Retirement village living can often enable you to get into a newer home that is more suited to your lifestyle, at an affordable price.
A unique advantage of retirement village living is, in many cases, the ability to defer a large part of the cost until after you leave a village. However, a retirement village is usually not suitable if you require a high level of care.
To be sure that retirement living is for you, it’s very important to be clear about your current financial circumstances. There are many different contract models and you should ensure you fully understand the costs and structure of any agreement entered into.
Where you pay an agreed amount to a former resident or the operator, and then own the unit. You usually also need to enter into a service agreement with the operator.
Loan and Licence
May be offered by not-for-profit organisations such as churches. You usually pay a contribution in the form of an interest-free loan.
Where the lease is usually registered on the title deed, which protects you if the village is sold. You pay a lump sum for the leasehold.
All payments made before, during and after living in a retirement village must be specified in the entry agreement contract. There are generally three different types of costs associated with living in a retirement village under these contract arrangements:
The Entry Fee or Purchase Price
There are large variations in entry fees for retirement villages, depending on factors including location, facilities, the age and condition of the unit, and other fees to be paid.
Service, Maintenance or Ongoing Fees
Whilst the services these fees cover may sometimes change, the main problem is that ongoing fees can increase beyond your expectations (and budget). Even if you have left the village, you may be charged some fees until your property is sold or occupied.
Generally there is a maximum amount of time that ex-residents are liable for fees after leaving, ranging from 42 days in NSW and the ACT, up to 9 months in Queensland and years in South Australia.
The Exit Fee, also known as a Departure Fee or Deferred Management Fee
This can be very complicated and may include one-off and/or annual charges for a set period of time. It can take a long time before you receive your exit entitlements, often this depends on how soon your unit is resold.
Alternatively, some retirement villages have a rental agreement, and usually only charge rent.
Note that Centrelink considers that your entry contribution includes all amounts you must pay when you move into a retirement village. It does not include ongoing fees and charges for services and facilities.
The amount of entry contribution you pay depends on whether Centrelink considers you to be a ‘homeowner’ and if you will still be eligible to receive rent assistance. This figure is called the ‘Extra Allowable Amount’ and is the difference between the non-homeowner and homeowner assets test thresholds at the time the entry contribution is paid.
If you are not considered a homeowner, your entry contribution is included as an asset. It is not classed as a financial investment and income will not be deemed. You can visit the Centrelink website for more information.
If you’re thinking of moving into a retirement village, as well as checking the contract, consider:
- Discussing your decision with family and friends
- Visiting a number of retirement villages to compare services, facilities and financial arrangements to help ascertain:
- Will the services and facilities at the village still be suitable as your needs change? E.g. are there any stairs, are the paths easy to access?
- Is there adequate parking for visitors?
- Can you access local facilities such as GPs, shops, hospitals, libraries, churches, clubs and public transport?
- Can you alter the inside of premises? E.g. in the event you need a wheelchair.
- Can you have someone stay over for a visit or move in?
- Can you have a pet?
- Are the grounds pleasant and well-tended?
- What security arrangements are in place? E.g. is there sufficient external lighting?
Nursing homes are sometimes located within retirement villages – but you need to remember that as nursing home places are regulated by the Federal Government, their allocation is determined on a needs basis, rather than whether you are an existing village resident.
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The information in this article is of a general nature only and should not to be taken as a recommendation as it might be unsuited to your specific circumstances. The contents herein do not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making any financial or other decisions.
BND Financial Pty Ltd and InterPrac FP directors and advisers may have investments in any of the products discussed in this article or may earn commissions if InterPrac clients invest or utilise and any services featured. Your InterPrac FP adviser or other professional advisers should be consulted prior to acting on this information. This disclaimer is intended to exclude any liability for loss as a result of acting on the information or opinions expressed.