Aged Care Costs: RAD, DAP and the Means Test
Residential aged care has a confusing fee structure, but it comes down to three things: an accommodation cost you can pay as a lump sum or a daily charge, a means-tested care fee, and a basic daily fee. Understanding how they fit together is the first step to planning for them.
- Accommodation: the room price can be paid as a refundable lump sum (RAD), an equivalent daily payment (DAP), or a combination — the DAP is the RAD multiplied by a set interest rate.
- Care fee: a means-tested care fee depends on your income and assets, with annual and lifetime caps, on top of the accommodation cost.
- Basic daily fee: everyone pays a basic daily fee set at 85% of the single Age Pension, covering living costs like meals and laundry.
01 Accommodation: RAD vs DAP
The largest cost is usually accommodation — the price of the room. You can pay it three ways: as a Refundable Accommodation Deposit (RAD), a lump sum that's refunded (less any agreed deductions) when you leave; as a Daily Accommodation Payment (DAP), a rental-style daily charge; or a combination of both. The DAP isn't arbitrary — it's the RAD multiplied by the Maximum Permissible Interest Rate (MPIR), set by the government each quarter. That means neither option is automatically cheaper: paying the RAD ties up a lump sum that could earn elsewhere, while the DAP is the cost of not doing so.
Shows: the daily payment (DAP) equivalent to a lump-sum room deposit (RAD), using the Maximum Permissible Interest Rate. Ignores: the means-tested care fee, the basic daily fee, partial RAD/DAP combinations, and that the MPIR changes quarterly.
The belief that the family home is always safe from aged care costs is the most damaging misconception in this area. The home is exempt from the Age Pension assets test, which is where the belief comes from, but aged care means testing treats it differently — it is counted up to a capped value unless a protected person still lives there. Families who assume the two systems work the same way are regularly caught by the difference.
On the defaults above, the worked example shows: A $550,000 room can be paid as a lump-sum RAD, as a daily DAP of about $126, or a mix — the DAP is the RAD times the MPIR, so neither is automatically cheaper.
02 The means-tested care fee
On top of accommodation, a means-tested care fee contributes to the cost of your care, based on an assessment of your income and assets (including, in part, the former home). It can be zero for people of limited means and substantial for the well-off, but it's subject to annual and lifetime caps that limit the total you can be asked to pay. Because it's means-tested, how your assets are arranged — including how much sits in an assessable form versus a RAD (which is treated as an asset for the means test) — affects the fee. This is where aged-care planning gets genuinely complex and advice often pays for itself.
It is commonly assumed that the aged care means test works like the Age Pension test, and it does not. The family home is fully exempt for the pension and only capped — not exempt — for aged care, so a household that has planned around the pension rules can be assessed very differently when care is needed.
03 The basic daily fee and the full picture
Everyone in residential care pays a basic daily fee, set at 85% of the single basic Age Pension rate, covering day-to-day living — meals, cleaning, laundry, heating. Added together, a resident's cost is the accommodation (RAD/DAP), the means-tested care fee, and the basic daily fee. For a self-funded retiree this can total a significant annual amount; for a full pensioner, the means-tested fee may be nil and the cost much lower. The interaction with the Age Pension assets test — particularly how the former home and a RAD are treated — means aged-care decisions ripple through the rest of a retirement plan, and are worth modelling before a move, not after.
Source: Services Australia — Aged care
Aged care is the part of retirement planning nobody wants to look at, so the fee structure stays a mystery until a crisis forces the decision in a fortnight. The one idea worth holding early: the RAD-versus-DAP choice isn't about which is cheaper — the DAP is just the RAD times a set rate — it's about whether you'd rather tie up the lump sum or keep it invested, and how each option lands on the means-tested fee and the Age Pension. It interacts with everything else, so model it as part of the whole plan. Don't wait for the crisis to learn the words.
FAQ
What is a RAD in aged care?
A Refundable Accommodation Deposit — a lump sum paid for your room in residential aged care, refunded (less any agreed deductions) when you leave. The alternative is a Daily Accommodation Payment (DAP).
Is it better to pay a RAD or a DAP?
Neither is automatically cheaper — the DAP is the RAD multiplied by the government's Maximum Permissible Interest Rate. The choice is whether you'd rather tie up the lump sum or keep it invested, and how each affects your means-tested fee and Age Pension.
What is the means-tested care fee?
A fee based on your income and assets that contributes to your care cost, on top of accommodation. It can be nil for people of limited means and is subject to annual and lifetime caps.
Sources
Regulator references
- My Aged Care — Aged care home costs and feesThe fees payable in residential aged care and the means-tested component of them.Last verified: 2026-06-19
- Services Australia — Aged careServices Australia on aged care fees and the means assessment behind them.Last verified: 2026-06-19
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-06-19 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.