Many families approach aged care planning with a focus on cost. They want to understand how much care will cost and how it will be funded over time.
However, in practice, the biggest challenge is often not the total cost. It is the timing of when funds are needed compared to when they are available.
Aged care is increasingly becoming a cash flow issue, where decisions must be made quickly, but access to funds is delayed or constrained.
What makes aged care a cash flow issue
Aged care funding involves multiple components, including accommodation payments, ongoing care fees and means-tested contributions. While these costs can be estimated, the timing of payments and access to assets is often less predictable.
Aged care funding becomes a cash flow issue when there is a mismatch between when care is required and when funds can be accessed to pay for it.
This is particularly relevant for families where wealth is tied up in assets such as property, rather than readily available cash.
Quick summary
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Why timing matters more than total cost
Immediate need for care
Entry into aged care is often triggered by a health event or a sudden decline in independence. This means decisions are frequently made under time pressure.
In many cases, families do not have the luxury of waiting until assets are sold or financial arrangements are fully optimised.
Access to assets is not always immediate
For many individuals, the family home represents the largest asset. While it contributes to overall wealth, it is not immediately accessible.
Selling property takes time. In the interim, families may need to fund aged care costs without having access to those proceeds.
Accommodation payments and liquidity pressure
Residential aged care can involve accommodation payments such as a refundable accommodation deposit (RAD) or a daily accommodation payment (DAP).
A RAD requires a lump sum payment, which can place significant pressure on cash flow if funds are not readily available. For residents entering care from 1 November 2025, it is important to note that under the new Aged Care Act 2024, providers retain a small portion of the RAD — calculated at 2% per annum of the daily balance — with deductions ceasing after five years. This means the RAD is largely, but no longer fully, refundable on exit for new residents.
Alternatively, choosing a DAP involves ongoing payments, which can also impact cash flow depending on income and available resources.
The role of government assessments
Means testing and eligibility
Government support for aged care is determined through income and asset assessments. These assessments influence the level of fees payable by the individual.
The process of assessment and approval can take time and outcomes are not always known immediately.
Delays and uncertainty
While government systems provide essential support, they can also introduce delays in determining funding levels and care arrangements.
This uncertainty can make it difficult for families to plan cash flow effectively in the short term.
Where families commonly experience pressure
Asset-rich but cash-poor scenarios
It is common for individuals entering aged care to have significant assets but limited liquid funds.
This creates a situation where:
- there is sufficient wealth overall
- but insufficient cash to meet immediate obligations
Timing mismatches
Examples of timing mismatches include:
- needing to secure an aged care placement before selling a property
- funding accommodation payments while waiting for asset realisation
- managing ongoing care fees while financial arrangements are being finalised
Decision-making under pressure
When decisions are made quickly, there is a higher risk of:
- selecting a funding option that is not optimal
- triggering unnecessary tax or financial consequences
- locking in structures that are difficult to change later
Why early planning is critical
Planning before care is needed
The most effective aged care strategies are developed before care is required.
Early planning allows families to:
- assess asset structures
- consider liquidity options
- model different funding scenarios
Structuring for flexibility
Having flexibility in how assets are held and accessed can reduce pressure when decisions need to be made.
This may include:
- understanding how assets are treated under aged care means testing
- considering how funds can be accessed when required
- ensuring appropriate financial arrangements are in place
Understanding available options
There are multiple ways to structure aged care payments, including combinations of lump sums and ongoing payments.
Understanding these options in advance allows families to make informed decisions rather than reactive ones.
Practical considerations for families
Review your current position
Understanding your current financial position is the first step. This includes:
- identifying liquid assets
- reviewing property ownership
- assessing income sources
Consider short-term funding needs
Even if long-term funding is secure, short-term cash flow needs must be addressed.
This may involve:
- bridging strategies
- access to funds prior to asset sales
- planning for initial accommodation payments
Seek clarity before decisions are made
Given the complexity of aged care funding, professional advice can help ensure that decisions are aligned with both immediate needs and long-term outcomes.
Why this matters more today
Australia’s aged care system continues to evolve, with ongoing reforms aimed at improving sustainability and fairness.
As the system becomes more structured and means-tested, the importance of understanding financial implications increases.
Families are expected to take a more active role in managing the financial aspects of aged care, making planning and clarity more important than ever.
Frequently asked questions
Q: Why is aged care considered a cash flow issue
A: Aged care requires payments to be made at specific times, often before assets can be accessed or sold, creating a timing mismatch.
Q: What happens if funds are not immediately available
A: Families may need to rely on alternative payment methods, such as ongoing accommodation payments, or arrange short-term funding solutions.
Q: Does owning a home affect aged care decisions
A: Yes. The family home is a significant asset, but it may not provide immediate liquidity, which can impact funding decisions.
Q: When should aged care planning begin
A: Planning is most effective when done early, before care is required, allowing for better financial structuring and decision-making.
Planning for aged care with confidence
Aged care planning is not just about understanding costs. It is about ensuring that funds are available when they are needed.
Without proper planning, even financially secure families can experience pressure due to timing and liquidity constraints.
Taking a proactive approach allows for better outcomes, reduced stress and more confident decision-making when it matters most.
If you would like guidance on structuring your finances for aged care or understanding your options, our Private Wealth team is here to help. We can work with you to assess your position and develop a strategy that supports both your immediate needs and long-term financial security.
Source:
My Aged Care: https://www.myagedcare.gov.au/understanding-aged-care-home-accommodation-costs, https://www.myagedcare.gov.au/aged-care-home-costs-and-fees, https://www.myagedcare.gov.au/how-do-aged-care-costs-work
Australian Government – Department of Health, Disability and Ageing: https://www.health.gov.au/our-work/residential-aged-care/charging/basic-daily-fee, https://www.health.gov.au/our-work/residential-aged-care/charging/accommodation-payments-contributions
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General Advice Disclaimer
The information in this article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives. Whilst every care has been taken in the preparation of this article, Paris Financial Services Pty Ltd, its directors, authors, consultants, editors and any persons involved in the construction of this article, expressly disclaim all and any form of liability to any person in respect of this article and any consequences arising from its use by any person in reliance upon the whole or any part of this article.
