $107 a day. There are two other limits on this fee. The first is a lifetime cap of $137,917, which includes contributions paid under the Support at Home program before entering residential aged care. 

The second protection is a four-year limit. Even if you have not reached the lifetime cap, you will stop paying the Non-Clinical Care Contribution after four years.