Residential aged care can create a cruel bind: you end up asset-rich but cash-poor. Care fees drain your liquid savings, while the family home — often your largest asset — sits frozen: you can't spend it, and after a while it starts counting against your Age Pension. The result is running out of spendable money while hundreds of thousands of dollars are locked in the house.
Two forces pulling the wrong way
- Fees drain your cash. Residential care can run past $100,000/yr once you add the daily fee, means-tested fee and accommodation. Keep the home and pay the room as a daily charge (DAP) and that comes straight out of super and savings — the liquid pool empties fast.
- The home eventually counts. A kept former home is exempt from the Age Pension assets test for 2 years after you enter care. After that it's assessed at market value (and you're treated as a non-homeowner) — often enough to taper the pension to nothing.
So just as your savings run low, the safety net you'd expect — the Age Pension — can disappear, because the assets test counts a home you can't actually spend.
In numbers: Margaret keeps her home
Margaret retired at 67 with $500k super, $150k outside super and an $800k home. At 85 she enters residential care and keeps the home, paying the room as a DAP. The planner models what happens next:
| Age | Liquid savings | Home (assets test) | Age Pension |
|---|---|---|---|
| 86 | ~$201k | exempt — still within 2 yrs | $31,223 · full |
| 87 | ~$102k | ~$1.19M · now counted | $0 |
| 88 | $0 | ~$1.21M · counted | $0 |
By 88 her super and savings are gone, the Age Pension is nil — yet the ~$1.2M of home equity she can't reach is exactly what's holding the pension at zero. That's the trap.
Why the pension doesn't rescue her
The Age Pension is means-tested on assets and income. Once the 2-year exemption ends, the home is an assessable asset at its full, grown value. Even as a non-homeowner (with the higher free area), a $1M+ home sits far above the cut-off, so the assets test zeroes the pension — no matter how little cash is left to live on.
What changes the picture
None of these is 'the right answer' — the best choice is personal (family, a possible return home, provider-refund risk). But each unlocks the frozen equity in a different way:
- Sell to fund a RAD. Selling the home to pay a Refundable Accommodation Deposit turns it into an asset that's refundable to your estate and exempt from the assets test — so the pension can rise and the plan lasts longer. See the RAD vs DAP comparison.
- Rent the former home. The rent helps pay the fees (though it's assessable income, and after 2 years the home still counts).
- A couple. If your partner still lives there the home stays exempt (a 'protected person'), and you're assessed as an illness-separated couple — usually a higher combined pension.
- Home Equity Access Scheme. The government scheme (and private reverse mortgages) can turn home equity into an income stream without selling — a way to draw on the frozen asset.