With an aging population, an increasing number of Australians are opting to live in retirement villages. While pitched at the ‘over-55s’, the average age of entry is 74, and average age of residents is 81. Depending on the retirement villages, attractions include having home maintenance issues taken care of, more social contact, access to recreational facilities and on call assistance in case of medical emergency. Moving to a retirement village can also free up capital to support living costs in retirement. But let’s take a closer look at retirement village costs and the financial advice you need before moving ahead.
These benefits all come at a cost, of course, and the type and amount of fees can vary enormously from village to village. There are also several different types of ownership or occupation rights or ‘tenure’. Most commonly, residents pay the market price of a unit in exchange for a long-term lease, or pay an upfront fee for a licence to occupy. Straight rental arrangements, often for serviced apartment-style accommodation, are also available in some villages.
Lots of fees
While there are many ways in which retirement villages structure their fees, the most commonly encountered include:
1. Getting In: Early Costs
Waiting List Fees
Some villages charge a small fee just to join the waiting list. This doesn’t secure you a unit, but keeps your name in the queue. It’s usually refundable, but always check the policy.
Ingoing Contribution
This is the major upfront cost. It may be called a loan, purchase price, or refundable deposit. The amount can vary widely depending on location and type of unit. You don’t get ownership, just the right to live there.
2. Living Costs: Ongoing Fees
Maintenance Fees
A regular (often monthly) fee that covers the running of the village which includes staff wages, gardens, shared facilities, building maintenance and insurance on common areas.
Personal Services Fees
Extra charges for optional or needs-based services like meals, laundry, cleaning, or personal care. These can add up quickly depending on your level of support.
3. Daily Essentials: Additional Charges
Utilities
Electricity, gas, water, internet and similar services may be billed separately. Some villages include certain utilities in maintenance fees, but many don’t, so costs vary.
Share of Capital Gain
On selling your unit or ending your contract, some villages take a percentage of any capital gain. This can significantly affect what you receive back.
4. Moving Out: Departure Costs
Deferred Management / Exit Fees
One of the biggest traps. This is a fee charged when you leave the village—often a percentage of your ingoing contribution for each year of residence, capped at a maximum.
Refurbishment Fees
Many contracts require you to pay for repainting, new carpets, and other refresh work before your unit can be resold. Costs depend on village standards and the length of stay.
On the other hand, when you leave the village you will receive the proceeds of selling your unit less any exit fees. However, depending on the prevailing market it can be many months before the final payment is received.
Some of these fees can be better understood by way of an example.
John and Wendy’s experience
John and Wendy are in their late 70s when they decide to downsize from the family home. They are attracted to the retirement village lifestyle by the recreational facilities and social opportunities, plus the availability of personal care should they require it in the future.
- They pay $400,000 for the right to occupy a unit. The monthly maintenance fee is $600. Eight years later they both need to move to aged care so need to sell their unit. It is now worth $600,000.
- Their exit fee (deferred management fee) is 4% of their purchase price for each year of occupancy (capped at 40%). In this case it amounts to 32% of the purchase price, or $128,000.
- In their village the resident’s share of any capital gains is 50%, so the village operator takes a further $100,000.
- John and Wendy therefore come away with a total of $372,000 ($600,000 – $128,000 – $100,000).
This is just one simplified example, and even slightly different circumstances can lead to a very different result when it comes to the costs of retirement villages.
While it may seem a poor result for John and Wendy to pocket less than the purchase price after eight years, the decision to enter a retirement village is more about lifestyle and services rather than just about financial returns.
Centrelink considerations
If your entry contribution is more than the extra allowable amount (the difference between non-home owner and home owner assets test threshold) Centrelink will classify you as a home owner. This applies to most people. Anyone assessed as a non-home owner may be eligible for rent assistance, with the amount based on the ongoing fees.
Major event
Moving house is a major and stressful life event at the best of times. With their varying fees and ownership structures, a move into a retirement village may be even more complicated. That’s no reason to dismiss the idea – many retirement village residents report an increase in their happiness as a result of making the move. However, entering a village has major financial consequences, give us a call on 07 3162 1449 or fill in the form below, to see how we can assist you with the costs of retirement villages.
This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.
