Aged care: The next big test in retirement strategy

Aged care is no longer a niche concern tucked away at the periphery of retirement planning. It is rapidly emerging as the next big test of retirement strategy.

For years, financial advisers have built strategies around two central pillars: wealth accumulation and retirement income. But there is a third, often overlooked, dimension that is quickly moving to the forefront - aged care readiness.

With Australians living longer and entering extended periods of frailty (representing between 17 and 25 per cent of retirement), clients are increasingly facing the challenge of navigating one of the most complex, emotionally charged, and financially significant decisions of their lives.

Aged care is one of the most critical challenges facing older clients and their families, and one that will test the depth of professional advice more than almost any other retirement issue. Advisers who fail to integrate aged care into their planning frameworks risk leaving clients and businesses exposed.

The hidden fears of retirement

While advice often focuses on investment returns, contribution strategies, and pension structures, older clients may be preoccupied with something else entirely.

Surveys reveal a striking misalignment between advice and client concerns and paint a sobering picture. According to AMP’s client survey (Nov 2024):

UNPREPARED
More than 80% of surveyed clients feel unprepared for the costs of aged care.

FUNDING
70% worry about how they will fund aged care - with 30% concerned about passing the burden on to their children.

UNAWARE
Half of the surveyed clients admit they do not know what government support is available.

Even among high-net-worth retirees, there is a tendency to dismiss aged care as an issue that can be solved later (or avoided) - or it is assumed to be manageable simply by virtue of having wealth. The reality is that costs are escalating sharply, and the complexity of the system means that preparation, not affluence, may determine outcomes.

The cost pressures are undeniable

The financial burden of aged care has grown considerably in recent years and will continue to do so under the new framework which commenced on 1 November 2025.

Consider the cost of a room in residential care. As at July 2025, the average Refundable Accommodation Deposit (RAD) for a room is $572,589 - an increase of 8.7% since the start of the year. The real cost will continue to increase now that residential care providers will be required to retain 2% of the RAD each year for the first five years. On the current average deposit, this equates to a retention of up to $54,532.

Daily living and care expenses are also on the rise. From November, the maximum daily living fee payable by residents may increase by up to $22.15 (as a hotelling contribution), potentially adding almost $8,085 to annual costs. The maximum fee for care contributions will climb by a further $8.76 per day, potentially adding another $3,196 per year onto the bill.

Home care is not immune from rising costs. Under the current system, a self-funded retiree might pay up to $19,057 per year in basic and income-tested fees. But under the new “Support at Home” model, the same retiree could face annual costs up to $56,160 (depending on care needs and choices made).

These changes cement aged care as a material cost centre within retirement planning, rather than an incidental expense. For advice, this shifts the equation: just as longevity risk and sequencing risk demand active management, so too does frailty risk.

When strategy meets lived reality

The financial and legal challenges of aged care are best illustrated through examining real-life case studies (names changed).

One considered solution was unconventional.
Divorce.

As a single person, Nigel’s means-testing would not include Elsie’s income or share of assets, and the care fees could be substantially reduced, as well as qualifying Nigel for the Age Pension.

Consider the situation of Nigel, a 74-year-old man who, after suffering a second stroke, was left vision impaired and cognitively diminished. His wife Elsie, a 68-year-old psychologist earning $250,000 annually, suddenly faced the reality that her husband needed to move into residential care.

The RAD charged for the room was $750,000, and if fully paid as a daily fee, the total care fees for Nigel amounted to $116,239 per year - including $59,164 in care costs plus the room cost as a daily fee. If assessed under the new rules from November, the total cost would be higher at $122,875 per year.

For a household that owned a $1.2 million home, mortgaged office premises valued at $330,000, superannuation of $160,000, and part ownership of their son’s home, the challenge was not a lack of assets but how to structure them to fund care while preserving Elsie’s ongoing financial security and family interdependencies.

One considered solution was unconventional: divorce. As a single person, Nigel’s means-testing would not include Elsie’s income or share of assets, and the care fees could be substantially reduced, as well as qualifying Nigel for the Age Pension. The strategy promised a saving of more than $61,000 annually but this needed to be offset with consideration for other factors such as emotional realities, elder abuse, transaction timing, impact on the former home and property settlements.

