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September 9, 2026 — 5:00am
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Keeping your home after moving into aged care can feel like the safe option. You retain an asset, preserve the possibility of returning home and it receives generous treatment under both the age pension and aged care means tests. But there’s a risk families often overlook: what happens if the property value falls?
The Australian belief that property prices only go up is shaky. With national property prices down 3.6 per cent since March, the idea that the family home is a guaranteed store of wealth deserves a second look.
The special treatment of the home can amount to tens of thousands of dollars of increased pension and lower aged care costs. But a fall in its value can wipe out that advantage — and potentially leave them worse off.
Consider Sally. She is moving into aged care with a refundable accommodation deposit (RAD) of $600,000. Her home is worth $1.3 million, she has $200,000 in investments and $10,000 in personal assets. She currently receives the full age pension of $31,223 a year.
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If Sally sells her home and pays the $600,000 RAD, she will have around $900,000 in investments. Her investments give her $36,000/year and her age pension has been reduced by almost $24,200 to around $7000/year.
Her aged care costs include the basic daily fee of $67, a hotelling fee of $22 and a non-clinical care contribution of $107 a day. The $600,000 RAD is also subject to a 2 per cent annual retention, capped at 10 per cent. If she stays for five years, $60,000 will be retained.
With national property prices down 3.6 per cent since March, the idea that the family home is a guaranteed store of wealth deserves a second look.
Including the RAD retention, her cost is $83,585 a year, before extras and personal expenses.
Now compare that with keeping the home and paying the accommodation cost as a daily accommodation payment (DAP).
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For the first two years, Sally’s home is exempt from the age pension asset test, allowing her to retain the full $31,223 pension. After those two years, however, her pension falls to zero.
For aged care means testing, only $214,884 of her $1.3 million home is counted. Her costs are a DAP of $139 a day, the $67 basic daily fee and $22 hotelling fee. Her non-clinical care contribution is zero. And her total annual cost is around $83,220.
On the face of it, keeping the home looks attractive. For the first two years, Sally has an apparent financial advantage of around $24,500 a year from her higher pension and lower aged care costs.
However, her $1.3 million home is exposed to the property market. A 5 per cent fall would reduce its value by $65,000. Suddenly, the “safe option” has produced a $65,000 capital loss – wiping out the benefit and leaving Sally $16,000 worse off. And that is before allowing for council rates, insurance, maintenance, repairs and other costs of keeping the home.
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When someone moves into aged care, it is easy to think: “Keep the house. It’s exempt.” But that does not make it immune from market risk. The right decision requires looking at the whole picture — pension, aged care costs, property expenses, investment returns, cash flow and what the home might ultimately sell for.
Sometimes keeping the family home will be the right answer. But it should be a considered decision, not an automatic one. A fall in the value of the family home can cost you more than the benefit you were trying to preserve.
Rachel Lane is the author of Downsizing Made Simple, a book and website aimed at demystifying downsizing.
- Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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Rachel Lane is author of the best-selling book Aged Care, Who Cares? and Downsizing Made Simple with fellow finance expert Noel Whittaker.AdvertisementAdvertisement