Could moving into a retirement village save you money?

Figuring out where you’re going to live in your later years is a question most of us face at some point. Do you stay in your own home — or sell up and move to a retirement village? What’s going to be best for your quality of life and your financial position? These are million-dollar questions, literally, for many aged 50 and over.

Staying put might be a no-brainer, especially if you can afford to bring in aged care support when you need it. For others, the lure of an “easy life” in a retirement village is tempting — especially considering many of them suggest they’d give a five-star holiday resort a run for its money.

According to the PwC Property Council Retirement Census, there’s great affordability in the latter — right now, anyway. The report states that the average independent living unit (ILU) in a retirement village costs less than 70 per cent of the median price of a house in the same postcode, enabling you to unlock capital to live on comfortably.

However, the Census also claims that retirement villages across Australia were at 93 per cent capacity in 2016, which could drive those prices up in the future unless state governments work to encourage the development of new villages across major cities and beyond.

If retirement village living is something you’re considering, it’s crucial to do your homework and go through the contract carefully, says Michael Miller, Principal and Financial Adviser at MLC Advice Canberra.

“It’s really important to check in with a financial planner and ask them some key questions about the impact on your aged pension entitlements if you do move to a retirement community — and get the contract assessed,” he says.

“You should also ask what your investment will look like if you exit after five years — or ten. It can be cheaper to stay in your home but retirement villages also take a lot of responsibility off your hands, including maintenance of your property. They also provide a built-in social network which can be beneficial for your health as you age. Despite the negative press, there are a lot of happy residents in retirement villages around the country.”

The fine print
While it may cost less to buy an independent living unit at a retirement village, be aware of impacts on your pension, costs along the way, and the price you might be looking at when you sell — which is likely to be substantially less than the sale of a non-retirement unit in the same area. Some contracts even require refurbishment on exit, with costs falling to the owner.

“A lot of people treat buying an independent living unit like buying their last house — like a normal property purchase — but it is substantially different and there’s a huge amount of variety amongst operators in the independent living space,” explains Miller.

“You need to know upfront how they’ve structured the contract, and understand what your entry price is going in, how the exit value is worked out, and then what your ongoing fees are.”

Ongoing fees
“A retirement village will have its ongoing fees but the alternative — your own home or an apartment with a body corporate — isn’t likely to have the same sort of social services, things like common rooms or transport services,” says Miller. “Those things you’ll need to budget for separately if you’re not living in a retirement village.”

Impacts on your pension
“Quite often, people don’t consider this, but if you’ve been receiving a full pension, and you sell your house and don’t spend as much on the retirement village — that extra money from the sale of your house will count towards your aged pension,” explains Miller.

“So, you might lose your pension or have it reduced — if you have extra cash, you can plan for it, but it’s good to know in advance that it might happen. That way, you can plan how you’re going to replace that income, rather than selling the house on a Sunday, going down to Centrelink the following month, and finding you’ve lost your entire pension.”

Paying to preserve your pension
Some providers will allow you to pay more upfront, so you pay less in deferred management fees, or a departure fee, he adds.

“In this case, upfront payment for a retirement village is an exempt asset for aged pension purposes. So, say you paid an extra $100,000 upfront, it might actually increase your aged pension by $7,800 a year.”

Selling fees
“A lot of facilities charge deferred management fees when you go. The other part is how much you’ll receive when you sell — a guaranteed sort of exit price. Sometimes, if you have an ILU in a desirable location, it might have good growth, but if it’s ten years old and they’ve just opened a new one next door, or in the same area, there’s a possibility of a loss.”

Considering the future
If you’re going into a retirement community as a couple, one of the big motivators is choosing a tiered establishment with a residential aged care section, so when you or your partner needs that extra care, you can still be together, says Miller.

“And if you’re thinking, ‘well, I’ll get an independent living unit now, but I’ll probably be in the aged care facility at some stage’, then you need to look at evaluating the residential aged care side of it, too. That means looking at the quality of care provided, the staff-to-client ratio, the provision of food, and so on,” he adds.

Because retirement villages are regulated by State and Territory governments, and residential aged care is regulated by the Federal government, you’re not guaranteed a place when you need it. “However, a lot of operators do try to contact residents of their associated villages first when they have a vacancy and put a lot of effort into trying to keep people together.”

Do you plan to move into a retirement village, or stay in your home as long as you can?

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