Aged Care Costs in Melbourne: How to Plan Financially Before You Need It

Understanding what aged care actually costs after the 2025 reforms — and why planning ahead makes the hardest decisions easier

By Sunny Singh, Financial Adviser, Radiance Wealth

Reading time: ~11 minutes  │  Updated September 2026  │  Melbourne, Australia

Important note: Aged care fees changed substantially under the Aged Care Act 2024, with new arrangements from 1 November 2025 and further changes through 2026. The figures in this article are illustrative and current as at September 2026; they are indexed and revised regularly, and your actual costs depend on a formal means assessment. This is general information only, not personal advice. Please seek personal advice and an official assessment before making decisions.

Aged care is one of the few financial topics that almost everyone will face — either for a parent, a partner, or themselves — and one of the few most people actively avoid thinking about until they are forced to. That avoidance is understandable. The decisions arrive at an emotional time, the system is genuinely complex, and it changed significantly in late 2025. But it is precisely because the decisions are hard that planning ahead helps so much. Families who have thought about aged care before it becomes urgent make calmer, better decisions than those confronting it for the first time in a hospital corridor.

Many of the Melbourne families I work with are in what is sometimes called the “sandwich” stage — helping ageing parents navigate care while starting to think about their own later years. This article is written with both in mind. It explains what aged care actually costs in Australia after the recent reforms, how the fees are structured, and the financial questions worth thinking through in advance.

For the personal version of this — modelling aged care costs against a specific situation and payment options — see our aged care advice service. And for how aged care fits into the wider retirement picture, our Pre-Retiree’s Guide for Australians Aged 50–64 provides the broader context.

First, the System Changed in 2025 — and It Matters Which Rules Apply

The most important thing to understand in 2026 is that Australia’s aged care fee system was substantially reformed under the Aged Care Act 2024. For people entering residential care from 1 November 2025, a new set of fee arrangements applies. For those who were already in care, or who were receiving (or approved for) a Home Care Package on or before 12 September 2024, older “no worse off” arrangements can still apply.

The practical consequence is that two people in adjacent rooms of the same Melbourne aged care home can be paying under entirely different fee systems, depending only on when they entered care. This is one of the clearest reasons to get a formal assessment and advice specific to the situation, rather than relying on general figures or a friend’s experience from a year or two ago. Many online sources still quote the old system’s fees.

Staying at Home — Support at Home

Most people would prefer to remain in their own home for as long as possible, and the government’s Support at Home program (which replaced Home Care Packages from 1 November 2025) is designed to make that feasible. It provides funded support across eight levels of assessed need, grouped into three categories: clinical care, independence support, and everyday living support.

The cost structure is deliberately weighted toward affordability for care itself. Clinical services — nursing, physiotherapy and similar — are fully government-funded, with no personal contribution. From 1 October 2026, personal care services such as showering, dressing and continence assistance also become fully government-funded, a change flagged in the 2026 Federal Budget. Contributions generally apply to the everyday living and independence categories, and how much you pay depends on your income and assets assessment. For a full pensioner with limited assets, out-of-pocket costs for home care can be modest; for a self-funded retiree, they are higher.

Because home care avoids both the residential basic daily fee and any accommodation payment, it is usually less expensive out of pocket than residential care for someone with similar needs — one reason it is worth understanding the home-care pathway well before residential care becomes the only option.

Residential Aged Care — the Three Cost Components

When home care is no longer enough, residential aged care costs come in three broad parts. Understanding them separately is the key to not being overwhelmed by a fee advice letter.

1. The basic daily fee — everyone pays it

This covers day-to-day living costs — meals, cleaning, laundry, heating. It is not means tested; every resident pays it. It is set at 85% of the single basic Age Pension and indexed each March and September. As at March 2026 it is around $66.80 per day, which works out to roughly $24,000 a year. This is the one predictable, universal cost.

2. The means-tested care contributions — depend on your finances

On top of the basic daily fee, residents who have the financial capacity contribute toward their care. Under the new (1 November 2025) arrangements this takes the form of a hotelling contribution and a non-clinical care contribution, both determined by an income and assets assessment. Importantly, clinical care is now fully government-funded, so these contributions relate to non-clinical care and living costs rather than nursing. There are strong consumer protections: the non-clinical care contribution is capped daily, and there is a lifetime cap (around $137,900, indexed) as well as a limit of four years of contributions — after which you stop paying it. Full pensioners with limited assets often pay little or nothing here; self-funded retirees pay more, up to the caps.

