A lifetime annuity does not reduce your ability to fund aged care — and often improves it. Only 60% of the amount you invest is counted by the assets test until age 84 (30% after that), and just 60% of the income counts. Because aged care fees use the same assessment, the concession can lower your means-tested care fee while the guaranteed income helps pay for care.
For many people approaching retirement, a lifetime annuity can feel like a one—way door. You hand over a slice of your savings and, in return, receive an income for life — but the capital has left your account. So a fair question follows: if I ever need aged care, have I just locked away the very money I might need to pay for it?
It is one of the most common hesitations we hear, and the intuition is understandable. Yet the way annuities are treated by the rules tends to work the other way. Used in moderation, a lifetime annuity can make future care more affordable, not less.
How is a lifetime annuity actually assessed?
This is where the surprise lies — a lifetime annuity is not counted at face value. Under the rules for lifetime income streams, Centrelink assesses:
- 60% of the amount you invested under the assets test, until you turn 84 — then just 30% for the rest of your life.
- 60% of the income it pays you under the income test.
In other words, from day one a large part of the money simply isn’t counted. Compare that with leaving the same amount in an account—based pension or the bank, where the full balance is assessed.
Why does that matter for aged care?
Because aged care uses the same means assessment. The fees you pay in residential care — the means—tested care fee and your accommodation contribution — are calculated from your assessable income and assets. Since only part of an annuity counts, that concession flows straight through to those calculations.
The guaranteed income helps pay for care, while the discounted asset value can lower what the means test says you must contribute.
There is a second, quieter benefit. Because an annuity lets you draw a little less from your other savings each year, more of your account—based pension can stay intact — ready for the day a large cost, such as an accommodation deposit, arrives.
The catch: keep enough within reach
None of this means annuitising everything. Residential aged care often asks for a Refundable Accommodation Deposit (RAD) — a lump sum that can run to several hundred thousand dollars. (You can instead pay a daily equivalent, the DAP, but many people prefer the refundable lump sum.) To meet it you need accessible capital, or a home to sell. A lifetime annuity is one instrument in a plan — a foundation of guaranteed income — not the whole plan. The art is in the proportion.
The risk an annuity is really built for
Aged care makes one retirement risk especially sharp: outliving your money. Care can be needed for years, and the costs do not stop. An income that keeps arriving no matter how long you live — and no matter what markets do — is precisely the thing that steadies a plan in those later years.
The bottom line
Putting money into a lifetime annuity today does not, in itself, compromise your ability to fund aged care tomorrow. The concessional treatment, the guaranteed cash flow and the preservation of your other savings usually pull in the same direction — toward more security, not less. The real questions are how much to allocate, and when. Those are worth talking through with an adviser who can see your whole picture.
Key takeaways
- Lifetime annuities get concessional means-test treatment: the assets test counts only 60% of the amount invested until age 84, then 30% for life.
- Only 60% of the income an annuity pays is counted under the income test.
- Aged care fees use the same means assessment, so that concession can reduce your means-tested care fee rather than raise it.
- The trade-off is liquidity — you still need accessible capital for a Refundable Accommodation Deposit (RAD), so an annuity is one part of a plan, not the whole of it.
- Guaranteed lifetime income also guards against outliving your savings, the risk aged care makes most acute.
Frequently asked questions
Does money in a lifetime annuity count for the aged care means test?
Only partially. Lifetime income streams are assessed concessionally: 60% of the amount you invested counts under the assets test until age 84, then 30% for life, and 60% of the income counts under the income test. Aged care uses this same assessment, so the concession carries through to your care fees.
Will a lifetime annuity stop me affording a Refundable Accommodation Deposit (RAD)?
It can if you annuitise too much. A RAD is a large refundable lump sum for your room in residential care, so you need to keep enough accessible capital (or a home to sell) to meet it. A lifetime annuity should be sized as one part of a broader plan, leaving liquidity for costs like a RAD.
How does a lifetime annuity affect my Age Pension?
Because only 60% of the purchase amount (30% from age 84) and 60% of the income are assessed, a lifetime annuity is often treated more kindly by the means tests than cash or an account-based pension. For many retirees that means a higher Age Pension entitlement and better overall cash flow.
Is a lifetime annuity the right choice for everyone?
No. The right amount — or whether to use one at all — depends on your income needs, other assets, health and estate plans. This article is general information only; the decision should be made with personal financial advice tailored to your circumstances.