What is a Refundable Accommodation Deposit (RAD) – and how can I pay for it?

At AgedCare101, we are often asked how an individual can afford to enter residential aged care when the entry price can run into hundreds of thousands of dollars.

It’s important to understand that there are several options to pay for entry into an aged care home – and there is an option for every older Australian regardless of their income and assets.

One of the main ways to pay for residents aged care is a Refundable Accommodation Deposit (RAD). If paid in full, this is returned to the resident’s family when they exit the home. There’s normally no interest paid on the RAD and, in effect, it is an interest-free loan to the provider.

The RAD is set by the facility and is usually linked to the quality and amenities available. The maximum that is normally charged is $550,000 and this usually means a private room with an ensuite.

However, providers can charge more than this amount for superior accommodation with additional benefits if they have approval from the independent aged care pricing authority.

What are my other options?

The alternative to paying a RAD is the Daily Accommodation Payment (DAP).

The DAP is calculated by multiplying the outstanding amount by a Government fixed interest rate. That fixes the DAP payment for life.

Two years ago, the DAP rate was about 4%. Today, it is 8.15%. So, an individual with a shortfall of $100,000 on the RAD, for example, pays 100,000 times 8.15% or $8,150 a year, which translates to a DAP of $22.96 a day.

The resident – or family – can elect to pay the DAP or choose to have it taken from the RAD, which reduces the amount ultimately refunded.

If a person can fund the RAD from other sources, they might find themselves in a position where their loved one can continue to receive a full or part Pension because the money paid towards the RAD is exempt from Centrelink’s means test.

There is also the option to pay a combination RAD/DAP.

For older Australians of very low means (under $32,000 in assets as a single person), the Government steps in and covers the cost of your care, accommodation and daily living services.

What about the family home – will I have to sell?

Selling the home depends on its value and the other assets the owner has.

If the RAD is fully paid, selling the house and banking the proceeds means an exempt asset is now a fully assessed asset and will be captured by the means testing system.

If total assets exceed $909,500, the non-homeowner asset test will mean the Age Pension is cancelled.

If, however, the house sale funds the Centrelink means test-exempt RAD, the leftovers can be parked in an income-paying investment like a bank account with that income supplementing the part or full Age Pension.

If the total remaining assets are less than $543,750, your loved one would be getting close to a full Age Pension.

It’s important to remember that whatever your personal circumstances, there are always options to cover the costs of residential aged care if you need it. Seeking financial advice can provide guidance on the best option for you and your family.

You can follow our video guide for more help.

Individual circumstances vary, and readers are encouraged to seek personalized advice from qualified professionals before making any decisions related to aged care financing.

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A special thanks to our contributors

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Antonia Norris

Researcher and Contributor

Antonia has led the operations and growth of the agedcare101.com.au and villages.com.au within the DCM Group in Australia and New Zealand for several years. This has included the research and creation agedcare101 in 2016, the creation of the DCM Institute and Te Ara Institute, the joint contribution of Care & Living with Mercer (CaLM) and the TV series, The Best 30 Years, screened on NINE nationally.

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Journalist

Journalist

Caroline has a wealth of experience writing within the retirement and aged care sector and is a contributing journalist for the Villages.com.au and agedcare101 blog and accompanying newsletters.

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Ian Horswill

Journalist

Ian is a journalist, writer and sub-editor for the aged care sector, working at The DCM Group. He writes for The Weekly Source, agedcare101, villages.com.au and the DCM Institute fortnightly newsletter Friday. Ian is in daily contact with CEOs of retirement living, land lease and the aged care operations and makes a new contact every week. He investigates media releases, LinkedIn and Facebook for a good source for ideas for stories.

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Lauren Broomham

Retirement and Aged Care Journalist

Lauren is a journalist for villages.com.au, agedcare101 and The Donaldson Sisters. Growing up in a big family in small town communities, she has always had a love for the written word, joining her local library at the age of six months. With over eight years' experience in writing and editing, she is a keen follower of news and current affairs with a nose for a good story.

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Jill Donaldson

Physiotherapist

Jill has been practicing as a clinical physiotherapist for 30 years. For the last 13 years she has worked solely in the Aged Care sector in more than 50 metropolitan and regional facilities. Jill has also toured care facilities in the US and Africa and is a passionate advocate for both the residents in aged care and the staff who care for them. She researches and writes for DCM Media.

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Chris Baynes

DCM Media, agedcare101

Chris has been a journalist and publisher in the retirement village and aged care sectors for 11 years. He has visited over 250 retirement villages and 50 aged care facilities both within Australia and internationally. Chris is a regular speaker at industry conferences plus is a frequent radio commentator.

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Annie Donaldson

Nurse and Carer

Annie has a long career in both nursing and the media. She has planned and co-ordinated the medical support from both international TV productions and major stadium events. In recent years she has been a primary family carer plus involved in structured carer support.