3. Accommodation — the RAD, the DAP, or a combination

The third component is what you pay for the room itself, and it is the one that unsettles families most because the headline numbers are large. Accommodation can be paid as a Refundable Accommodation Deposit (RAD) — a lump sum, refundable when the person leaves care — or as a Daily Accommodation Payment (DAP), which is effectively the interest on that lump sum calculated at a government-set rate (the Maximum Permissible Interest Rate, around 8.43% from 1 July 2026), or as a combination of both. RADs vary widely by location and facility and average roughly $600,000 nationally, with Melbourne metropolitan homes often higher. Whether you pay by RAD, DAP or a mix is a genuine financial decision with different implications for cash flow, the Age Pension assets test, and the estate — and it is one of the areas where advice most clearly pays for itself.

For those with limited means, there are real protections: if income and assets are below the relevant thresholds, the government pays accommodation costs in full, and financial hardship assistance exists for those who need it.

Residential Aged Care Costs at a Glance

A simplified summary of the three components under the current arrangements. Figures are illustrative, current as at September 2026, indexed regularly, and subject to your own means assessment.

General guide only. Figures indexed each March and September and subject to a formal means assessment. Not personal advice.

The Family Home — the Question Everyone Asks

In Melbourne, where the family home is often a family’s largest asset, the most common and most emotive question is: “Do we have to sell the house?” The honest answer is that it depends — and that this is exactly the kind of decision that benefits from advice before it is made under pressure.

The former home is treated in a particular way in the aged care means assessment: its assessable value is capped (at around $215,000, indexed), rather than counted in full, and there are circumstances — such as a spouse or certain other people still living there — where it may be exempt. How you fund accommodation (RAD versus DAP) interacts with whether the home is kept, rented or sold, and each path has different consequences for fees, the Age Pension and what is ultimately left to the family. There is rarely a single right answer, but there is almost always a materially better and worse way to approach it for a given family.

The families who cope best with aged care are not the wealthiest ones. They are the ones who understood the choices before they had to make them — so that when the moment came, they were making a considered decision rather than a panicked one.

— Sunny Singh, Radiance Wealth

What You Can Do Before You Need It

You cannot control when aged care becomes necessary, but you can prepare so that the financial side is one less thing to work out in a crisis. A few things worth doing in advance:

1. Understand the pathway, not just the destination. Know how home care and residential care differ in cost, and that home care is usually cheaper out of pocket — it affects how you plan to age.
2. Know roughly where you (or your parents) sit on the means test. Full pensioner, part pensioner or self-funded makes a large difference to what is payable — and shapes the accommodation decision.
3. Think about the family home early. The keep / rent / sell decision has tax, pension and fee consequences that are far easier to weigh calmly in advance.
4. Get a formal means assessment when the time approaches. Services Australia’s assessment and fee advice letter give you the real numbers — general figures are only a starting point.
5. Have the conversation as a family. Aged care decisions are rarely made alone. Talking about preferences and finances before a crisis makes everything that follows kinder and clearer.

Planning Turns a Crisis Into a Decision

Aged care will never be an easy topic, but it does not have to be an overwhelming one. The costs are structured, the consumer protections are real, and the system — for all its recent change — is navigable with the right information. The difference between a family that struggles and one that copes is almost always preparation: understanding the choices before the moment they have to be made.

At Radiance Wealth, we help Melbourne families plan for aged care with clarity and compassion — modelling the real costs, weighing the accommodation and family-home decisions, and coordinating aged care with the Age Pension and the wider estate. A good place to start is our aged care advice service, or our Pre-Retiree’s Guide for Australians Aged 50–64 for the broader plan. For official figures and to arrange an assessment, My Aged Care (myagedcare.gov.au) is the government’s starting point.

Book an aged care planning conversation with Radiance Wealth. Call (03) 9590 6341   |   Visit radiancewealth.com.au/contact-us   |   Suite 2.04/202 Jells Rd, Wheelers Hill VIC 3150

Disclaimer: The information provided in this article is general advice only. It has been prepared without taking into account any of your individual objectives, financial situation or needs. Before acting on this advice, you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs.

Radiance Wealth is a Corporate Authorised Representative of RI Advice Group Pty Ltd ABN 23 001 774 125 AFSL 238429, an Australian Financial Services Licensee.

All figures, rates and thresholds referenced in this article are subject to change. Readers should verify current rates with the Australian Taxation Office, Services Australia, and ASIC Moneysmart before making financial decisions.