While not the right path for every family, it is an example that demonstrates how aged care forces advisers to think beyond conventional approaches, but there is always the need to consider a range of options and trade-offs. In this example, consideration could also be given to alternatives such as hardship applications, eligibility for blind pension, the strategic use of Daily Accommodation Payments (DAPs) funded through home equity or continuing with support at home.

This case also highlights the critical role of lawyers and accountants, working with the financial adviser. Structuring property ownership, ensuring powers of attorney are valid, and navigating the delicate balance between financial pragmatism and family cohesion requires careful legal and taxation oversight.

Family entanglements and legal risk

Another case study (names changed) underscores the intersection of aged care and family dynamics. Bernadette, a self-funded retiree, faced the need for residential care just as her daughter Kaylene was going through a marriage breakdown. Bernadette had withdrawn funds from her SMSF to purchase a 30 per cent share in her daughter’s home (to help with her daughter’s property settlement), while continuing to live in her own property with her son. Kaylene, acting as Enduring Power of Attorney, now had to juggle her mother’s care needs with her own financial pressures.

The result was a tangle of competing interests. The SMSF withdrawal reduced Bernadette’s liquidity, compromising her ability to pay for aged care, but did not reduce her assessable assets due to gifting and deprivation provisions. As enduring power of attorney, Kaylene faced significant conflicts of interest. The family as a whole faced uncertainty about how to fund Bernadette’s care without destabilising their own home arrangements.

This scenario is a reminder that aged care advice cannot be confined to spreadsheets and projections. It requires a deep understanding of family structures, legal duties, and the potential for disputes. Lawyers must ensure that enduring powers of attorney are drafted and exercised with integrity, and that conflicts of interest are identified and managed. Financial advisers must be equally alert, guiding clients away from decisions that may jeopardise future funding or expose attorneys to allegations of misconduct.

Broadening the advice framework

What these cases show is that aged care advice cannot be a bolt-on at the eleventh hour. It must be woven into the retirement advice process from the outset.

For advisers, this requires stress-testing client retirement strategies against future aged care needs in the same way that we stress-test portfolios for inflation or market downturns. This means considering not just whether clients will have “enough” to retire, but whether their portfolio has the liquidity and flexibility to fund future care and whether estate plans will withstand the strain of unexpected care needs.

For lawyers, it means ensuring that documents such as wills, enduring powers of attorney, and guardianship arrangements anticipate aged care. It means being prepared to advise on appropriate strategies, while safeguarding against the risks of elder abuse or unintended financial difficulty.

The risks of inaction

The consequences of ignoring aged care are profound. Clients who delay planning may be forced to sell assets under duress, crystallising tax liabilities and undermining estate equalisation. Families may fracture under the strain of competing interests, particularly where powers of attorney are exercised without proper oversight.

And in the absence of professional guidance, many clients turn to “unlicensed advice” from providers, well-meaning family members, or online forums — with results that are often damaging, both financially and emotionally.

A call to action

Retirement planning and advice is at a turning point. Just as the introduction of compulsory superannuation reshaped retirement planning in the 1990s, so too will the growing demand for aged care reshape retirement planning in the decades ahead. The advice professionals who recognise this shift — and who are willing to engage with the complexity of aged care — will be the ones who deliver the most value to clients and add to business growth.

The message is clear: aged care is not optional. It is a core component of modern superannuation and retirement advice, that demands coordination between financial advisers, accountants and lawyers.

Advisers will require technical knowledge, strategic competence, and a willingness to confront uncomfortable truths. Lawyers require vigilance, compassion, and a readiness to bridge the gap between legal frameworks and family realities.

As the next big test of retirement strategy, the question is not whether clients will face aged care considerations, but whether they will face them well-prepared or unprepared. And that, ultimately, depends on the quality of the advice they receive.

For financial advisers, accountants and lawyers, aged care planning represents both a responsibility and an opportunity. Professionals who sidestep aged care leave clients exposed to financial hardship, poor decision-making, and legal vulnerability.

By shifting the lens from “retirement adequacy” to “aged care readiness,” we can ensure clients face the frailty years with dignity, control, and financial security.

Louise Biti, Director Aged Care Steps

Disclaimer: The information in this article is general and does not take into account any client’s particular circumstances. We recommend specific financial tax or legal advice be sought before any action is taken to apply the rules to a client’s specific circumstances. Refer to the relevant Product Disclosure Statement before investing in any product. Aged Care Steps ABN 42 156 656 843 is holder of AFSL 486723. Current as at 1 November 2025.