Written

For

The

Australian

-

Self-funded

retirees

facing

higher

cost

for

aged

care

Do you know the difference between a DAP and a RAD? If not, you're in good company — most Australians remain blissfully unaware of how aged-care fees work until a family member needs care. But with proposed changes on the table, self-funded retirees could soon be paying tens of thousands more out of pocket.

Here's what's brewing. Labor reportedly wants to lift the lifetime cap on means-tested aged-care contributions from $79,942 to $190,000. The Coalition wants a lower figure. Under the current system, someone paying the maximum daily means-tested fee hits the lifetime cap in around 2.4 years. Bump the cap to $190,000 and that stretches to 5.7 years — an extra $40,000 or so from wealthier retirees' pockets on average.

To make sense of it, you need to unpack the fee structure. There's the refundable accommodation deposit (RAD) — a lump sum to secure a room, often funded by selling the family home. If you don't pay the RAD, you pay a daily accommodation payment (DAP) instead, which is effectively 8.36% interest on the unpaid amount. Then, once you're in, you're billed monthly for a basic daily care fee (currently $61.96), possibly an extra services fee, the DAP if applicable, and a means-tested fee if the government deems you financially capable.

I spoke with aged-care adviser Rodney Horin, who told me he has empathy for providers — margins are being squeezed by cost-of-living pressures — and he believes the wealthy should pay more. Hard to argue with the maths: resident numbers are projected to balloon from 200,000 to 750,000 over the next 40 years. Someone has to fund it.

My take? Whatever the politicians settle on, the direction is clear — self-funded retirees will shoulder more. The best defence is to enter retirement with strong assets and hold onto them. Aged care isn't cheap, and it's about to get less so.