Retirement Villages Unpacked: Navigating Costs, Contracts, and Care — by Noel Whittaker
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Noel Whittaker is the author of Wills, Death & Taxes Made Simple and numerous other books on personal finance. Email: [email protected]
With the festive season just around the corner, you can expect family gatherings to bring up tricky conversations — like whether it’s time to think about moving to a retirement village. It’s a decision that can work out brilliantly, but the initial chats can get so complicated that everyone just throws it in the ‘too hard’ basket.
There are fees at every stage: when you move in, during your stay, and upon departure. Exit fees, in particular, can be a maze of complex calculations involving a share of your original purchase price or the future sale price, potential capital gains or losses, renovation expenses, sales commissions, and guaranteed buybacks if your unit doesn’t sell within a set time frame. The complexity only deepens when comparing different payment structures, properties, or retirement villages.
And the price you pay for your home in a village carries other financial impacts, notably on your age pension. Many retirees eyeing a move hope to unlock equity from their existing homes, but cashing out too much can harm their pension entitlements. Under the assets test, a single homeowner can hold up to $314,000 in assets before their pension begins to taper, while couples can have $470,000 between them. Surpassing these limits will reduce pension benefits at a rate of $7,800 per year for each $100,000 of assets. Replacing that lost income can be a significant challenge.
For some downsizers, moving into a retirement village will make them eligible for rent assistance for the first time. This assistance comes as an added supplement to the pension, allowing singles to receive up to $5,491 per year and couples up to $5,174 each annually on top of their pension. However, the eligibility and structure of rent assistance can vary depending on the type of village you choose and the specifics of your contract.
In a land lease community, the rent assistance is calculated based on the site fees you pay — the rent for the land where your home is located. On the other hand, in a traditional retirement village, to qualify for rent assistance on the ongoing village fees, the cost of your unit must be below $252,000.
The pension — and potentially rent assistance — will form one part of your retirement cash flow. The other key component will be the income generated from your investments. For most, this income predominantly comes from superannuation. It’s also worth noting the availability of lifetime income stream products, which can provide guaranteed income for life while boosting your pension.
In the long run, you’ll need to factor in how a move impacts your aged care costs. If you are receiving or plan to receive a home care package, it’s essential to calculate how relocating will affect your required contributions. The leading reason retirees leave a retirement village is to transition into aged care, so understanding the terms of your exit — including any buyback arrangements and how quickly funds are returned — is crucial, as your next move could be into an aged care facility.
Village Guru software, developed by Rachel Lane, provides a detailed report outlining the upfront, ongoing, and exit costs of the village you are considering, as well as estimated age pension and rent assistance entitlements and home care package contributions. With the ability to compare up to three different options side by side, Village Guru allows you to evaluate various payment plans, units within a village, or even different villages altogether. Ask any retirement village you are considering for a Village Guru report on how their offer would work for your specific circumstances.
Obtaining legal and financial advice from professionals who specialise in this area is also a wise investment. Like most significant life decisions, moving to a retirement village requires thorough deliberation before committing. It’s a step that can have profound financial and personal implications. These experts can help you navigate complex contracts, assess your options, and ensure that your choice aligns with both your current financial situation and your future needs.
About the author: Noel Whittaker, AM, is the author of Wills, death & taxes made simple and numerous other books on personal finance. An international bestselling author, finance and investment expert, radio broadcaster, newspaper columnist and public speaker, Noel Whittaker is one of the world’s foremost authorities on personal finance. Connect via Twitter or email ([email protected]). You can shop his personal finance books here.
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Always seek professional advice that takes into account your personal circumstances before making any financial decisions.
With the festive season just around the corner, you can expect family gatherings to bring up tricky conversations — like whether it’s time to think about moving to a retirement village. It’s a decision that can work out brilliantly, but the initial chats can get so complicated that everyone just throws it in the ‘too hard’ basket.
There are fees at every stage: when you move in, during your stay, and upon departure. Exit fees, in particular, can be a maze of complex calculations involving a share of your original purchase price or the future sale price, potential capital gains or losses, renovation expenses, sales commissions, and guaranteed buybacks if your unit doesn’t sell within a set time frame. The complexity only deepens when comparing different payment structures, properties, or retirement villages.
And the price you pay for your home in a village carries other financial impacts, notably on your age pension. Many retirees eyeing a move hope to unlock equity from their existing homes, but cashing out too much can harm their pension entitlements. Under the assets test, a single homeowner can hold up to $314,000 in assets before their pension begins to taper, while couples can have $470,000 between them. Surpassing these limits will reduce pension benefits at a rate of $7,800 per year for each $100,000 of assets. Replacing that lost income can be a significant challenge.
Do you plan on moving into a retirement home? Image Credit: Shutterstock
For some downsizers, moving into a retirement village will make them eligible for rent assistance for the first time. This assistance comes as an added supplement to the pension, allowing singles to receive up to $5,491 per year and couples up to $5,174 each annually on top of their pension. However, the eligibility and structure of rent assistance can vary depending on the type of village you choose and the specifics of your contract.
In a land lease community, the rent assistance is calculated based on the site fees you pay — the rent for the land where your home is located. On the other hand, in a traditional retirement village, to qualify for rent assistance on the ongoing village fees, the cost of your unit must be below $252,000.
The pension — and potentially rent assistance — will form one part of your retirement cash flow. The other key component will be the income generated from your investments. For most, this income predominantly comes from superannuation. It’s also worth noting the availability of lifetime income stream products, which can provide guaranteed income for life while boosting your pension.
In the long run, you’ll need to factor in how a move impacts your aged care costs. If you are receiving or plan to receive a home care package, it’s essential to calculate how relocating will affect your required contributions. The leading reason retirees leave a retirement village is to transition into aged care, so understanding the terms of your exit — including any buyback arrangements and how quickly funds are returned — is crucial, as your next move could be into an aged care facility.
Village Guru software, developed by Rachel Lane, provides a detailed report outlining the upfront, ongoing, and exit costs of the village you are considering, as well as estimated age pension and rent assistance entitlements and home care package contributions. With the ability to compare up to three different options side by side, Village Guru allows you to evaluate various payment plans, units within a village, or even different villages altogether. Ask any retirement village you are considering for a Village Guru report on how their offer would work for your specific circumstances.
Obtaining legal and financial advice from professionals who specialise in this area is also a wise investment. Like most significant life decisions, moving to a retirement village requires thorough deliberation before committing. It’s a step that can have profound financial and personal implications. These experts can help you navigate complex contracts, assess your options, and ensure that your choice aligns with both your current financial situation and your future needs.
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Always seek professional advice that takes into account your personal circumstances before making any financial decisions.
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